You can write off a number of expenses related to the car you use to help you earn income. Whether an employee, business owner, in a partnership or self-employed, you can find a way to save on taxes.
What car expenses can you write-off?
This list is for Canadian salaried employees. To claim motor vehicle expenses, your situation has to meet all of the following conditions:
- Most of your work takes place away from your employer's place of business
- Your work contract makes no provision for motor vehicle expenses and your employer has not offered any form of reimbursement or allowance
- The employer offered no non-taxable allowance based on a reasonable per-kilometre rate for motor vehicle expenses
- Form T2200, Declaration of Conditions of Employment filled out and signed by your employer, which is to be filed with your tax return.
If you answered yes to all of the above, read on for what you can deduct.
Deductible vehicle expenses for salaried employees and commission workers
Salaried employees and employees whose income is based on commission can deduct the following expenses:
- Fuel (gasoline, propane, oil)
- Maintenance and repairs
- Insurance
- Licence and registration fees
- Capital cost allowance
- Eligible interest on car loans
- Eligible leasing costs.
Use Form T777, Statement of Employment Expenses to help calculate your capital cost allowance. Keep track of all costs incurred from the day you buy your vehicle. Determine which class of depreciable property your car belongs to and whether it's a motor vehicle or a passenger vehicle. For eligible interest on car loans, there are limits on passenger vehicles. You can claim the lesser of:
- Total interest paid in the year; and
- The number of days for which interest was paid x $10.00 ($8.33 for passenger vehicles purchased between December 31, 1996 and January 1, 2001).
Be sure to claim only amounts that apply to work use and not those related to personal use. If you use more than one vehicle for work, calculate expenses and deductions separately.
Deductible vehicle expenses for the self-employed, sole proprietors and partnerships
As with salaried employees, workers in these categories can only deduct vehicle expenses incurred in an effort to earn income. As an example, all parking expenses incurred during business activities are deductible. Plus, supplementary business insurance costs for your motor vehicle are also fully deductible. Detailed records of motor vehicle use will help support your claims. Be consistent in recording total kilometres logged for work. If you use a vehicle for personal purposes as well as for work, keep track of your total mileage. Business partners can claim business use expenses of a personal vehicle when reporting their individual share of net partnership income.
Deducting vehicle expenses as a business owner
The CRA provides the following example of how to calculate motor vehicle expenses:
A hardware store with a December 31 year-end uses a van, which the owner also uses for personal purposes.
Total kilometres driven for the tax year: 30,000 Kilometres driven to earn business income: 27,000 Deductible expenses: Licence and registration = $100 Gas and oil = $2,400 Insurance - $1,900 Interest = $800 Maintenance and repairs = $200
Total expenses = $5,400
To find how much she can deduct, the owner calculates as follows:
(27,000 business kilometres √∑ 30,000 total kilometres) x $5,400 = $4,860 The owner can deduct $4,860 of her van expenses. Business parking fees = $40 Supplementary business insurance coast for the van = $100
The total amount the owner can claim for the van = $5,000.
