An overview of automotive expense claims for your corporation or self-employed business.
Self-employed businesses
For the self-employed business owner, motor vehicle expenses can be deducted on all eligible expenses for the business use portion of the vehicle. As an example, if you drive your vehicle 60% for business use and 40% for personal use, you can deduct the business use portion of your automotive expenses at rate of 60%.
As a requirement to substantiate the claim outlined above, you must keep a mileage log that details your odometer readings both for business use and the total mileage driven during the period.
Office supply stores sell blank journals specifically designed for this purpose or you can track your mileage digitally, as apps are now available as well.
CRA bulletin IT-521R includes more details on this subject.
Corporations
For corporations, claiming automotive expenses is a slightly more complicated matter. The first question to ask is whether the vehicle is owned by the company or owned personally.
For company owned vehicles, all eligible automotive expenses are simply claimed and deducted by the company and then a T4 tax slip is issued personally for any benefits received by the individual. This comes in the form of a standby charge and an operating benefit. There is a small calculation done to obtain these numbers (based on personal use and the cost parameters of the vehicle) and this is included either on a separate T4 slip, or it can also be included on an existing T4 that is issued for employment income.
For personally owned vehicles, rather than deducting the vehicle expenses directly in the company, you directly charge the company for use of the vehicle. This comes in the form of a tax-free allowance that is paid to you based on predetermined rates (set by CRA for the period in question). For 2021, the rates are 59 cents for the first 5,000 KMs and 53 cents thereafter. As an example, if you drove 1,000 business KMs in 2021, you would receive a tax-free payment of $590 and the company would be able to deduct approximately $590 in automotive expenses.
If you have any questions on vehicle expenses or structuring vehicle purchase decisions, please feel free to contact me directly.
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