The question: to log or not to
log your kilometres on business
vehicles?
The answer: you will get into trouble with the Canada Revenue Agency and pay higher taxes if you don’t keep a kilometre log of your business versus personal travel.
The agency requires a detailed logbook to substantiate the deductibility of vehicle expenses and will often flag vehicle expenses as a target for audit. It will commonly reject all vehicle claims not supported by a logbook.
In the numerous taxpayer appeals trying to overturn rejected claims, the courts found in favour of the revenue agency when a log had not been kept. Farmers and other self-employed businesspeople, commissioned employees and individuals in many other occupations have all
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The logbook has become the acid test for determining whether vehicle expense claims are reasonable and
legitimate. It is up to the taxpayer to prove a claim is valid. The revenue agency has also administratively ruled that in cases where an employer provides an employee with a vehicle, the employer is responsible for ensuring the employee keeps an
accurate log of vehicle use to determine taxable employment benefits.
A log for each vehicle should
The deductible portion of vehicle expenses will be prorated based on the percentage of business use in total expenses. Trips between an employee’s residence and place of business are considered personal use.
Three tax cost elements fit into the claim mix of eligible business expenses for vehicles:
- The capital cost of the vehicle for capital cost allowance purposes.
- Deductible current or operating costs such as oil, gas, repairs and
insurance. - Input tax credit claims for Goods and Services Tax purposes, such as GST rebates for employees and partners.
These items also come into play when calculating taxable employee benefits, standby charges and operating benefits, for employer-provided company vehicles.
There are several key business-use percentage thresholds that businesses need to substantiate with a log for certain types of motor vehicles considered to be automobiles. The revenue agency commonly challenges such claims. If the business use cannot be supported or verified, the vehicle will be classified as a passenger vehicle subject to the $30,000 capital cost limit for capital cost allowance and GST input tax credits, $800 per month leasing costs and $300 per month interest deduction limits.
If the log supports the thresholds, the vehicle will be classified as a
motor vehicle and the above limits will not apply.
The business-use thresholds include 50 percent for pick-up trucks and vans with seating for three or fewer passengers to transport goods or equipment and 90 percent for extended-cab pick-up trucks, vans or sport utility vehicles with more than three-passenger seating used to transport goods, equipment or passengers.
Larry Roche is a tax analyst with farm taxation and planning specialists Farm Business Consultants Inc. His views do not necessarily reflect those of The Western Producer. Roche can be contacted at fbc@fbc.ca or call 800-860-7011.
