If you have a business and are looking to write off some money for taxes, there are some circumstances where motor vehicle expenses can be claimed. Whenever you are using your vehicle to earn an income you can deduct your vehicle expenses on your income tax return. However, if you are using the same vehicle for personal use, you are not allowed to cover personal venture expenses. This means that if you are doing both of these things using the same vehicle, you need to keep track of which expenses were for personal use and which were for business.

Car Lease Tax Deduction Canada

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In Canada, you can deduct business expenses from leased vehicles. However, there is a limit on the amount of monthly lease payment that you are allowed to deduct. Depending on how expensive of a car you purchase, you might not be able to deduct the full amount of your lease. In Canada, the monthly lease payment that you can deduct is $800 per month plus additional HST for a total of $9600 per year.

How Do I Keep Personal Vehicle Expenses Separate from Business Expenses?

The best way to be able to separate vehicle expenses from business expenses is to keep a mileage log. Both the internal revenue service and the Canada revenue agency recommend keeping a logbook for evidence purposes. It is extremely hard to prove that some of your mileage was not done for personal reasons. Due to this, when you are using your vehicle for business purposes, it is best to use a logbook. In order to keep track of your expenses, make sure that you log things like the dates, where you were, why you were there, and how many kilometers you drove. There are actually apps that can keep track of this for you automatically by tracking your GPS location. This is a really great option if you don’t want to write down things all the time.

When Do My Business Income Taxes Have To Be Done?

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Canada keeps things relatively simple when it comes to filing income taxes. In 2017, if you need to file a tax return, you must do so before April 30th, 2017. However, normally this date falls during the week and this year is special. April 30th this year is actually on a Sunday, which means that taxpayers have an extra day to be able to file their income taxes. You are allowed to file your income taxes up until midnight on Monday, May 1st, 2017.

How Do I Avoid Keeping a Tedious Logbook for My Business Expenses?

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One great thing about the Canada revenue agency is that small business owners are allowed to cut down on their logbook keeping. You simply need to keep a logbook for three months out of the year. If you do this, you can extrapolate your driving expenses for the rest of the year. This simplified logbook is allowed after you have maintained a mileage log for at least one full year prior to using the simplified logbook. Your results for the simplified logbook must be within 10% of last years numbers, however, in most cases it will be.

Is It Cheaper to Buy a Car or to Lease a Car for Tax Purposes?

If you buy a car, one of the ways you will save money is due to the fees that are charged on leased vehicles. These cars often have fees for driving a certain number of kilometers each year. The more kilometers you drive, generally, the more you’re going to have to pay in fees. However, lease payments are almost always cheaper than monthly payments on a car loan. So, depending on if you’re buying a new or a used car, then that is something to take into consideration as well. The best way to be able to tell if it is cheaper to buy or lease a vehicle is to actually compare the prices head-to-head. Try to compare the two over the period of time that you want to keep your new vehicle. Only then will you be able to get an accurate representation of which of the options is better for you.

Allowable Motor Vehicle Expenses

The government of Canada has a list of eligible motor vehicle expenses that businesses can deduct. Outside of these automobile expenses, you are not allowed to deduct. Here is a list of the allowable motor vehicle expenses and what these vehicle expenses include:

Fuel:

Gasoline, diesel, propane, and oil that you need in order to be able to conduct your business.

Maintenance and Repairs:

Any issues that you need to repair on your business vehicle to keep it in working order.

Insurance:

Your monthly car insurance premium and things like deductibles on claims that you have to make.

License and Registration Fees:

The cost of registering your vehicle and getting/ updating your plates for it.

Capital Cost Allowance:

The GST, PST or HST that you pay for the vehicle when you purchased it as well as delivery charges for the vehicle.

Interest on a Loan:

Any money that you had to pay in interest on top of your car loan payment.

Costs of a Lease:

Eligible monthly leasing costs for your business vehicle (varies by province.)

To Conclude

Filling out your income tax can be confusing. Having no idea what you are doing can be stressful. If you are having trouble, there are people that can help you. It is extremely important to make sure that you fill out your income tax to the best of your ability. Everyone does make mistakes at times, but this is something that you should try to make perfect. If the government spots any mistakes or anything fishy, they are likely to contact you and ask for proof. Make sure that you keep all of the documents and receipts you claim. Ask any questions if you have them as running into problems down the road is not something that you are going to want to do when it comes to income tax.

Resources:

https://turbotax.intuit.ca/tips/what-motor-vehicle-expenses-can-your-small-business-claim-1988
https://turbotax.intuit.ca/tips/should-i-buy-or-lease-my-new-business-vehicle-7668
https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-229-other-employment-expenses/capital-cost-allowance.html
https://www.thebalance.com/how-to-keep-a-logbook-to-claim-motor-vehicle-expenses-2948622