Allowable Motor Vehicle Expenses

By Randall Orser | Personal Income Tax

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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 are not considered to have paid your own motor vehicle expenses if your employer reimburses you or you refuse a reimbursement or reasonable allowance from your employer.
  • 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.

The types of expenses you can deduct include:

  • fuel (gasoline, propane, oil);
  • maintenance and repairs;
  • insurance;
  • licence and registration fees;
  • capital cost allowance;
  • eligible interest you paid on a loan used to buy the motor vehicle; and
  • eligible leasing costs.

If you have received a non-taxable motor vehicle allowance and can show that the employment-related motor vehicle expenses are in excess of the allowance and voluntarily include the amount of the allowance in income, you can deduct your motor vehicle expenses if conditions 1, 2, and 4 are met.

If you use a motor vehicle for both employment and personal use, you can deduct only the percentage of expenses related to earning income. To support your deduction, keep a record of both the total kilometres you drove and the kilometres you drove to earn employment income. Driving back and forth between home and work is considered personal use.

If you use more than one motor vehicle to earn employment income, calculate each vehicle’s expenses separately.

If you change motor vehicles during the year, record the odometer reading of each vehicle at the time you buy, sell, or trade it. Write down the dates as well.

If you and somebody else own or lease the same passenger vehicle, the limits on capital cost allowance, interest, and leasing costs still apply. The total amount the joint owners can claim cannot be more than the amount that would be allowed if only one person had owned or leased the vehicle.

Enter your motor vehicle amounts in the Calculation of Allowable Motor Vehicle Expenses area on Form T777, Statement of Employment Expenses, and attach it to your paper return. Enter on line 229, the allowable amount of your employment expenses from the total expenses line of Form T777.

Motor vehicle expenses are the first thing Canada Revenue Agency will look at when wanting to do a ‘review’. The best thing you can do to be prepared is keep your mileage logbook (for each vehicle you use), and all your receipts.

 

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