Car Expense Deduction

[rezasal]

Hi Folks,

I`m putting my stuff together with regards to reporting my 2008 taxes, and I wanted to know what the rules are with regards to car expense tax deduction related to the usage of car for my real estate properties?

Please let me know if you know about this.

Thanks

 

[GarthChapman]

Log your trips and total up the mileage and claim it per the rates posted on the CRA website. Choose from the menu here http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slp...s/menu-eng.html and note there is also an item there for Business-use-of-home.

 

[rezasal]

QUOTE (GarthChapman @ Mar 3 2009, 11:15 AM) Log your trips and total up the mileage and claim it per the rates posted on the CRA website. Choose from the menu here http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slp...s/menu-eng.html and note there is also an item there for Business-use-of-home.


That`s great, thanks for that.

 

[Dan_Eisenhauer]

Reza, I created a spreadsheet that I used when I was a Realtor. It calculates the amount of personal and business mileage you drive each month, and year, automatically.

I posted it here. The hard part is keeping the record every day, and remembering to enter it in the spreadsheet.

 

[Lermy]

My understanding is that you do not have to log exact numbers. I know... CRA says you must and if you got audited you need proof but, as long as you have a note in a calendar that you went to your property you can just go to Google maps and search the distance from your home to property and then times the KM by the amount of times you go there in a year.

This obviously won`t work if you are driving all over the place all the time, but on a small scale works well.

 

[Tammy]

There is a difference in the car expenses you can deduct if you own one property versus if you own more then one. Here is a section straight out of CRA guide T4036:
Line 9281 – Motor vehicle expenses
You can deduct motor vehicle expenses in the following circumstances:
■ If you own one rental property:
You can deduct reasonable motor vehicle expenses if you meet all the following conditions:
– you receive income from only one rental property that is in the general area where you live;
– you personally do part, or all, of the necessary repairs and maintenance on the property; and
– you have motor vehicle expenses to transport tools and materials to the rental property.
You cannot deduct motor vehicle expenses you incur to collect rents. These are personal expenses.

■ If you own two or more rental properties:
In addition to the expenses listed above, you can deduct reasonable motor vehicle expenses you incur to do any of the following:
– collect rents;
– supervise repairs; and
– generally manage the properties.
This applies whether your rental properties are located in or outside the general area where you live. However, your rental properties have to be located in at least two different sites away from your principal residence. The motor vehicle expenses that we consider to be reasonable depend on the circumstances of your situation.

***

When calculating your business kms many people take their business kms for the year and multiply the kms by a certain rate per km to get the vehicle expenses they can deduct. This method is not the method CRA approves and the deduction could be denied by CRA if audited.

The method that CRA approves is to take your total business kms and divide by your total kms driven in the year. This calculates the business-use percentage of your vehicle. You then total up your actual vehicle expenses for the year and multiple it by the business-use percentage to arrive at the amount you can deduct.

For example: You drive 20,000 kms in the year, 5,000 of which are for business purposes. 5,000 / 20,000 = 25%, so the business-use percentage of your vehicle is 25%. Your total vehicle expenses for the year are $6,000. You will be able to deduct $1,500 in car expenses on your tax return (ie. $6,000 x 25% = $1,500).

And yes - keeping a log is very important if you are audited by CRA. Here is CRA`s recommendation:

For each business trip, keep a log listing the following:

• date
• destinationpurposenumber of kilometres you drive.

Record the odometer reading of each vehicle at the start and end of the fiscal period.

 

[Phantomtib]

ive been thinking about this and why not put a gps device in your car to log the kms, time and destination for you. that way at the end of the year you can just download the info and calculate the distances exactly. you would have more than enough information to provide the CRA and the CRA like having more info than less info. the purchase of the gps device would also be a business expense correct?

 

[jarrettvaughan]

QUOTE (Tammy @ Mar 4 2009, 02:22 PM) There is a difference in the car expenses you can deduct if you own one property versus if you own more then one. Here is a section straight out of CRA guide T4036:
Line 9281 – Motor vehicle expenses
You can deduct motor vehicle expenses in the following circumstances:
■ If you own one rental property:
You can deduct reasonable motor vehicle expenses if you meet all the following conditions:
– you receive income from only one rental property that is in the general area where you live;
– you personally do part, or all, of the necessary repairs and maintenance on the property; and
– you have motor vehicle expenses to transport tools and materials to the rental property.
You cannot deduct motor vehicle expenses you incur to collect rents. These are personal expenses.

