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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.
Income Tax Act s. 18(1)
An unincorporated business (proprietorship or partnership) 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 Canada Revenue Agency (CRA) interpretation bulletin IT-521R Motor vehicle expenses claimed by self-employed individuals (Archived).
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.
In August 2019 CRA started an audit project related to corporate car expenses. Make sure you keep a trip log of vehicle travel!!
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.
Canada Revenue (CRA) Resources
Tax Tip: When a vehicle is driven for both business and pleasure use, a trip log must be used to record the mileage.
Revised: January 04, 2023
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