Are you considering purchasing or lease a vehicle for work? If so, you must be wondering how to claim this expense on your tax return. It is important for you to determine the cost and benefits as this may have an impact on your choice of vehicle and whether to purchase or lease.
Automobile Deduction
To qualify for vehicle expenses, you must use your vehicle to work in another location other than your regular place of business. CRA does not consider travel to and from your office/regular place of work as an eligible business trip. On the other hand, if you travel to the office, then you have sales meetings during the day where you use a vehicle to make various trips during the day, those are considered eligible tax-deductible mileage. The mileage to and from the office would be considered personal use, then mileage during the day to visit various clients would be considered business use. You need to track your personal and business mileage to calculate your eligible motor vehicle expenses. At the end of the year, you take the % of business use and multiply that amount by your total eligible motor vehicle expenses. We recommend keeping a mileage log and using a digital app such as MileIQ to track each business trip.
Eligible Motor Vehicle Expenses
Remember to keep your receipts! The vehicle expenses below are tax-deductible.
- Interest on loans to purchase the vehicle
- Fuel
- Insurance
- Leasing costs
- Repairs and maintenance
- Capital cost allowance
Capital Cost Allowance (CCA)
Capital cost allowance is the amount of depreciation you can claim each year as a eligible vehicle expense. Generally, the maximum rate you can claim each year is 30%, with the half-year rule applying in the year of purchase. CRA sets a limit to the maximum cost for passenger vehicles. Passenger vehicles include coupes, sedans, crossovers, sport-utility vehicles, and if they cost over $30,000, they are considered a luxury vehicle. For luxury vehicles, the maximum cost for the calculation of claimable CCA is $30,000 + GST/HST + PST. If you purchase a motor vehicle used primarily for business that does not fall into CRA’s definition of a passenger vehicle, you are able to claim the full amount of the vehicle for the CCA calculation.
Automobile expenses can be claimed for Self Employed purposes only if:
- The business requires the individual to work away from its normal place of business; and,
- Automobile expenses are supported by a detailed travel log, invoices and receipts.
Automobile expenses can be claimed by an Employee only if:
- The employee is required to work away from his/her employer’s place of business;
- The employee is required by his/her employer to pay own traveling expenses;
- A T2200 Declaration of Conditions of Employment is completed and certified by the employer; and,
- Automobile expenses are supported by a detailed travel log, invoices and receipts.
Contact Argento CPA today if you have any questions on how to claim your vehicles expenses!