Business -> Vehicle expenses

What vehicle expenses can be deducted by a business?

When any vehicle is used for both business and pleasure purposes, it is important to keep a trip log to identify the business use of each vehicle.

Unincorporated businesses

Income tax act s. 18(1)

An unincorporated business may deduct all reasonable motor vehicle expenses which are related to the business use of the vehicle (see trip log article), after applying the limitations regarding passenger vehicles.  If, for instance, 60% of your mileage is for business purposes (40% personal), you can deduct 60% of the expenses related to the vehicle.

See also the CRA interpretation bulletin IT-521R Motor vehicle expenses claimed by self-employed individuals.

Corporations

Corporations may deduct all reasonable motor vehicle expenses, after applying the limitations regarding passenger vehicles.  

If a shareholder or employee uses a company-owned automobile for personal purposes, a taxable benefit will be added to their income.  The rules regarding automobile taxable benefits were changed starting in 2003, making it less costly to employees and shareholders to use company-owned vehicles for personal use.

Before making the decision as to whether to purchase an automobile personally or in the company name, all the income tax implications should be reviewed.

What expenses are included as motor vehicle expenses?

Motor vehicle expenses include interest on loans to purchase automobiles, capital cost allowance (CCA), automobile leasing costs, and operating expenses such as fuel, oil, maintenance and repairs, licence and insurance costs, and car washes.

Parking costs are not included as motor vehicle expenses.  When the parking is related to business use of the motor vehicle it is 100% deductible, and when it is related to personal use it is not deductible.

Tax tip:  When a vehicle is driven for both business and pleasure use, a trip log must be used to record the mileage.