Do you use your car for work, perhaps to visit customers or clients? If so,
you may be entitled to deduct the business portion of your operating expenses
from your income when you file your tax return. To be eligible for the
deduction, however, you must meet certain conditions and have the necessary
supporting documentation.
Many employees who otherwise might be eligible to claim their motor vehicle
expenses choose not to do so if their employer provides them with a
per-kilometre reimbursement for driving during the course of their jobs. As long
as this allowance is "reasonable," it does not have to be included in your
income and thus is tax-free.
That, of course, begs the question: What is "reasonable"?
According to the Canada Revenue Agency, for 2005, the limit of what is
reasonable is 45 cents per kilometre for the first 5,000 kilometres and 39 cents
thereafter (higher limits apply in the territories).
If you determine that the allowance your employer pays, although reasonable,
is insufficient to cover the actual costs of operating your vehicle, you can
deduct the business portion of your actual operating expenses as long as you
include any allowance you receive from your employer in your income. You must
also complete Form T2200, Declaration of Conditions of Employment, which has to
be certified by your employer acknowledging your employer's requirement that you
use your car for work.
It's the Canada Revenue Agency's long-standing administrative policy to
require that a record be kept of the total distance travelled during the year as
well as the distance travelled for business purposes. While some taxpayers
estimate the percentage of business use of their vehicle without actually
tracking it, this may not hold up in court.
In fact, in a tax case decided last fall, a financial advisor was reassessed
on the business use of his automobile, claiming he drove it 80% of the time for
"business use" but kept no log book to track his mileage, instead using "round
figure estimates" for business kilometres driven in the year.
The judge denied his vehicle expenses, admonishing the taxpayer: "I do not
think it is a particularly onerous task for a person claiming employment
expenses to keep a record and separate receipts as well as a log book of
automobile expenses. That was not done and the evidence, even on the most
relaxed and liberal view, does not permit me to find in [his] favour."
Which brings us to today's lesson: If you use your vehicle on the job, and
plan to claim expenses on your income tax return, keep a logbook. Your log could
take the form of a simple notebook, kept in the glove compartment, in which you
diligently record your business kilometres daily. Alternatively, you could
purchase a commercially available log book, such as the Blueline Mileage Log and
Expense Book, available at STAPLES Business Depot.
Finally, the lack of a logbook may one day cost you more than simply the lost
tax deduction. In what may be a foreshadow of things to come federally, Quebec
taxpayers who use an employer-provided vehicle for business purposes in 2005
must remit their logbooks to their employer by January 10, 2006, or face a $200
fine for failing to do so.