Who can make a claim for auto expense deductions?
Self-employed individuals who file a T1 return as proprietors or unincorporated business owners, employees who negotiate contracts on behalf of their employers, and employed commissioned salespeople can claim a deduction for auto expenses.
What form do you use?
The self-employed use Form T2125 Statement of Business or Professional Activities to claim automobile expenses. Employees, including commissioned salespeople, will need two forms:
What’s claimable?
Auto expenses may include the costs of filling up at the pump, plus maintenance and repair costs like oil changes, restoring brakes and other auto parts. Also claimable are the costs of insurance, licence and registration fees. Certain costs are restricted to maximum claim amounts: monthly interest charges, leases and capital cost allowance, for example.
In all cases, you have to account for “mixed use”—the kilometres driven for employment or business use, compared with the driving distance for personal use. Importantly, driving to and from your place of work is considered to be personal.
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Tips for keeping your driving log
Have a consistent method of distinguishing business trips from personal trips, and start right away if you haven’t done this in the past. The CRA will look at a reasonable record of your driving in determining whether to accept a claim from the past. Also, if you have a detailed calendar and Google Maps handy, it’s easy to recreate the distance driven for personal and employment/business driving from these records. Some tips and traps:
Tax tips: Save all receipts and mark any unreceipted items in your auto log—even if that’s an electronic log. This includes parking costs, for example. The expenses are first totalled using the actual receipts and the log of cash expenditures like car washes or parking meters. Then the total amount of the expenses are prorated by a formula: the portion of business/employment kilometres driven over the total kilometres driven in the year.
Note that only business parking expenses can be claimed in full; other costs must be prorated. No “cents-per-kilometre” claims are allowed for the auto expense deduction (although this is possible when claiming other provisions like medical expenses or moving deductions).
The distance log: This, of course, is the hardest part and is often considered to be a “tax trap” come audit time. The onus of proof is on the taxpayer, so this must be embraced if you expect your deductions to be allowed.
