Tax implications of vehicles(2)
A Canadian taxpayer who uses his car partly for business purposes is entitled to write off the business portion of the car expenses against his taxable income. In the case of a self-employed individual, the business portion of the car expenses are added to the list of business expenses under the caption Motor Vehicle Expenses. To determine the business portion, you first track all categories of auto expenses in total, and then apply a reasonable business-use portion to the total. For example, if the individual is a full-time salesperson, it may be reasonable to use 85-90% as the business-use ratio. However, if the person normally works in his office and only occasionally travels in his vehicle for business, then it may be more reasonable to use 30% as the business-use ratio. The categories of auto expense that should be included are: gas, tolls, repairs and maintenance, parking, accident damage, interest on loan to acquire the vehicle, license plates, driver's license, auto insurance, leasing cost, lease down payment, and depreciation of original cost of vehicle if it was purchased rather than leased. For example, if all of the above expenses come to a total of $15,000 and the business-use ratio is assumed to be 50%, then $7,500 would be the tax-deductible amount of auto expenses.
In an incorporated company, there are two situations which normally arise: either the vehicle or vehicles are owned or leased by the company, or they are held in the name of individual employees but nevertheless used partly for business purposes. When the vehicles are registered in the name of the company, the company expenses all the car expense categories but must only expense the business-use portion based on the business-use ratio for each employee. When the vehicles are registered in the name of the employees, the same procedure applies except that the company cannot write off depreciation of the original cost of the vehicles because it does not own the vehicles. Nevertheless, the company can calculate the business-use portion of the employee's depreciation and write it off using a general car-expense category other than depreciation. The employee who pays for the business-use portion of car expenses and is not reimbursed by the employer is entitled to deduct these expenses on his personal tax return, whereas the company is not so entitled because it has not paid for the expenses. However, the employee must receive a form T2200 from his employer which states that it has authorized the employee to travel for business purposes and is not reimbursing him for these expenses.
When calculating the business-use ratio, traveling to and from home and office is considered to be personal use, but the following is business use: Home to customer to home, home to customer to office, and office to customer to home. The government expects each individual claiming auto expenses to maintain a daily log indicating the nature of the trip each day, including name of customer visited and number of kilometers traveled.
There are many other tax implications of vehicles. Please contact Simkover and Associates at 905-943-4046 if you need further accounting services or advice in relation to this topic. Click here for additional contact information
Tax implications of vehicles(2) | Simkover and Associates Chartered Accountants