Motor Vehicle Expenses – General Rules
With gasoline prices at record highs with no apparent sign of relief in the near future, everyone who uses their car for work or business is experiencing the pain at the pump. It would help to ease some of the burden if one could deduct various vehicle expenses when completing one’s personal income tax return. The Canadian Income Tax Act allows a deduction for your motor vehicle expenses made for the purpose of gaining or producing income from a business or employment; and restricts certain deductions to ensure that only true business related expenses may be claimed.
First, you should know what kind of vehicle you are driving because it can affect the expenses you deduct. For income tax purposes, there are two types of vehicles:
- Motor vehicles – an automotive vehicle designed or adapted for use on highways and streets. A motor vehicle does not include a trolley bus or a vehicle designed or adapted to be operated only on rails.
- Passenger vehicles – a motor vehicle designed or adapted primarily to carry people on highways and streets. It seats a driver and no more than eight passengers. Most cars, station wagons, vans and some pick-up trucks are passenger vehicles. These vehicles are subject to the limits for capital cost allowance (CCA), interest and leasing costs.
The Canada Revenue Agency provides a “vehicle definitions chart” which will assist you in determining the type of vehicle you operate. This chart is available on the Canada Revenue Agency website (www.cra.gc.ca).
As a salaried employee, you are able to deduct motor vehicle expenses if you meet all of the following conditions:
- You were normally required to work away from your employer’s place of business or in different places.
- Under your contract of employment, you had to pay your own motor vehicle expenses.
- You did not receive a non-taxable allowance for motor vehicle expenses. Generally, an allowance is non-taxable when it is based solely on a reasonable per-kilometer rate.
- Your employer has completed and signed Form T2200, Declaration of Conditions of Employment.
There are similar conditions for employees that earn commissions.
The various types of expenses that you can deduct include the following:
- Fuel (gasoline, propane, oil);
- Maintenance and repairs;
- Licence and registration fees;
- Capital cost allowance;
- Eligible interest you paid on a loan used to buy the motor vehicle;
- Eligible leasing costs;
- Car washes;
- Parking; and