If you use a personal vehicle for business purposes, you may deduct some motor vehicle expenses from your income taxes. Here's what you should know about writing off motor vehicle expenses.
The CRA knows there's a cost with using a personal car for business reasons. It allows taxpayers to claim some of those on their income taxes. It breaks the expenses into two, broad categories:
You only pay income tax on your net wages for the year. Claiming motor vehicle expenses can reduce your taxable income and, therefore, reduce the amount of taxes you pay.
Some motor vehicle expenses include:
As you can imagine, these costs can add up over the year.
First, calculate the value of your vehicle expenses. Add up the costs of using your vehicle for the year and compare it to the total amount of kilometres you drove for the year and the number you drove for business. Then, use this formula:
(Business kilometres/ total kilometres) x Total vehicle expenses = Amount you can claim
For example: if you spent $5,400 on a car and drove 40,000 kilometres for the year with 32,000 business kilometres, your deduction would be $4,320 (32,000/40,000) x $5,400 = $4,320. This is for claiming expenses related to using a motor vehicle. You can learn about claiming Capital Cost Allowances here.
As mentioned, you need an accurate log of your kilometres for the year. Not only do you need to track all your mileage for the year, but you also need records of your business trips. Consider an app like MileIQ to automatically log your kilometres in the background.