If you want to save on taxes, don't forget about deducting your vehicle expenses. The CRA won't take your word for it, though, as you must have a vehicle log book. Let's go over what the requirements are for this and other tax documents.
What should be in my vehicle log book?
Your mileage log must include:
- Purpose of your trips
- Destinations of drives
- Mileage for each trip.
The Canadian Federation of Independent Businesses acts as a CRA watchdog. They lobbied for easier ways for small businesses and self-employed to figure out the vehicle expense deduction. A CFIB survey showed that 7,600 members had trouble keeping a mileage log. A mileage-tracking app like MileIQ can make it easier to keep a compliant vehicle log.
What are the legal requirements for income tax return record keeping?
Every taxpayer must keep records. Here are some CRA guidelines and definitions. Canadian tax law holds that in maintaining records, taxpayers must:
- Keep them safe, either personally or with the help of a third party
- Make them available if the CRA asks to see them
- Cooperate with CRA officials and answer questions regarding the records
- If requested, supply copies of records or let CRA officials make copies.
Your records must be:
- Be reliable and complete
- Contain information relevant to tax obligations and calculating benefits
- Have documentation
- Be in French or English, or a combination of the two.
Can I use electronic records for taxes?
Yes. As with paper records, electronic records must be made available to the CRA upon request. The law requires that they are recreated if lost or damaged. Your electronic records must:
- Be supported by CRA software even if there are paper copies or other sorts of reproductions
- Have backup copies stored somewhere, preferably in Canada
- If encrypted, they must be rendered legible for CRA officials.
How long to keep your vehicle log book?
Most people should keep their vehicle logbook for up to six years after filing their returns. You must also keep electronic records for six years. This applies even when paper copies are available. The electronic records must be available in readable form.
CRA mileage log book requirements vs. business reality
Although it can be difficult to do sometimes, a complete record for the entire year is the best way to protect your claims for vehicle expenses. Especially when undertaking a new business venture or earning income from a new source, keeping a full vehicle log book for the whole year is the way to go. Things to remember:
- If the calculated annual business use recorded in the base year logbook differs from subsequent years by more than ten percent, you should keep doing a full logbook for the entire year
- Full-year log books must be kept "for a period of six years from the end of the tax year for which it is last used to establish business use," advises the CRA
- Be sure to keep separate log books for each vehicle you use for business
- Record the odometer reading for each vehicle at the start and end of each fiscal period.
