If you’re approaching the deadline for filing your year-end, you might be wondering how much of your vehicle expenses you can write off against the revenue generated in your business. Some answers are pretty clear cut – the cost of service or delivery vehicles can be entirely expensed, for example.
But if you use your vehicle for both business and personal use then things can get a little trickier.
Is it Better To Own Your Vehicle Personally or in Your Company?
As with many things in the accounting world, there is no one-size-fits-all answer for whether you should buy or lease a vehicle personally or through your business.
In some cases, it’s an easy answer. Say you’re an electrician and you’re looking to buy a service vehicle that you’ll fit with custom racking and have stock full of parts for servicing your customers. In this case, you should buy or lease the vehicle in your business because it is clearly a business vehicle.
Take the different situation where you’re a salesperson for your organization and you spend your time visiting prospects and existing customers on sales calls. Accordingly, you’d be more interested in a passenger vehicle. But it could be argued that you would also use that vehicle to run personal errands – driving your kids around, picking up groceries, visiting family and friends.
In such a case you could own the vehicle in your personal name and have your business pay you for the use of your personal vehicle, or you could own the vehicle inside the business. If you chose to own the vehicle inside the business you’d have to receive “income” in the form of a vehicle allowance for your personal use of the vehicle – at the end of the tax year a portion of the overall cost of the vehicle based on how much of the overall vehicle use was for your personal travel is included on your personal income tax.
Which Vehicle Expenses Can You Write-Off?
Basically, any monies that are spent buying, operating or maintaining the vehicle should be tracked as part of your year-end filing. This would include any purchase or lease costs, insurance costs, regular maintenance, repairs, gas, carwashes and license and registration costs.
You can also write-off a vehicle depreciation expense, because the residual value of that vehicle will decrease as the vehicle ages and as it is driven. The amount you depreciate your vehicle changes each year, so if you’re looking to find out how much to depreciate your vehicle contact your bookkeeper or accountant.
How Do You Know How Much to Write-Off for Personal Travel?
By the letter of the law, you are required to keep an accurate travel log for each of your vehicles, included the date the travel occurred, where the travel was from and to, the distance the vehicle travelled and the purpose of the trip.
You can buy a small log book and keep it in the vehicle to track your travel. Alternately, there are a number of apps that you can download on your smart phone to track your travel, and with some of the GPS technology that’s available they can make tracking your business travel pretty easy.
CRA has determined that travelling from home to work and back cannot be counted as business travel. However, CRA has also deemed the following situations as business travel:
• A trip from your home to a customer’s business and back;
• Travelling from your home to a customer’s business and then to your place of business;
• A trip from your place of business to a customer’s business and then home.
At the end of the year, your bookkeeper or accountant will tally up the total amount of personal travel you accumulated on the vehicle as a portion of the overall travel and calculate the business write-off accordingly. You will receive the personal travel portion of the vehicle expense as a personal vehicle allowance, which will affect your personal income tax return (because it is a benefit that you get by driving a business vehicle for personal use).
Many small business owners use a business vehicle for some of their personal travel, and at the end of your business tax year you can write-off a good portion of the cost of that vehicle against your business, but unless you use the vehicle exclusively for business then you must take part of that cost personally as a vehicle allowance that you will have to include on your personal income tax return.
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Have Your Say
Are you trying to decide whether to get a vehicle that you’ll use for both business and personal travel personally in your business? Trying to keep a handle on tracking business and personal travel? We’d love to hear from you! Also, please share this article using the social media share buttons – other people going through the same process might benefit from this post!