Vehicle Expenses - Self Employed and Employee

You can download a copy of these guidelines and table here - Right click and choose 'Save Target As'
- Please note: requires Microsoft word.

General Information:

  • Vehicle expenses can be deducted when they relate to business activity]
  • You must keep receipts (for 6 years) to support the expenses being claimed
  • Keep a record/log of the total kilometers you drove in the year and the total kilometers you drove for business use - VERY IMPORTANT!
  • For each business trip, record the date, the purpose of the trip, the destination, and the number of kilometers you drove
  • Write down the odometer reading at the start and end of each year
  • If using more than one vehicle in the year, calculate the expenses separately
Deductible Expenses:
  • Fuel and oil
  • Repairs and maintenance (including car washes)
  • Insurance
  • License and registration fees
  • Capital Cost allowance *
  • Interest you pay on a loan to buy the motor vehicle *
  • Leasing costs *
*Limitations:
 
Only the portion of the expenses that apply to earning business income can be deducted. A reasonable calculation is to take the total of business kilometers driven in a year divided by the total kilometers driven in the year and multiply this percentage by your total vehicle expenses for the year. Please note that driving to and from work does not constitute business use. Please see below for information on standby charge.
 
*Determine the type of vehicle you drive, as certain limitations apply:
  1. Motor Vehicle - any automotive vehicle designed or adapted for use on highways and streets
  2. Automobile - A motor vehicle designed or adapted primarily to carry people on highways and streets. It seats a driver and no more than eight passengers
  3. Passenger Vehicle - An automobile you bought after June 17, 1987. A passenger vehicle is also an automobile that you leased under a lease you entered into, extended, or renewed after June 17, 1987
 
*Limitations on Passenger Vehicles:
  • The amount of interest is limited to $300/month for loans entered into after 2002
  • The amount of leasing costs is limited to $800/month for leases entered into after 2002, plus applicable taxes
  • The ceiling on the capital cost for capital cost allowance deduction purposes is $30,000 plus applicable taxes
Standby Charge

If an employer offers the use of a company owned vehicle to an employee, the employer must consider a possible standby charge prior to preparing the annual T4's. A standby charge is a calculated amount (2% per month of the original cost or lease cost of the vehicle), which must be added to employee's employment income if one of the following occurs:

  • An automobile is supplied to an employee by an employer
  • The automobile is provided by the employer to a person related to the employee
  • The automobile is provided to an employee or a person related to the employee by a party related to the employer
The standby charge can be reduced if the automobile is used 90% or more of the time for business purposes. However, it is important to keep a travel log and supporting documentation on file to support the business percentage claim. The government can request proof to support the percentage being claimed and if a log is not provided they may only allow 50% business use - which means a full standby charge.
Something to consider - The standby charge is calculated using the original purchase or lease cost of the vehicle. Therefore, if the vehicle is older, you might wish to consider buying the company vehicle personally to avoid a calculated high standby charge. The operating expenses, which will now be incurred personally for business use, can be claimed on your personal tax return as an employee expense deduction.
 
If you have any further questions or concerns about employee and subcontractor issues, please do not hesitate to contact us.
 
Offices of Alan Martin Associates