Many businesses require their employees to travel around their local community, whether its sales reps, service technicians or delivery people. CRA has created a strict set of guidelines defining what can and cannot be claimed as business expenses, and understanding CRA vehicle allowance rules is important for any business owner or manager, especially if a vehicle is used for both business and personal travel.
Here is a quick overview of CRA’s vehicle allowance rules and guidelines.
Claiming Business Vehicle Expenses
At the highest level, the Canada Income Tax Act states that any expenses incurred in the operation of a business can be counted against the revenues that the business generates in calculating the businesses net profit, which income tax is paid on.
The Act contains hundreds of sections, subsections and provisions dealing with all sorts of different situations that can come up when the situation isn’t clearly black and white.
Business vehicles is one of those areas and is a grey area because in many cases business vehicles are also used by employees for personal travel.
Tracking Your Business Vehicle Expenses & Usage
Businesses are required to closely track vehicle expenses and usage.
Any expenses that you pay for the operation and maintenance of your company vehicles should be tracked in your accounting software. These expenses would typically include gas/fuel, maintenance and repairs, insurance and permits, parking and tolls. If you’re using an accounting software package like QuickBooks then you should have a set of vehicle expense subcategories. If you don’t then call your bookkeeper and get them to set some up.
You should also carefully log the vehicle usage, including the date of the travel, the origin and destination, how long the trip was, and the nature of the trip (i.e. delivery, service call, sales call, etc.). Many companies keep a log book in their company vehicles to track this, but there are also many apps that you can install on your smartphone to keep track of these things, too.
Managing Vehicles Used for Personal & Business Travel
In some businesses, it’s clear cut that a vehicle will only be used for business needs. For example, employees of school bus companies probably don’t take school buses home with them and use them to go to the grocery store or take their children to visit the grandparents!
But it’s not uncommon for business owners or employees drive company vehicles home and use them for personal travel. This is when CRA imposes a series of requirements for what constitutes personal and business use. The CRA’s position is that travel from home to work and back again does not count as business travel, but as personal travel. Here are some summary guidelines for what CRA deems acceptable as business travel:
a trip from home to one of your customer’s place of business and then back home;
a trip from home to a customer’s place of business and then on to your place of business;
a trip from your place of business to a customer’s place of business and then home.
At the end of the year, your bookkeeper or accountant will split the cost of operating and maintaining the vehicle between the business and employee. A portion of the cost equal to the percentage of business use will be charged to the business, and the remaining cost of the vehicle use will be included as taxable income on the employees personal income tax.
Compensating Employees for Personal Use of Company Vehicles
In some cases, employees can use their own personal vehicles for business reasons, with the most common being when an employee runs errands for the business in their personal vehicle.
In such cases, CRA allows you to give the employee a per-kilometer allowance for the use of their vehicle to cover gas, insurance, maintenance and any other associated costs. Generally, the allowance is $0.55 per kilometer for the first 5,000 kilometers driven, but again there are different conditions that apply. Check out this page on the CRA website for further details.
Let Your Bookkeeper Help!
Keeping tabs on your vehicle expenses and usage can be time consuming, especially for business owners and managers that have other more important things to do. If you don’t fully understand the CRA vehicle allowance rules or are having trouble staying compliant, think about getting help from a professional bookkeeper. You certainty don’t want to get caught out of compliance by CRA!
The Bottom Line
CRA allows you to count the operation and maintenance of those vehicles as part of your business expenses. However, in cases where a vehicle can be used for business and personal travel, there are some rules and guidelines that you must follow to stay in compliance, including keeping track of business expenses and how much the vehicle was driven for business and personal travel.
Simply Bookkeeping1 provides professional bookkeeping services for freelancers, solopreneurs and owners of unincorporated and incorporated businesses. We customize our services based on your needs – we only see some of our clients a few hours a month but others we see on a more regular basis. Our services are reasonably priced and we tightly track the amount of time we spend working for you so you only pay for the services you get.
To learn more about us, please visit our website at www.simplybookkeeping1.com or contact Michele Hyde by phone at (647) 668 – 9363 or by email at firstname.lastname@example.org.
Have Your Say
Are you keeping tight control of your vehicle expenses and usage? Do you use a logbook or app to track vehicle usage? Leave us a comment, we’d love to hear how you’re managing your business vehicles to stay compliant with CRA vehicle allowance rules. Also, please share this article using the social media share buttons – other people might also benefit as they manage their business vehicle usage.