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Many Canadian salespeople spend significant portions of their work hours behind the wheel traveling to and from client meetings, trade events, and presentations. There are many permissible automobile expenses that you can use as part of tax deductions on your return - providing you satisfy certain criteria.
The tax rules governing business-related travel in Canada are complicated so let's investigate ways to make the most of the work-vehicle expenses on your tax return. Weighing the costs with the benefits can also help provide a bigger picture and facilitate the decision on whether or not to proceed with your purchase or lease.
Based on your status - such as if you're self-employed, drive your own car for work, or use a company vehicle - we've compiled this helpful guide with some top tips for ensuring the most optimal tax return possible.
Before we delve into the different scenarios, it's vital to begin by highlighting the necessity of keeping a detailed logbook
It is your responsibility to keep records to support your vehicle expense claims. This means that you should write down how many kilometers you drive for work, where you're going, the purpose of the trip and specific expenses you accrue.
Remember: The more you claim, the more likely the Canada Revenue Agency will be to delve deeper into your claims.
How self-employed salespeople can make the most of the work-vehicle expenses on a tax return
Self-employed people can claim deductions for license fees, insurance, maintenance incurred while driving for work purposes, and gas costs.
If you're your own boss, you should still calculate your expenses the same way as if you drive your own car for work. Except, of course, you don't have to have an employer approve it.
Providing that you maintain that all-important logbook and calculate expenses based on the overall kilometres you drove during the year - and the total you drove for business purposes - you'll be equipped with the information needed to claim as a self-employed person.
How salespeople who get paid to drive their own car can make the most of work-vehicle expenses on a tax return
In situations where your employer already reimburses you for work-related driving costs (or they provide an automobile and motor vehicle allowance), you can't claim vehicle expenses. Doing so is essentially 'double-dipping' and is a big no-no!
For it to be considered to be tax-free, the allowance claimed by salespeople who get paid to drive their own car should be based on a reasonable rate per kilometres driven. For 2016 and 2017, the CRA considered the following reasonable:
If you incur out-of-pocket gas costs when driving for work-related reasons, you also can apply for a full reimbursement on your tax return. See more details about regional allowances here.
Remember: If your driving expenses are more than your allowance, you should report the allowance as income and deduct your expenses.
How salespeople who drive their own car for work can make the most of work-vehicle expenses on a tax return
Do you use a personal vehicle for work? If so, you can claim tax deductions - such as gas, insurance, registration fees, repairs and general maintenance - providing that you meet the following criteria:
You pay out-of-pocket work-related travel fees. In this scenario you'll need to get your employer's confirmation - in the form of a signed T2200 form.
You work away from the office on a regular basis. For example, if you visit clients or take meetings in other cities. You may also be able to claim a percentage of the capital cost of a car or the leasing payments, in addition to the interest paid on the loan to buy your vehicle. These deductions depend on your work-to-personal use ratio.
Remember: A commute to and from work does not usually count as legitimate work-related travel.
How salespeople who drive a company car can make the most of work-vehicle expenses on a tax return
Does your employer provide you with a car? If so, that's considered a taxable benefit and there are two key ways that you might get taxed:
A reduction on this benefit can happen if you demonstrate that you're using the car for business over 50% of the time. If you use the car just for work and leave it at the office at the end of the day, this charge will be omitted.
Remember: Keep personal use of your company car to a minimum to avoid having it considered as a taxable benefit. If it helps, you can bypass this charge completely by reimbursing your employer for all car-related expenses.
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