If you use a motor vehicle in the course of a business, you can deduct reasonable expenses that relate to the business use of the vehicle. The deductible expenses include those for gas, oil, minor repairs, maintenance, insurance and licenses.
You can also deduct tax depreciation – known as capital cost allowance (CCA) – although the amount that you can claim is capped at a maximum as discussed below. Other deductible expenses that are subject to a maximum include interest on a car loan and leasing costs if you lease the vehicle (also discussed below).
Limits on CCA, interest and leasing expenses
As noted, these deductions are capped at maximum amounts. These limits apply to vehicles purchased or leased from 2001 through 2015 (2016 limits will be announced in late December 2015). The limits are:
- The maximum cost of your car on which CCA can be claimed is $30,000 plus applicable federal and provincial sales taxes;
- The maximum allowable interest deduction for car loans is $300 per 30-day period in the year; and
- The general limit on deductible leasing costs is $800 per 30-day period plus applicable sales taxes. The deductible lease payments can be reduced further, generally if the manufacturer’s list price of your car exceeds the capital cost ceiling amount.
Tracking business expenses
Since the deductions can be claimed only for business use and not personal use, you must pro-rate your total expenses based on your business distance travelled relative to total distance travelled. (For these purposes, business travel does not include driving from home to work and back.)
Although the best evidence of business travel is a detailed logbook dealing with the entire taxation year, the Canada Revenue Agency (CRA) allows a simplified method based on a 3-month sample logbook. In order to use this simplified method you must first complete one full year of a logbook of business travel to establish a “base year”. Subsequently, you can use a three-month sample logbook in any year and use that sample to determine the whole year’s business versus personal use, as long as the usage is within 10% of the results of the base year.
The CRA provides the following example:
An individual has completed a logbook for a full 12-month period, which showed a business use percentage in each quarter of 52/46/39/67 and an annual business use of the vehicle as 49%. In a subsequent year, a logbook was maintained for a three-month sample period during April, May and June, which showed the business use as 51%. In the base year, the percentage of business use of the vehicle for the months April, May and June was 46%. The business use of the vehicle would be calculated as follows:
(51% ÷ 46%) × 49% = 54%
In this case, the CRA would accept, in the absence of contradictory evidence, the calculated annual business use of the vehicle for the subsequent year as 54%. That is, the calculated annual business use is within 10 percentage points of the annual business use in the base year − it is not lower than 39% or higher than 59%.
Employees can deduct the same type of motor vehicle expenses if they are required to use their vehicles in the course of employment. In order to qualify for the deduction, the employee must be ordinarily required to carry on the employment duties away from the employer’s place of business or in different places, and be required under the contract of employment to pay the related motor vehicle expenses. (The contract can be written or oral.)
You must obtain a signed Form T2200 from your employer, certifying that you meet the requirements for the deduction. The CRA no longer requires you to file the form with your tax return, but you need to keep a copy in case the CRA asks for it.
You cannot deduct these expenses if you receive a tax-free motor vehicle car allowance for the year from your employer. Similarly, you cannot deduct any expenses that are reimbursed by your employer.