The CRA mileage deduction is an opportunity for self-employed individuals to deduct car-related costs from their taxable income. These expenses include travel to business meetings, client visits, errands, and other work-related tasks that warrant reimbursement as well as vehicle expenditures, such as insurance and fuel costs.
For those who qualify, the Canada Revenue Agency (CRA) provides a per-kilometre rate that drivers can use to calculate their mileage deduction. The only catch — those who intend to claim vehicle expenses must maintain a detailed logbook of all business-related kilometres to satisfy CRA requirements.
If you’re currently wondering, “How do I claim my km tax?”, then you’ve come to the right place! In this guide, we’ll outline the entire process, from start to finish, on how to deduct vehicle expenses on your tax return each year.
5 steps to claiming car-related expenses for self-employed individuals
If you’re self-employed, a business owner, or independent contractor and use your vehicle for business purposes, you may benefit from the CRA mileage deduction. This standard deduction can earn you considerable savings on your annual tax return if used properly. In order to comply with CRA guidelines, you must keep a detailed logbook of your total kilometres driven, along with any receipts for car-related expenses, which consist of:
- Fuel and oil costs
- Auto insurance
- Maintenance and repairs
- License and registration feeds
- Leasing costs
- Loan interest
- Capital cost allowance
Maintaining these vehicle costs is a simple yet effective way to earn back savings when the time comes to file your tax return. With MileIQ, in particular, the process is made even easier thanks to automatic mileage tracking, which turns your day-to-day business mileage into a remarkably satisfying reimbursement.
To help self-employed individuals, business owners, and independent contractors understand the CRA mileage deduction, we’ll detail the five-step process to claiming business miles here:
Step #1: Choose a method
There are two approved methods for claiming mileage on your yearly tax return: the simple method or the comprehensive method. While both methods are similar, there are a few differences we’ll highlight below:
Simple method
By choosing this method, you are responsible for documenting all your business drives throughout the course of a given tax year. The simple method requires details such as the date of the trip, destination, purpose of the trip, and the number of kilometres driven to qualify as tax deductible.
Comprehensive method
The full or comprehensive method involves deducting the percentage of usage for business-related tasks. For example, if you spent $3,000 on operating expenses and used your vehicle 70% of the time for work, you can deduct $2,100 from your taxes.
Important tip: Try calculating total kilometres using both methods mentioned above then choose the one that guarantees the higher deduction. Many times, the better method will differ from year to year.
Step #2: Gather documentation
No matter your occupation or the amount of kilometres you drive, the CRA requires qualified taxpayers to keep detailed records of these business expenses. While in the past many professionals relied on their odometer reading to document business trips, now the entire process is made simple thanks to automatic mileage tracking.
When you sign up for MileIQ, you have the comfort of knowing that every business mile is accurately documented from start to finish. As you drive to your next meeting, the app will run in the background of your smartphone and automatically record and store your kilometres in our cloud-based software.
This step is instrumental in making sure you maximize your tax savings. Not to mention, you’ll need your logbook readily available as well as any receipts or invoices to help you claim these expenses on your tax return.
Step #3: Calculate your CRA mileage deduction
This is the part where your mileage log comes in handy. After a year of documenting business trips with a top-rated mileage tracking app, you’ll be ready to multiply your total business miles by the per-kilometre rate set by the CRA. If you opt to deduct vehicle expenses instead by using the full or comprehensive method, then you’ll divide your business kilometres by the total kilometres driven for the year and multiply total vehicle expenses.
To better understand how to calculate, consider the chart below:
Simple: multiply total business miles by the CRA mileage rate for the year.
Example: Michael logged 8,500 kilometres for business purposes in 2023. Given the CRA standard rate was 68 cents per km driven for business use, he deducted $5,780 on his tax return.
Full or comprehensive: multiply your total car expenses by the percentage used for business.
Example: Emily drove 18,000 total in the tax year, 7,300 of which were strictly driven for business purposes. (7,300/18,000 = 0.4056) Because she spent $600 on vehicle-related expenses, her CRA mileage deduction comes to $243.36.
What is the CRA mileage rate?
To calculate your mileage deduction using the simple method, you need the CRA rate accessible. The CRA automobile allowance rates for 2024 include:
- 70 cents per km for the first 5,000 kilometres driven, and 64 cents for each additional kilometre.
- In the Northwest Territories, Yukon, and Nunavut, an extra 4 cents per kilometre is permitted for travel.
Step #4: Fill out Tax Form T2125
Logbook? ✓ Picked out a method? ✓ Now it’s time to claim your mileage deduction. For self-employed workers, you’ll record your mileage deduction on the “Chart A — Motor vehicle expenses” of Tax Form T2125.
Step #5: Hold on to your records
Regardless of the method you choose, the CRA requires you to keep records for at least six years from the date of submission. This is highly encouraged in the event of a CRA audit on your tax return.
Start preparing your CRA mileage deduction today!
We hope you enjoyed our guide to claiming CRA vehicle expenses on your yearly tax return. At minimum, it should give you the confidence to go through the process without not knowing what to expect. Since filing taxes can seem overwhelming for self-employed, business owners, and independent contractors, especially after the first year of business, it’s vital to take the time to acquaint yourself with the entire process. Whether you plan to seek assistance from a tax professional or approach the task yourself, it’s vitally important to understand what’s involved.
Visit the MileIQ website to learn more about automatic mileage tracking and the different pricing available.
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