Tax Advice: Obtaining Business Vehicle Deductions

The deadline for filing tax returns is often a source of stress, with good reason! Depending on your situation, this yearly task can be quite complex. It’s important to be aware of the tax credits and deductions you’re eligible for in order to give yourself the best financial outcome. For example, did you know that you can get tax deductions for using a business vehicle?

In this article, discover some tips on how to take advantage of these deductions!

Deductions for self-employed workers who use their own vehicle for business

Determining the tax deductions a self-employed worker is entitled to is fairly simple. You will need to deduct the portion of your motor vehicle expenses and fees related to business use.

Keep track of your motor vehicle expenses

In order to keep track of all the expenses related to the business use of your vehicle, you must remember to keep all of your receipts, which will serve as proof for the Canada Revenue Agency (CRA) and Revenu Québec.

To prove that you use the vehicle for business purposes, you’ll also need to keep a record of all work-related travel. The record should include the following information:

• The date of travel
• The destination
• The reason for the trip
• The number of kilometres travelled
• The number of kilometres on the odometer

If you change vehicles over the course of the fiscal year, record the mileage and the date when the change was made.

This record constitutes vital proof that you use your vehicle for business purposes. Without it, government officials from the CRA or Revenu Québec may find your claim incomplete and decide to give you only a small deduction for your expenses, or none at all.

Other deductible motor vehicle expenses

The following deductions only apply if you need to use your vehicle to earn business income. You can report motor vehicle expenses on line 9281 of form T2125. Expenses can include:

• License fees
• Registration fees
• Insurance premiums
• Interest on the car loan
• Maintenance and repairs
• Leasing costs

The tax deductions you are eligible for will depend on the type of vehicle you use. The amounts will vary depending on whether it’s a motor vehicle, a zero-emission vehicle, etc.

Depreciation of a business vehicle

In addition to the expenses related to maintaining and repairing the vehicle, it is also possible to deduct depreciation in the form of capital cost allowance (CCA) if the vehicle is used for business purposes. The government allows businesses to deduct these expenses from their income. It establishes the amount that can be deducted as an expense on an annual basis. The CCA rate allowed is 15% of the purchase price of the car and 30% of the remaining balance for the following years.

It’s important to note that depending on the price of the vehicle, there may be a limit to the amount you can claim.

Deductions for employees who use a business vehicle

If you are an employee, your employer may ask you to use your personal vehicle for business purposes or provide you with a company car. The two cases differ in terms of tax deductions and it’s important to be aware of the details.

If you use your own vehicle

In most cases, employees who use their own vehicle for work purposes receive a tax-free allowance based on the number of kilometres they drive for business travel.

The alternative is to deduct operational expenses directly from your employment income. As with self-employed workers, you can deduct a variety of expenses if you keep a record of your trips and your claims are proven and justified. Your employer will need to give you CRA T2200 and Revenu Québec TP-64.3-V slips to prove that you use your personal vehicle for work.

If your employer provides you with a company vehicle

Using a company vehicle has much more complex tax implications than the cases described above. In such situations, it can be helpful to get support from an accounting service or tax expert to ensure that you benefit from the proper deductions and don’t make any mistakes on your tax return.

They will be able to explain the implications of using a business vehicle and help you determine the best solution for your situation.

Contact T2inc for efficient accounting and tax services

In short, tax deductions for business vehicles vary depending on your professional status. There are different calculation and declaration methods for self-employed workers and employees. Make sure to keep a complete record of your travels and retain all of the invoices that prove your business vehicle expenses. Furthermore, consider keeping a record of all maintenance and other car-related expenses. These practices will help you save money on your taxes.

At T2inc, our tax accountants have the resources to help you find the best tax solution for your business situation. Contact us for guidance on obtaining deductions for business vehicle expenses!