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Automobile Expenses

If you use a motor vehicle to earn business income, you can deduct related expenses. You have to be able to provide receipts to support the expenses, and you have to record the number of kilometers you drove for personal and business purposes.

Automobile expenses that you can deduct include:

  • license and registration fees
  • fuel
  • insurance
  • interest
  • maintenance and repairs
  • You can also claim capital cost allowance on your vehicle. The kind of vehicle you own can affect the expenses you can deduct

Taxable Benefit

Where a "motor vehicle" is used by an individual in a taxation year partly to earn business income and partly for personal use, the deductible amount is normally that proportion of the aggregate of the

A. total operating expenses of the vehicle incurred by the individual in the year,

B. capital cost allowance and

C. interest

that the distance traveled by the vehicle to earn the business income is of the total distance traveled by the vehicle for the year.

For example, where the aggregate of (a), (b) and (c) for a year is $8,000 and the total distance traveled for the year is 32,000 kilometres of which 24,000 represent business use, the deductible amount is $6,000 determined as follows:

24,000 (business Kms) divided by 32,000 (total Kms) times $8,000 (total expense a + b + c)

= allowable deduction of $6,000

Simplified Method

If you use the simplified method of calculating vehicle expenses, you do not need to keep receipts. Instead, you must keep track of the number of kilometres you drove and what those trips were for during the year for your trips relating to Business only.

Trips related to business would be anything that directly affects the operation of your business such as traveling to the bank, picking up office supplies, visiting customers etc.

To calculate your claim for vehicle expenses using the simplified method, multiply the kilometres you drove for your trips relating to Business, by the cent per kilometre rate for the province or territory where your travel began.

Automobile allowance rates

Reasonable per-kilometre allowance

If you pay your employee an allowance based on a per-kilometre rate that we consider reasonable, do not deduct CPP contributions, EI premiums, or income tax.

The type of vehicle and the driving conditions usually determine whether we consider an allowance to be reasonable. The per-kilometre rates that we usually consider reasonable are the amounts prescribed in section 7306 of the Income Tax Regulations. Although these rates represent the maximum amount you can deduct as business expenses, you can use them as a guideline to determine if the allowance paid to your employee is reasonable.

We consider an allowance to be reasonable if all the following conditions apply:

  • The allowance is based only on the number of business kilometres driven in a year.
  • The rate per-kilometre is reasonable.
  • You did not reimburse the employee for expenses related to the same use of the vehicle. This does not apply to situations where you reimburse an employee for toll or ferry charges or supplementary business insurance, if you have determined the allowance without including these reimbursements.

When your employees complete their income tax and benefit return, they do not include this allowance in income.

Reasonable allowance rates

For 2019, they are:

  • 58¢ per kilometre for the first 5,000 kilometres driven; and
  • 52¢ per kilometre driven after that.

In the Northwest Territories, Yukon, and Nunavut, there is an additional 4¢ per kilometre for travel.
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