How to Claim Business Vehicle Expenses

Do you use a vehicle for business purposes? If so, you can deduct motor-vehicle expenses as part of your business expenses on your tax return. The Canada Revenue Agency has strict requirements for claiming automobile deductions. This article outlines some of the rules that you need to know to ensure that you are in compliance and also so that you are aware of all the deductions that you are entitled to claim.

Allowable Vehicle Expenses

The following are motor vehicle expenses you can claim:

  • Fuel
  • Insurance
  • Repairs/maintenance
  • Licensing/registration
  • Parking fees
  • Interest
  • Leasing

If you purchased a vehicle, you can't claim the entire purchase price of the vehicle in a single year. This is because the vehicle will have a useful life of several years. Therefore you will need to expense the cost of the vehicle over several years through Capital Cost Allowance (CCA).

Record Keeping

In order to substantiate your tax deductions, you will need to keep detailed records. This means retaining receipts for all vehicle expenses you incur. You should also keep a mileage log. It should include the date of travel, kilometers driven, purpose of the trip, origin, destination, and any expenses you incurred on your trip. The log must also show the total number of kilometers for the year. This is best accomplished by recording your odometer reading at the beginning of the year and at the end of the year.

You will need to track mileage and expenses for each vehicle separately. To simplify your record keeping, it is advisable to designate just one vehicle for business use.

Calculating the Deduction

Most people use the same vehicle for business and personal travel, however, only the portion directly related to business use is deductible. The business portion is calculated by taking the number of kilometers driven for business purposes and dividing it by the total kilometers driven. For example, if you drove 3,000 kilometers for business activities and 10,000 kilometers in total, you are entitled to claim 30% of your motor vehicle expenses as a business expense. The exceptions to this are parking fees related to business activities and supplementary business insurance for your motor vehicle, which are 100% deductible.