Motor Vehicle Expenses
When a vehicle is used for both personal and business purposes, it is necessary to keep a log to record the business use of the vehicle. The Canada Revenue Agency (CRA) will allow a taxpayer to deduct the business use of a vehicle provided a log backs up the taxpayer’s claims.
Sole Proprietorship / Unincorporated Business
A sole proprietorship, or an unincorporated business may write off (deduct) all reasonable motor vehicle expenses which are on account of the business use of the vehicle. If your trip log indicates that your use of the vehicle was 30% personal, and 70% business then you will be able to deduct 70% of the vehicles expenses.
Corporations / Incorporated Businesses
An incorporated business may also write off all reasonable motor vehicle expenses.
If the business provides a company vehicle to a shareholder, or employee for personal purposes, a taxable benefit will be added to their income.
Motor vehicle expenses include interest on loans to purchase automobiles, capital cost allowance, automobile leasing costs, and operating expenses such as fuel, oil, maintenance and repairs, licence and insurance costs, and car washes.
Parking costs are not included as motor vehicle expenses. When the parking is related to business use of the motor vehicle it is 100% deductible, and when it is related to personal use it is not deductible.
Limitations Regarding Passenger Vehicles
According to the Income Tax Act, there are limits on amounts that can be written off regarding passenger vehicles. These limitations are as follows:
- Maximum deduction allowed for interest on a loan to purchase a passenger vehicle is $300 per month;
- Maximum deduction allowed for monthly lease costs per passenger vehicle is $800 plus GST/ HST, less any GST/HST input tax credits claimed; and
- Maximum cost amount for capital cost allowance purposes is $30,000 plus taxes less input tax credits.
Passenger vehicles are normally included in capital cost allowance class 10 or 10.1 if they cost more than $30,000 (30% CCA, 15% in first year). A terminal loss may not be claimed nor will recapture rules apply.
Keeping a Log
Please see our article here.
If you have any questions regarding the deductibility of motor vehicle expenses give us a call today!
Income Tax Act
Income Tax Act Regulations
Kreuz v The Queen, 2012 TCC 238 – Employee Deduction of Motorvehicle Expenses and Res Judicata in Tax Cases
Landry v. The Queen, 2007 TCC 383 – Capital Cost Allowance
Hudson v. The Queen, 2007 TCC 661 – T2200 and Claiming Expenses
Detailed case law analysis may be found here
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.