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