All of those long hour spent in your car for work can pay off at tax time. You can claim motor vehicle expenses to lower your tax bill. Here's how to calculate your motor vehicle expenses for taxes.
Use the following formula calculate your motor vehicle expenses: (Business kilometres / total kilometres) X Total vehicle expenses = Motor vehicle deduction. So, if you spent $5,400 on your car and drove 40,000 kilometres with 32,000 business kilometres, your deduction would be $4,320. (32,000/40,000 X $5400 = $4,320).
The CRA says, "The best evidence to support the use of a vehicle is an accurate logbook of business travel maintained for the entire year." Your vehicle logbook should include for each business trip:
You should record the odometer reading for your car at the start and end of the fiscal period.
You can use several methods for an accurate vehicle logbook. You can manually track your drives in a pen-and-paper book. The upside is that it's cheap but the downside is that it's tough to remember to track every single drive. Also, if you lose your manual logbook, you're out of luck because the CRA wants you to hold onto tax records for years after you file your return. Others use an Excel mileage log spreadsheet. This makes calculating mileage a snap but you still have to remember to log your trips. In fact, you may have to log them twice: once on paper in the car and another time when you're in front of the computer. Millions of people are using a mileage-tracking app like MileIQ. The CRA accepts these documentations and people love the automatic mileage logging and easy reports.