Deductible Automobile Expenses for Canadians

If you are required to use your passenger vehicle for business or employment purposes, you are permitted to deduct reasonable expenses for operation and ownership of the vehicle. Such expenses include fuel, licence fees, insurance, repairs and maintenance, depreciation (called CCA - capital cost allowance for income tax purposes), finance charges, and lease payments. There are specific limits placed on CCA, finance charges and lease payments you are permitted to deduct. These limits vary from year to year and for 2016 CCA is limited to the first $30'000 of the automobiles cost, plus applicable GST/HST/PST (not including amounts that will be refunded through input tax credits); Interest on financing of automobiles is limited to $10 per day; Deductible leasing costs are limited to $800 per month (other constraints apply); Deductible rates = $0.54 for the first $5'000 kilometers and $0.48 for additional kilometers; The deductible portion of automobile expenses is based on the proportion of your total kilometers driven in the year for business or employment purposes relative to the total kilometers driven in the year.

Driving between your home and your normal place of business or employment is generally considered a personal activity, therefore, the automobile expenses in respect of this portion of your driving is not deductible unless you make a stop for business or employment purposes while travel to or from your home. The travel between your home and your employment is considered a personal activity even if you drive a vehicle with your employer's logo on it or your employer requires you to have the vehicle to be "on call".

To support your automobile expense deduction you should maintain a careful record of your business and employment kilometers driven for the year, including the date, destination, the distance driven, and purpose for each business trip. If you are audited by the Canada Revenue Agency (CRA) and you do not have a mileage log, the CRA will almost certainly assert your business or employment mileage is a fraction of what you otherwise claimed. There is now mileage tracking software and apps to make recording your mileage easier (for example Mileage Logbook for Android phones). 

If you receive a reasonable per-kilometer allowance from your employer for the use of a motor vehicle, that allowance is not included in your income and you are not permitted to deduct your actual motor vehicle expenses.  Where you receive both a reasonable per-kilometer allowance and a flat allowance, the entire amount must be included in your income but you may deduct your actual expenses.

Your employer must sign the form T2200 Declaration of Conditions of Employment to certify the conditions of your employment require you to use your passenger vehicle. Administratively, the CRA does not require you to file the T2200 with your tax return; however, you must retain it in case they wish to see it. 

If you believe you might be eligible to claim automobile expenses on your personal income tax return, consult a Chartered Professional Accountant to help you calculate your allowable deduction.

Eugeniu Braila, CPA

Non-arm’s Length Transfers -- Gifts (Canada)

Related persons are not considered to deal with each other at arm's length. Related persons include individuals connected by a blood relationship, marriage or common-law partnership, or adoption (legal or in fact).S1-F5-C1- Related Persons and Dealing at arm's Length 

Also, a corporation and a shareholder who controls the corporation are related. Control  here mean more than 50% of the voting shares. Two corporations can also be "related persons".IT64R4- Corporations: Associations and Control 

 

If property is transferred for a consideration greater than the FMV to a person who does not deal at arm’s length with the transferor, the acquirer is deemed to have acquired it at FMV.  Its cost for tax purposes is therefore less than the price paid. For the vendor, there is no price adjustment and the actual selling price constitutes the proceeds of disposition.

If property is transferred for a consideration less than the FMV to a person who does not deal at arm’s length with the transferor, the transferor is deemed to have transferred the property at FMV and the cost to the acquirer for tax purposes is equal to the consideration paid. There is therefore a risk of double taxation.

If depreciable property is transferred in a non-arm’s length deal, the acquirer’s capital cost, for CCA purposes only, is equal to the transferor’s capital cost plus 50% of the capital gain realized by the transferor. Also, where the transferor is an individual and the property was eligible for the CGD, the capital cost for the acquirer must be reduced by the amount of CGD claimed by the transferor.

In the case of a gift, the transferor is deemed to dispose of the property and the beneficiary of the gift is deemed to acquire it at FMV. If you donate capital property, you must report any capital gain on your return and in some cases, you may be able to claim a capital loss in the year you donated the property. Under certain situations, the donor can designate the transfer price between FMV and adjusted cost base of the property donated and thus can reduce or avoid the capital gain on donation.

For tax purposes, the eligible amount of the gift is the amount by which the fair market value (FMV) of the gifted property exceeds the amount of an advantage, if any, received or receivable for the gift.

Eugeniu Braila, CPA