Business persons are allowed to claim expenses related to the business use of their motor vehicles. Deductions for auto expenses can be lucrative butfrequently audited. Indeed, this line is the subject of more failures than any other in tax audits, says Evelyn Jacks in Make Sure its Deductible Little Known Tax Tips for Your Small Canadian Business. Here are five tips for claiming auto expenses:
1. You are no longer required to keep a log of business mileage for all 12 months of the year, but you do need to keep a log during a representative period — or else your claim will be disqualified or reduced when audited.
2. In the log book, record the following details about your trips: date, destination, kilometers traveled for business, and purpose; also keep track of cost of coin-operated car washes, parking, maintenance, and payphone calls. Record the beginning and end date of odometer readings for the fiscal year. Keep receipts.
3. Fixed costs — interest/leasing payments and capital cost allowances (CCA) –can be claimed too. Be aware there are limits on vehicles deemed passenger cars (so you might want to buy cars priced under those limits). For example, on a passenger car purchased in 2009, you cannot claim more than $10/day interest, $800/month leasing costs ortotal CCA of $30,000 (plus taxes).
4. CCA of 30% can be claimed each year on the vehicle, at your option. If other expenses are already high enough, you can defer the CCA to another year.
5. If you use more than one vehicle in your business, keep separate records for each one and calculate the expenses separately.