Have you filed your income tax? You may be eligible to deduct motor vehicle expenses to reduce what you owe
If you used your personal vehicle to generate employment income you may be entitled to claim related costs on your income tax return.
By Laurie Izgerean for Wheels.ca
It’s time to calculate your income tax again. Why does the deadline come around so fast every year?
If you have the sinking feeling you’re going to owe the Canada Revenue Agency a balance on your taxable income for 2014, you may be eligible to deduct motor vehicle expenses if you used your personal car to generate employment income.
Who can claim vehicle expenses on a tax return?
The Canada Revenue Agency states:
You can deduct your motor vehicle expenses if you meet all of the following conditions:
- You were normally required to work away from your employer’s place of business or in different places.
- Under your contract of employment, you had to pay your own motor vehicle expenses.
- You did not receive a non-taxable allowance for motor vehicle expenses. Generally, an allowance is non-taxable when it is based solely on a reasonable per-kilometre rate.
- You keep with your records a copy of Form T2200, Declaration of Conditions of Employment, which has been completed and signed by your employer.
What they mean by records (in addition to the signed T2200 form) is keeping a detailed mileage log that captures the following:
- Date of the trip
- Client or customer you visited
- Reason for the trip
- Mileage driven
Outside sales people, account representatives, account managers, territory supervisors, agents and consultants are types of jobs requiring an employee to work away from their office at least periodically. That being said, if you’re using your own vehicle to go a place of business every day, you cannot claim your daily commute costs as a vehicle expense.
What type of motor vehicle expenses can I claim if I am eligible?
If you’re eligible to deduct motor vehicle expenses on your income tax return and you have the receipts to back up your claim (in case you’re asked to provide them) you may claim a portion of the following:
- Gas receipts
- Repair expenses
- Maintenance services
- Highway toll charges
- License and registrations
- Car washes
- Interest on a car loan
- Lease costs
A Statement for Employment Expenses (T777), available from the CRA website, must be filled out with the employment portion of your motor vehicle expenses.
Keep all vehicle records and receipts
In addition to the mileage log we discussed earlier, keep all vehicle related receipts and bills throughout the year as well. Whether you’re well-organized and keep a running total of vehicle expenses as they arise or you empty envelopes and bags of receipts onto the kitchen table to add them all up at once, be sure to subtract any personal mileage or personal expenses from the total before you claim an inaccurate amount.
For example, a self-employed individual who owns a delivery truck had $10,000.00 in vehicle related receipts. After discussion with his accountant, the amount he actually claimed as employment expenses on his tax return was reduced to $7,500.00, or 75% of the total. After reviewing the mileage log it was determined that the vehicle was used for personal reasons 25% of the time.
The vehicle mileage log will help you determine accurate business-related vehicle expenses and may prevent you from being audited by the CRA. If you do get audited, you’ll have your records and receipts if you need to provide them. It’s makes things easy if you record the odometer reading at the beginning of the tax year and again at the end (January 1 to December 31).
Company car, car allowance and other expenses
If you drive a company car with a gas card or use an expense report to reclaim vehicle expenses, you are not eligible to deduct those same motor vehicle expenses on your income tax return. If you are given a car allowance in place of a company vehicle, then your Employer is paying you to offset the cost of using your own vehicle, so you are not eligible to claim vehicle expenses either.
Here are two special circumstances surrounding motor vehicle expenses and car allowances:
Sometimes, your employer will include an unreasonably low allowance as income on your T4 slip even though you do not want to claim any expenses. When this happens, have your employer complete and sign Form T2200, or get a letter from your employer stating that the allowance was unreasonably low. On line 229, deduct as an expense an amount equal to the allowance. (CRA: Allowable Motor Vehicle Expenses)
Some employers reimburse or grant non-taxable allowances. If this allowance offsets the cost of operating your vehicle, you cannot then claim employment expenses for that vehicle. The Canada Revenue Agency wants to ensure you are not double dipping in the benefits of deducting your vehicle costs. (TurboTax: Claiming Motor Vehicle Expenses)
If you absorb other expenses on behalf of your employer to do business away from the office such as working from a home office at least some of the time, you are eligible to claim a portion of your housing and communications costs such as rent, heat and hydro, maintenance fees, repairs or upgrades, internet and telephone bills. The portion you claim is equal to the percentage of space that’s dedicated for office use. For example, your home has 5 rooms and 1 room is your office. You can claim up to 20% of eligible housing costs as a business expense. Your employer must fill out the T2200 accordingly, and state you were not reimbursed for those expenses.
Is there an income tax deduction for green vehicles like EV’s or Hybrids?
There are currently no personal income tax deductions or tax incentives through the Canada Revenue Agency for individuals who own and operate a green vehicle in Canada.
RELATED: What does Ottawa do with all those ‘green’ taxes on cars?
However, two Provincial Governments (Quebec and Ontario) currently offer green incentives in the form of rebate programs for battery electric vehicles (BEV), extended range vehicles (EREV) and plug-in hybrid vehicles (PHEV).
Last year’s best seller in BEV’s and PHEV’s was the Nissan Leaf, far outselling the competition.
British Columbia‘s Clean Energy Program no long offers incentives or rebates for EV’s or Charging Stations as of February 2014: “The clean energy vehicle point of sale incentive program has reached its budget limit and is fully depleted.” But Quebec’s Running on Green Power and Ontario EV Incentive Program are still in place.
When in doubt, use tax software or an Accountant
Income tax returns seem to get more complicated every year but the good news is there is help available from the Professionals.
There are many online companies that offer user-friendly, free downloadable tax software from their website; be sure to find one that is NETFILE compatible. That means you can electronically file your tax return to the CRA right from your own computer. This software is recommended for simple, personal tax returns with few complications.
If you have multiple properties, rental investments, pensions, a partnership, lived abroad for extended periods or have foreign investments, an Accountant or Accounting firm will insure your income tax return is done right and will offer you knowledge and expertise about how to maximize your income tax return so there is an amount payable to you as opposed to a balance owning to them.
RELATED: Ontario tax rebates for many alternative fuel vehicles