Financial Management

Claiming automobile expenses

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01/24/2019 – By Jason Smale

Individuals who are self-employed or in an unincorporated partnership and have used their motor vehicle for business-related purposes in this past tax-year may be eligible for tax deductions? If these individuals have maintained an active travel log and can distinguish the portion of their travel in the year that has been used for business purposes ordinary automotive expenses.

Who is eligible to claim automotive expenses?

Individuals operating as sole-proprietors, unincorporated partnerships or employees of businesses that require them to use their vehicle for business-related purposes and the individual is not reimbursed for these expenses by their employer.

Individuals who are employees and use their vehicle for business related purposes, must obtain a signed T2200 form from their employer and submit it to their tax preparer to claim eligible expenses. These employees must also maintain an active log book of their travel for business purposes to properly proportion their automotive expenses for eligible tax deductions.

What expenses are eligible?

The expenses that are eligible for tax deductions include fuel, maintenance and repairs, insurance, licensing and registration and even the depreciable value of the automobile.
If the individual leases the vehicle rather than owns the vehicle, they will claim lease expenses rather than claiming the depreciable value of the automobile.

If the individual is an HST registrant, then how they claim their input tax credits for the automobile purchase will vary whether they own the vehicle outright or lease the vehicle.

  • For those who lease their vehicle, they will proportion part of their annual lease payments as HST applicable and will claim the HST input tax credits for that year based on the amount they paid in lease payments.
  • For those who purchase their vehicle, they are eligible to claim their input tax credits in the first year of purchase in its entirety.

Keep your receipts

It is imperative that the individual claiming automobile expenses maintains a copy of their receipts and invoices. If the individual in question every becomes subject to an audit, expenses they have claimed but cannot support with invoices or receipts can be disqualified by the CRA. For this purpose, we recommend all clients keep a copy of their receipts and invoices for up to 7 years.