■ If you own two or more rental properties:
In addition to the expenses listed above, you can deduct reasonable motor vehicle expenses you incur to do any of the following:
– collect rents;
– supervise repairs; and
– generally manage the properties.
This applies whether your rental properties are located in or outside the general area where you live. However, your rental properties have to be located in at least two different sites away from your principal residence. The motor vehicle expenses that we consider to be reasonable depend on the circumstances of your situation.

***

When calculating your business kms many people take their business kms for the year and multiply the kms by a certain rate per km to get the vehicle expenses they can deduct. This method is not the method CRA approves and the deduction could be denied by CRA if audited.

The method that CRA approves is to take your total business kms and divide by your total kms driven in the year. This calculates the business-use percentage of your vehicle. You then total up your actual vehicle expenses for the year and multiple it by the business-use percentage to arrive at the amount you can deduct.

For example: You drive 20,000 kms in the year, 5,000 of which are for business purposes. 5,000 / 20,000 = 25%, so the business-use percentage of your vehicle is 25%. Your total vehicle expenses for the year are $6,000. You will be able to deduct $1,500 in car expenses on your tax return (ie. $6,000 x 25% = $1,500).

And yes - keeping a log is very important if you are audited by CRA. Here is CRA`s recommendation:

For each business trip, keep a log listing the following:

• date
• destinationpurposenumber of kilometres you drive.

Record the odometer reading of each vehicle at the start and end of the fiscal period.

Tammy,

Thank you for that post, that was very helpful.

Just one question. What can be included on total vehicle expenses?

Windshield wiper fluid?
Oil?
Gas?
Cracked Windshield Repair?
New Stereo?
New 22 inch chrome rims?
New tires?
Car Wash?

I am just wondering if CRA only allows necessary expenses that you have in order to keep you vehicle running at a reasonable level, or if luxury items can be taken into account as well?

Thank you for your help.

 

[Tammy]

The types of expenses you are allowed to deduct for your vehicle are:

- License and registration fees
- Fuel
- Insurance
- Repairs and Maintenance
- Interest (if you borrowed to purchase the vehicle)
- Leasing costs if you lease
- Capital Cost Allowance (ie. depreciation) if you own

"Reasonable" is the word you need to consider when deducting expenses. Ask yourself if the expense would seem reasonable to an unbiased third party.

For example, getting an oil change for your car every 5,000 kms would be a reasonable expense to include as repairs and maintenance. Hiring a personal mechanic that you pay $100,000 a year and who changes the oil in your car everyday would likely not be considered reasonable.

If the repair is because you were in an accident the CRA has a different view of the expense depending on when the accident occured. In CRA`s view if the accident happend while the vehicle was being driven for business purposes the full cost of the repair is deductible, if the accident happened while the vehicle was being driven for non-business purposes then none of the cost of the repair is deductible.

If you`re getting 22 inch chrome rims for your vehicle that would not be considered a repair and maintenance expense as that would be making your car better then it was before. An expense that makes your car better then it was originally is added to the cost of the vehicle and then potentially becomes eligible for the capital cost allowance (CCA) deduction.

Taking CCA on your vehicle isn`t a free for all either. You can only take CCA on a vehicle up to a maximum value of $30,000. If you buy a $150,000 sports car as your business vehicle you will only be able to claim CCA as if the car cost $30,000. If you buy 22 inch chrome rims and a new stereo system for your $150,000 sports car it won`t matter from a tax perspective because you have already maxed out the $30,000 you are allowed.

There are similar limits on the interest and leasing costs you can deduct so if you lease your $150,000 sports car you won`t be able to deduct the full leasing costs on your tax return either.

 

[GarthChapman]

Tax and Qualifying Income Tip

If you are incorporated then consider charging the logged mileage to your company at the CRA prescribed rates. The pay the accrued amount to your self annually or at some regular interval.

Benefits?
1) This is non-taxable income in your hands personally
2) This non-taxable income can be included in your qualifying income when seeking mortgage financing
3) This is a tax deductable expense for your company

Note- do the same with your business use of your home. Same benefits apply in all 3 cases. This can be for office space, storage of your rental properties` materials and inventory, storage of records and any rental business materials and supplies.

Hope that makes you some money!