Taxes

Canadian Income Tax Motor Vehicle Expense Claims

Did you use a vehicle for business purposes this past tax year? This article explains what motor vehicle expense claims you can file for income tax in Canada and what kind of documentation you will need to support your expense claim.

Note that the examples in this article describe how to enter Canada Revenue Agency (CRA) car expenses on the T1 individual income tax return (used by sole proprietors and partnerships). Car expenses are included as part of business expenses on Form T2125 – Declaration of Business or Professional Activities.

If your business is incorporated, you claim these same motor vehicle expenses on your T2 corporate income tax return.

The Two Types of Motor Vehicle Expense Claims

First, before claiming vehicle expenses, you should understand that there are two types of motor vehicle expenses, broadly speaking, when it comes to income tax in Canada:

  1. those related to the use of a vehicle (which you claim on line 9281 – Motor vehicle expenses)
  2. those related to the purchase of a motor vehicle (which you claim as a Capital Cost Allowance).

This item covers motor vehicle expenses related to the use of a motor vehicle for business purposes.

(If you are a partner in a business partnership and you incur motor vehicle expenses for the business through the use of your personal vehicle, you can claim those business-related expenses on line 9943 – Other deductible amounts from your share of net income from partnership (loss) in Part 6 on page 2 of Form T2125).

Related Articles

Motor vehicle expenses you can claim related to the use of a motor vehicle

When you use a motor vehicle for business income, you can claim:

  • license and registration fees;
  • fuel and oil costs;
  • sure;
  • borrowed money to purchase a motor vehicle;
  • maintenance and repairs; Y
  • leasing costs.

But (as is almost always the case with income tax deductions), there’s a catch. If you also use that same vehicle for personal use, you can only deduct the portion of the above expenses that are directly related to using your vehicle for income.

This means that to claim motor vehicle expenses, you must know how many miles you have driven for business purposes and how many miles you have driven for personal use.

The cost of parking and supplemental commercial insurance for your vehicle are the exceptions to the “you can only claim part of it” rule; You can claim 100% of those expenses.

Therefore, you must keep a log book

In practice, this means that you must keep a record of all your motor vehicle use during the tax year, which is what the Canada Revenue Agency (CRA) recommends.

However, once you’ve done it once, you can use a simplified log book, keeping detailed records for three months and then extrapolating your vehicle’s business use for the rest of the year.

How to Calculate Your Motor Vehicle Expenses Related to Motor Vehicle Use

Let’s say you, a sole proprietor, own a truck that you use for both business and personal use. You keep track of all your car expenses throughout the tax year and end up with a list of expenses that looks like this:

Expenses Amount
License and registration fees $175.00
gasoline and oil $2,100.00
Sure $980.00
Interest $760.00
Maintenance and repairs $650.00
parking fees $330.00
Supplementary Insurance $500.00
Total expenses $5,495.00

If you used your vehicle for both business and personal use, use the business miles driven and the total miles driven to calculate how much of your auto expenses you can claim.

For example, let’s say that in the tax year in which you incurred the car expenses listed above, you drove:

  • 32,000 kilometers to generate commercial income
  • 44,000 total kilometers

Divide your business miles by your total miles, and then multiply that sum by the total amount of your “allowable portion only” allowable expenses:

(Remember: You can claim 100% of parking fees and supplemental business insurance, so remove those from your expense amount before calculating!)

(32,000 business kilometers ÷ 44,000 total kilometers) x $4,665 = $3,392.73

Now, because you can claim all of your parking costs and supplemental business insurance, add them in:

$3,392.73 + ($330 + $500) = $4,222.73

Expenses Amount
License and registration fees $175.00
gasoline and oil $2,100.00
Sure $980.00
Interest $760.00
Maintenance and repairs $650.00
Total expenses $4,665.00
Commercial Use (32,000km/44,000km * Total) $3,392.73
parking fees $330
Supplementary Insurance $500
Total Business Use Expenses $4,222.73

And you have your total motor vehicle expense claim; in this case, $4,222.73 which, on the T1 tax return, is claimed on line 9281, “Motor vehicle expenses (not including CCA)”, in Part 5 of Form T2125, Declaration of Business or Professional Activities .

Save all your receipts!

You always need receipts to support your business expense claims. It’s tedious and easy to forget, but if you want to claim something, you must have a receipt, even if you’re REDEEMING your income tax return or e-filing by a tax professional.

Also, keep in mind that you should keep all your tax-related receipts for six years, in case the Canada Revenue Agency decides they want to see them.

Related Articles