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What Vehicle Expenses Can be Deducted by a Business?

September 5th, 2022


Income Tax Act s. 18(1)

When any vehicle is used for both business and pleasure purposes, it is important to keep a External link opens in new tab or windowtrip log to identify the business use of each vehicle.


Vehicle Expenses - Unincorporated Businesses

An External link opens in new tab or windowunincorporated business (proprietorship or partnership) may deduct all reasonable External link opens in new tab or windowmotor vehicle expenses which are related to the business use of the vehicle (see External link opens in new tab or windowtrip log article), after applying the External link opens in new tab or windowlimitations 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 External link opens in new tab or windowIT-521R Motor vehicle expenses claimed by self-employed individuals (Archived).


Vehicle Expenses - Corporations


External link opens in new tab or windowCorporations may deduct all reasonable External link opens in new tab or windowmotor vehicle expenses, after applying the External link opens in new tab or windowlimitations regarding passenger vehicles


If a shareholder or employee uses a company-owned External link opens in new tab or windowautomobile for personal purposes, a External link opens in new tab or windowtaxable 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 External link opens in new tab or windowtrip log of vehicle travel!!


What Expenses are Included as Motor Vehicle Expenses?


Motor vehicle expenses include interest on loans to purchase automobiles, External link opens in new tab or windowcapital cost allowance (CCA), automobile leasing costs, and operating expenses such as fuel, oil, maintenance and repairs, license 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.


If you have any questions regarding vehicle expenses or questions regarding other financial matters please External link opens in new tab or windowcall us or book an appointment and we help make It Figure for you.


Source: External link opens in new tab or windowTaxtips.ca