I find a lot of people using a vehicle for work don’t keep mileage logs. It doesn’t matter if you’re self-employed or working for a corporation (even your own corporation), using the vehicle 100% or 50% for business, a mileage log must be kept. The CRA requires some kind of proof for your claim.
The log should be comprised of:
- odometer reading at the start and end of the year
- number of kilometers driven
What Counts as a Business Trip?
Very basically, anything done to earn business income.For example:
- Trips between offices
- Visits and meals with clients
- Business-related entertainment
- Trips for business travel
- Running errands for your business
- Driving to town to buy office supplies
Please note that driving to and from your place of business doesn’t count as a business trip.
Keeping a Log is a Lot of Work!
No kidding! The CRA does have a simplified logbook approach where you track one full year of mileage as a base year, then a three month period for each following year to compare to the base. If the percentage of business use changes by more than 10% in the following years, a full year must be completed again to determine a new base. Base year records must be kept for as long as they are the base year. Later year records must be kept for six years after the filing date of the tax return.
I believe that the best way to prove your automobile claim is to keep full year detailed records every year. There are apps you can use to make tracking easier. Through artificial intelligence the app knows when you’re travelling. At the end of the trip you swipe one way for business and the other way for personal. They are usually free for a certain number of trips, but then a paid subscription may be needed after that. These links will take you to some of the better known apps.
Be aware that the deduction calculators within these apps are estimates only. You still need to keep all your gas, insurance, license and registration, and repairs and maintenance receipts.
You can also use an old fashioned spreadsheet and google maps. As a lover of spreadsheets I use this method. Every month or so I go through my calendar and update my spreadsheet. I tend to go to the same places every month so there’s not a lot of google map searches.
What About Company Owned Vehicles?
Surely the corporation doesn’t need to prove the automobile is for business. No, but the corporation does need to know personal kilometers driven. If an employee drives a company provided vehicle for personal reasons or you reimburse your employee for the personal driving of their own vehicle (usually a flat fee car allowance), there is a taxable benefit that must be calculated and included in their income. This applies to shareholders as well. The easiest way to do this is with a mileage log. You can track business or personal trips, whichever is easiest.
Personal driving includes:
- vacation trips
- driving to conduct personal activities
- travel between home and a regular place of employment, other than a point of call
- travel between home and a regular place of employment even if you insist the employee drive the vehicle home, such as when they are on call
A regular place of employment may include:
- the office where your employee reports daily
- several store locations that a manager visits monthly
- a client’s premises when an employee reports there daily for a 6 month project
- a client’s premises if the employee must attend biweekly meetings there
This is way too much work, I’m not going to keep a log!
As a self-employed individual, if you don’t keep a log and you’re reviewed or audited by the CRA they will disallow the claim. You will then have to pay tax and possibly interest and penalties on the claimed amount at your tax rate.
If a corporation doesn’t include the personal portion of any automobile or allowance as a taxable benefit and deduct the proper source deductions (EI, CPP, and income tax) the CRA will find the corporation liable for employee and employer portions. They have the discretion to go back seven years! In addition, the directors of the corporation at the time of the failure are jointly and severally, or solidarily, liable along with the corporation, to pay the amount due. This amount includes penalties and interest.
For more details or information on mileage logs, please contact Pam Little, CPA.
Pam Little is a Chartered Professional Accountant with over 20 years of experience. She helps small and mid-sized businesses manage their revenue and expenses and maximize tax benefits. To book a free consultation contact Pam Little, CPA at firstname.lastname@example.org or call 416-268-1605.