Can You Cash In On Your Car When You Use It For Business?
February 16, 2017
When it comes time to file your taxes as a business owner, there are several costs that can be claimed and deducted. One major cost being a business vehicle. While there are limitations and stipulations as to what can be claimed and how much, generally a large portion of costs surrounding a business vehicle can be deducted from your total income taxes. Let’s break down what those deductions are, and how they can be calculated to learn just how much you can claim this tax season.
What Is A Business Vehicle?
By definition, a business vehicle is a car, van, pick-up truck or SUV used for the purpose of benefiting your business. While a business vehicle may be used as your sole mode of transportation outside of work, the percentage of business use can be calculated and used to determine the amount of costs which can be deductible. However, there are some limitations as to what can qualify as a work vehicle. Vehicles used as equipment such as dump trucks, do not qualify. Nor do vehicles used for hire, such as cabs, airport transportation or limo services.
Typically, the rate at which you can claim of a deduction is based on kilometres driven. However before you can claim kilometers you have to keep record of all kilometers the vehicle is used for. You will need a record of total kilometres the vehicle was used in the year, and the total number of kilometers used for business. But keep in mind, commuting to and from work doesn’t count towards your deductible amount of kilometers. In Ontario, you are given 54 cents per kilometre, but only for your first 5,000km. After that, the allowance rate drops to 48 cents per kilometre.
What Can I Claim?
While it’s important to keep a record of everything used towards your business, it is especially important come tax time. Having a clear idea of mileage and costs can help you, and your accountant, to determine your claimable and deductible amounts. Things you should always keep a record of when it comes to your business vehicle include gas, tires, maintenance, repairs, registration fees, licenses, vehicle loan interest, insurance, loan and lease payments, garage rent and even tolls and parking. While some may seem menial, these costs can all be added to your claims and can easily add up when filing your taxes.
Standard Mileage Rate VS Actual Expenses
When claiming your vehicle as a business expense you can choose either the standard mileage rate or the actual expense. Typically, the more economical a vehicle is to operate, the more likely it is that the standard mileage rate will give you a bigger deduction, and the higher the operating costs of a vehicle are, the more beneficial an actual cost method will be.
Let’s take a look a look at how you would calculate your deduction using both methods.
For actual cost method, find the total amount of kilometres used for business. Hypothetically, if you put on 18,000km in a year and recorded 16,202 kilometers of business use, that would equate to 90% of the total kilometres being used for business. So now let’s say in a year you spent $3,000 on gas and repairs, $500 on fees and taxes and $1,500 on insurance and interest. This would bring your annual total to $5,000 which you paid in costs throughout the year. You’d then take that total and divide it by the percentage of business use kilometres. This would give you a final number of how much can be deducted, which would be about $4,500.
16,202km ÷ 18,000 = 0.9 (90%)
Total annual cost ($5,000) x .9 = $4,500
For the standard mileage method, the calculations are a little simpler. Basically, you would calculate your kilometres used for business purposes the same way, and multiply it by the 54 cents you’re entitled to per kilometre. In this case your total would be $8,076.96 as the deductible amount.
5,000km x .54 = $2,700 + 11,202km x .48 = $5,376.96
Understanding and calculating what can be deducted from the costs of your business vehicle can be a confusing process, so it is always best to consult an accountant first. If you have any questions about claiming and deducting expenses from your business at tax time, don’t hesitate to give us a call at 705-728-6469. Our dedicated team is always happy to help you better understand your business expenses and their respective deductions to help ensure that you’re headed in the right direction with your business and your bottom line.