Using a vehicle for your business

A few tax tips for those who can use vehicle expenses against income.

As 2012 draws to a close and you happen upon your vehicle log book – your blank log book perhaps – tucked in your sun visor or glove compartment you may experience a little shiver as you realize another tax season draws near.

A few tax tips for those who can use vehicle expenses against income.

Don’t forget to complete your vehicle log book every day … or maybe not?  Read on.

If you have diligently been completing your log book for 2012 then you’re well on your way to helping yourself this year, and also for 2013 given CRA’s new rule.

Now if you haven’t been so diligent in the latter part of 2012, but you have a complete log book for 2011 plus a 2012 log book for at least three months, you may be in luck.

CRA introduced a simplified log book method in 2012 to make life a little more pleasant for those who use a vehicle for business and are eligible to write off those expenses.

Prior to 2012, every kilometer driven had to be accounted for in terms of business and personal use so that the costs of operating that vehicle could be apportioned accordingly for tax purposes.  In other words, if 20,000 kilometres out of a total of 30,000 driven were for business purposes, then 67 per cent of the expenses incurred could be used as a business expense.

With the new CRA rule, the same math applies but as long as there is a base 12 month period established where all the mileage is on record, then a person only has to log a three month period sometime each taxation year to prove the established rate remains applicable.

So if you have a complete 2011 log book, only 3 months have to be logged in 2012 (it’s now November btw), and likewise for future years.

If at the end of the three month period you tracked, the rate is within 10 per cent of the base year rate for those same months, the entire year’s expenses (assuming you have accumulated all the receipts during the year) can be apportioned according to that base year’s annual rate.

But of course CRA has created a formula to test this 10 per cent rule, so check out their website if you do have a variance you are uncertain about.

On the flip side, if instead of paying all your own business use of vehicle expenses and deducting those as a business expense, you receive a vehicle allowance from an employer that reimburses you for those costs, the non-taxable maximum rates for 2012 are $0.53/km for the first 5,000 km and $0.47 for each additional kilometer.  This amount flows tax free to you.  Any amount paid over these rates is a taxable benefit to be reported on your T4.  A log book is still required.

Likewise, if your employer provides a company vehicle to you and pays for all expenses for that vehicle and some of the use of that vehicle is personal, a taxable benefit of $0.26/km must be reported on your T4, unless you reimburse your employer for the personal usage portion of the expenses for that vehicle.  Again, a log book is needed.

On a related matter, the maximum value that can be attributed for a vehicle purchased for business use in 2012 is $30,000 plus taxes for capital cost allowance purposes and the maximum interest cost for the loan on that vehicle is $300/month. For leased vehicles, the monthly maximum expense is $800 plus taxes.

CRA will soon announce new rates and values pertaining to all this for 2013.

Ron Clarke has his MBA and is a business owner in Trail, providing accounting and tax services. Email him at ron.clarke@JBSbiz.ca. To read previous Tax Tips & Pits columns visit www.JBSbiz.net.