What automobile expenses can I claim for my employment?
Disallowed Motor Vehicle Expenses
The department manager was again impatient with Samantha for not submitting her motor vehicle expenses at the end of each month. That was when Samantha was supposed to file her Expense Report on the company-owned vehicle.
Then her son, who had used the vehicle for five trips to Calgary one month when Samantha was on holiday in Europe, suggested that the fuel and repairs related to his trips be included on her expense report. Foolishly, those receipts were included with the regular receipts.
Canada Revenue Agency ("CRA") disallowed the expenses when their questions revealed the company had no clients or business Calgary. In addition, CRA indicated that the disallowed expenses were to be treated as taxable benefits for Samantha.
The expenses for the company vehicles usually averaged 600 - 1,200 km per month. The accountant calculated the company vehicle had driven an extra 5,000 km, costing them about $850.
Samantha was not fired but the whole episode had a significant impact on her ability to move into management as fast as she had hoped.
Generally speaking, motor vehicle expenses incurred for business or employment purposes are deductible for tax purposes. If you intend on writing the expenses on your own personal tax return, make sure your expenses are authorized by your employer on the proper tax forms and that you offset your expenses with any reimbursements.
The type of expenses you can claim include:
- license and registration fees
- fuel costs
- repairs and maintenance
- interest on money borrowed to purchase a motor vehicle (if the vehicle was purchased)
- depreciation on a motor vehicle (if the vehicle was purchased)
- leasing costs (if the vehicle was leased)
Note, however, that driving your vehicle directly to and from work is generally NOT considered to be business use. To ensure that expenses related to motor vehicle are deductible, CRA requires that you maintain a mileage log documenting your business usage.
Leasing Costs and Deductions
There is no simple method of explaining leasing benefits or costs. It depends on the legal status of the company (e.g. proprietorship, corporation etc), the role of the vehicle user (e.g. sales, other employee, owner etc).
To best determine if a lease makes sense, tell us how much the vehicle will probably be driven, what percentage is directly business related, title or role of vehicle user, value of the vehicle, probable monthly payments, size of the lump sum payments (usually at the beginning and end of lease to reduce monthly payments).
With reasonably accurate figures, you can get an assessment on the best method to acquire and use a new vehicle.
Get answers before you go shopping. Some quick calculations can provide your employees and management with the appropriate vehicle where all concerned gain benefit without undue costs.
NOTE: the use of a corporately paid lease may be viewed as taxable income. Are your employees aware they will be paying for the use of the vehicle they may think is free?
Last December, the Department of Finance announced that motor vehicle expense deduction limits and the prescribed rates for car operating expense benefits for income tax purposes for 2004 would be the same as for 2003.
The capital cost allowance (CCA is similar to depreciation) remains at $30,000 plus GST and PST, for cars purchased from 2001 through 2004. If the purchase cost of the vehicle is above $30,000, that portion over $30,000 plus GST and PST will not be counted towards the CCA. There are, however, certain rules that mitigate the loss of not being able to account for this excess.
Deductible leasing costs are still at $800 per month plus applicable GST and PST for 2001 through 2004. This limit is about the same as the limit for a purchased automobile.
Interest deduction maximum is $300 a month for a car loan for the same years. If the employer pays the employee for using their own car, the maximum tax-free deduction is 42 cents per kilometre for the first 5,000 kilometres and 36 cents for any traveling over 5,000 kilometres. This rate is increased by 4 cents per kilometre for the Territories and Nunavut.
If the vehicle is employer owned, and the employer pays the operating expenses, the employee will face a taxable benefit at a rate of 17 cents per kilometre, except for those involved in automobile sales and leasing; these people will face a taxable benefit at a rate of 14 cents per kilometre.
The information presented in this document is of a general nature only and should not be relied upon to replace professional advice. Before acting on this information, talk with a professional advisor as laws and regulations are constantly changing. Readers accept full responsibility; no document found here is a substitute for a consultation.