Who can deduct vehicle expenses
Self-employed individuals, whether sole proprietors or partners, can deduct the business share of their vehicle costs. A corporation can deduct them where an employee, including a shareholder, uses the vehicle for the business. Any trip made for the business counts: client meetings, deliveries, site visits.
Commuting does not. Driving from home to your regular place of work is personal, however the business is structured.
What you can deduct
Where a vehicle is used for both business and personal purposes, you claim only the business portion of:
- Fuel, whether gas, diesel or electricity
- Insurance
- Maintenance and repairs
- Lease payments, subject to annual limits
- Interest on a vehicle loan
- Licence and registration
- Depreciation, claimed as capital cost allowance (CCA), if you own the vehicle
Every one of these is prorated by business kilometres over total kilometres, which is why the mileage log matters more than the receipts.
Keep a mileage log
The CRA expects a log kept as you go, not reconstructed later. Record the date, the purpose, the destination and the odometer reading at the start and end of each business trip. A missing or incomplete log is the most common problem on vehicle claims, and it is the first thing a CRA reviewer asks for. An app is convenient; a spreadsheet kept current is just as acceptable.
Buy or lease?
Leasing keeps payments flexible and the deduction simple, though the deductible amount is capped each year. Buying suits an owner who will keep the vehicle for years and wants to claim CCA. If the corporation owns the vehicle, the tax treatment is different again from a personally owned car that the company reimburses. There is no single right answer; it depends on the vehicle, how long you will keep it and how much of its use is business.
Reimbursements from your corporation
If you own the car personally and use it for your corporation, the company has two options. It can pay you a per-kilometre allowance at the CRA prescribed rate, which is tax-free to you and deductible to the company. Or it can pay the actual costs, which can create a taxable benefit and more bookkeeping. For most owner-managers the per-kilometre allowance is the cleaner choice.
Where we come in
We help self-employed and incorporated clients choose the approach that gives the best result and holds up to CRA review. See our corporate tax and personal tax services, or get in touch.