Can You Claim Your Car When You Use It for Business?

If you use your own vehicle for work, some of those costs can come off your tax bill. The rules are fair but specific, and the difference between a claim that stands up and one that gets denied usually comes down to one thing: records. Here is how vehicle claims work for Canadian business owners and self-employed people.

The logbook is everything

The CRA expects you to prove how much of your driving was for business, and the accepted way to do that is a logbook. For each business trip, record the date, destination, purpose and kilometres driven. Also note your odometer reading at the start and end of the year so you know your total kilometres. A full logbook for one complete year sets your base; after that, the CRA allows a simplified three-month sample logbook in later years, as long as your usage stays within a reasonable range of that base year. A glovebox notebook or a mileage app both work; the habit is what matters.

Business-use percentage

You cannot claim your whole vehicle unless it is used entirely for business, and commuting from home to your regular place of work counts as personal driving. Instead, you claim the business portion of your total costs. If you drove 24,000 km in the year and 9,600 km were for business, your business-use percentage is 40 percent, and you claim 40 percent of your eligible vehicle expenses, including:

• Fuel and oil
• Insurance and licence fees
• Repairs and maintenance
• Loan interest or lease payments, within CRA limits
• Car washes and roadside assistance plans

Parking for business purposes is a nice exception: it is fully deductible and does not get prorated.

Owning versus leasing

If you own the vehicle, you cannot deduct the purchase price all at once. Instead you claim capital cost allowance, or CCA, which spreads the cost over several years. Most passenger vehicles fall into Class 10 or 10.1 at a 30 percent declining rate, and the CRA caps the amount of a passenger vehicle’s cost that can be added to the CCA pool, so a luxury SUV does not generate luxury deductions. If you lease, you deduct the business share of your lease payments instead, again subject to a monthly ceiling. Neither route is automatically better; it depends on the price of the vehicle, how long you keep your cars, and your cash flow. It is worth running the numbers before you sign anything.

What the CRA expects to see

Vehicle expenses are one of the most commonly reviewed claims for small businesses, so assume you may be asked for support. Keep your logbook, keep receipts for fuel and repairs, keep your insurance and lease or loan documents, and make sure the kilometres you claim line up with the story your logbook tells. Round numbers with no records behind them are an invitation for a reassessment.

A quick word for corporations

If your business is incorporated and the company owns the car, different rules apply, including taxable benefits for personal use. In that case, get advice before deciding whether the car belongs in the company or in your own name.

This article is general information, not professional advice. For guidance on your specific situation, contact CAL Accounting at 705-728-6469.