If you’re an employee who uses your car for work, you may be able to deduct some of your automobile expenses on your tax return, but you must meet certain conditions. First, you must normally be required to work away from your employer’s place of business or in different places. Second, under your contract of employment, you must be required to pay your own automobile expenses and this must be certified by your employer on a signed copy of Canada Revenue Agency’s Form T2200, Declaration of Conditions of Employment. Finally, to claim vehicle expenses, you must not be the recipient of a “non-taxable” allowance for motor vehicle expenses.
If your employer does reimburse you but you feel that the amount you are reimbursed was not reasonable to cover your actual operating costs of your vehicle, you can deduct the “work” portion of your actual vehicle operating expenses provided any employer vehicle allowance paid to you is included in your income. To justify your motor vehicle expense claim, it’s important to keep good records of the kilometres driven for work versus those driven for personal use. This becomes especially important if you have two or more vehicles and you don’t always drive the same vehicle for work.
A recent tax case, decided earlier this year, shows the importance of keeping good records where multiple vehicles are concerned. The case involved an Alberta employee whose employer was in the business of selling point-of-sale business devices, such as credit card readers. The taxpayer’s job was to market these devices within southern Alberta.
The taxpayer was reassessed for his 2014 and 2015 tax years in which the CRA disallowed employment expenses relating to his use of a 2011 Mercedes Benz automobile. He was also denied a claim for employment expenses related to remuneration he claimed he paid to telemarketers he had hired.
THE BENZ
The taxpayer and his wife, between them, owned three cars: a 2001 Toyota, a 2001 Nissan and the Benz, which he acquired in June 2014. His wife was employed as a nurse who worked shifts at a hospital and she drove one of their vehicles from their home to the hospital and back, each trip being a 30 to 40 minute drive.
The taxpayer testified that he primarily drove the Toyota until their mid-2014 acquisition of the Benz, which the taxpayer said was acquired primarily for his use “to look prosperous when making business visits.” While his spouse did “sometimes” drive the Benz, she primarily drove the Nissan.
The CRA had already allowed the taxpayer to deduct automobile expenses of $6,262 (2014) and $4,466 (2015) for his operation of the Nissan. He was attempting to claim additional vehicle expenses relating to the Benz of $11,000 for 2014 and $10,000 for 2015.
The court noted that on the vehicle insurance documentation filed as exhibits, it showed his wife as the principal driver of the Benz and the taxpayer as the principal driver of the Nissan. The taxpayer called this “mistaken,” and said that he, in fact, was the primary driver of the Benz while his spouse mainly drove the Nissan. When asked by the judge whether his wife ever drove the Benz back and forth for her hospital work, even on winter nights, he said no “because of concern the Benz would get dinged in the hospital parking lot.”
While the taxpayer did submit in evidence T2200 forms signed by his employer for each tax year authorizing his use of a vehicle for work, the taxpayer was unable to produce any mileage log in support of his motor vehicle expense claims. He claimed that while he had maintained one, he electronically submitted it to his employer for work purposes each month and, “apparently had not kept a copy, and subsequently could not obtain the mileage log back from his employer.” While the log would have shown monthly mileage, it would not have shown which of the couple’s cars he had used for work. The taxpayer was also unable to provide any listing of clients or referral partners and their locations that he had visited in the course of carrying out his employment duties.
The judge found that the taxpayer’s evidence was “insufficiently detailed and was non-comprehensive, including particularly as to documentation,” to allow his claim for vehicle expenses relating to the Benz. “There remains an unfortunate dearth of contemporaneous records evidencing distances and destinations of employment-related driving as opposed to other driving…. In short, (the taxpayer) has not provided an adequate evidentiary basis to support a determination as to any particular amount of expenses that could be allowed in respect of operation of the … Benz in conjunction with his employment work.”
TELEMARKETER EXPENSES
The second issue the CRA had with the taxpayer’s employment expenses related to amounts the taxpayer claimed he paid to “telemarketers” to assist him in contacting potential clients and referral entities by phone. He testified that, from time to time throughout the year, he would hire a few people, including his 17-year-old babysitter, to come to his home each day and make a series of calls to enhance his overall sales efforts. The taxpayer tended to pay them mostly with Walmart $100 gift cards, because, in his view, “these young persons … might tend to wastefully spend actual currency paid to them.”
No payroll documentation was put in evidence nor were any receipts or invoices submitted to back up such expenses. Furthermore, the two signed Form T2200s from his employer each stipulated that his contract of employment “did not require him or her to … employ a substitute or assistant.”
The judge felt that there was “a serious lack of probative evidence as to how much they were paid, who was paid, and when” and therefore denied the telemarketer expenses.