If your business relies on a vehicle to generate income, you can deduct some or all of the related vehicle expenses. Many business owners ask about the best ways to write off automobile expenses, especially in a corporate setting.

There are three main ways to claim vehicle expenses for a corporation:

1. Owner/Employee-Owned Vehicles Used for Business
2. Company-Owned Vehicles
3. Company-Leased Vehicles

1. Claiming Expenses for Owner or Employee-Owned Vehicles

The simplest method for owner-managers of small businesses is to use a personal vehicle for business purposes and claim a mileage allowance. Here is how it works:

• Automobile Allowance: Business owners or employees can receive mileage-based payments from their company for using personal vehicles. This approach is easy because you do not have to track individual expenses like gas or repairs. You just keep a mileage log, and use the CRA’s Automobile Allowance Rates.
• Mileage Log: The log should note the date, destination, purpose of the trip, and number of kilometres driven. Reimbursement is tax-free and deductible to the corporation.
• CRA Rates: The mileage allowance covers all car-related costs, including fuel, repairs, and insurance. This method is not available to unincorporated businesses like sole proprietorships or partnerships.

2. Claiming Expenses for Company-Owned Vehicles

If your business involves frequent travel or the transport of tools and equipment, buying a company vehicle might be more practical.

• Depreciation: The vehicle cost is deducted over time through Capital Cost Allowance (CCA), which is tax depreciation. The depreciation rate depends on the type of vehicle and its tax classification.
• Record-Keeping: You must track all expenses, including maintenance, insurance, and fuel, and retain receipts to support your claims.

3. Claiming Expenses for Company-Leased Vehicles

Leasing is another option if your business requires a vehicle.

• Lease Deductions: Lease payments are deductible, subject to certain limits.
• Limitations: Specific calculations may be needed to determine the deductible amount, based on factors like the vehicle’s manufacturer’s list price.

Additional Vehicle Expenses You Can Deduct

Beyond vehicle purchase or lease costs, other expenses can be claimed, such as:

• Fuel or electricity
• Insurance
• Repairs and maintenance
• License and registration fees
• Interest on vehicle loans (subject to CRA limits)

If you use CRA mileage rates for reimbursements, you do not have to track these expenses separately. However, you still need a detailed mileage log.

Record-Keeping Requirements

To deduct vehicle expenses, you must keep records of both total and business-related kilometres driven. A good practice is to maintain a logbook for each vehicle and include:

• Date of each trip
• Destination
• Purpose
• Kilometres driven

You will also need to record odometer readings at the start and end of each fiscal year and whenever you change vehicles.

Simplified Logbook

After a full year of keeping a detailed log, you may qualify to use a simplified logbook. This method allows you to maintain a three-month sample logbook to estimate annual business use if the usage remains consistent within a 10% range of the base year.

Taxable Benefits for Personal Use of Company Vehicles

If you use a company vehicle for personal trips, you need to include a taxable benefit in your income. This benefit is calculated using:

• Standby Charge: Reflects the vehicle’s capital or lease cost.
• Operating Benefit: Covers operating costs like fuel and maintenance.

Both charges are added to determine the total taxable benefit. The CRA provides calculators to simplify these computations.

Leasing vs. Buying: Which Is Better?

The decision to lease or buy depends on several factors, including:

• Tax Considerations: While the tax outcomes for leasing vs. buying are often similar, the timing of deductions may differ. Generally, leasing offers better short-term tax benefits if you plan to change vehicles frequently.
• Financial Deals: Evaluate the overall cost, including interest rates and vehicle depreciation. Be cautious of “0%” financing offers, as they may be built into the car’s price.
• Cash and Credit: If an owner lacks personal funds or credit, the company may need to finance the vehicle.
• Practical Considerations: If a vehicle is needed for work purposes (e.g., construction trucks), it often makes more sense for the company to own or lease it.

Determining the best way to claim vehicle expenses comes down to your specific business needs and financial situation. Keep detailed records and consult with your accountant to ensure you are maximizing your tax benefits and complying with CRA rules.

The information contained herein is general in nature and is based on proposals that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice or an opinion provided by Geib & Company to the reader. This material may not be applicable to, or suitable for, specific circumstances or needs and may require consideration of other factors not described herein.