Basics, Expenses, Getting Organized, Self-Employed, Tips & Advice

How to Deduct Mileage If You Are Self-Employed

When you’re self-employed, or have self-employed income, the Canada Revenue Agency (CRA) allows you to take a deduction for the mileage, or number of kilometres you rack up in your vehicle for business-related activities.

To calculate your deduction properly, you’ll need to keep track of your trips throughout the year, and also hang on to any receipts for vehicle-related purchases. While you won’t need to send these in with your return when you file, you will need to keep these documents with your tax records in case the CRA ever wants to know how you calculated your deduction.

If you use your vehicle for business, you might be able to take a mileage deduction.

Full Logbook

If you claim this deduction, the CRA requires you to keep a full logbook that journals your travel activities.

The cornerstone of your mileage deduction is of course, your mileage. Your logbook should list the odometer reading on the first day of the tax year (or the odometer reading on the first day you decided to start using your vehicle for business), and the odometer reading for the last day of the tax year. Then for each trip, note the date, the odometer reading when you begin and end the trip, the address or destination of your travel and the business purpose for the trip. Vancouver tax professional Darryl Francis notes “Keeping a logbook is not an option – it’s a requirement. Simply estimating your mileage is not enough. You need to have something to prove your deduction if you’re ever audited, and estimates unfortunately are not audit-proof.”

Calculating Your Mileage Deduction

Your mileage deduction isn’t hard to calculate if you’ve kept accurate records in your logbook.

You’ll need two figures:

  1. Total kilometres you drove during the year,
  2. Total kilometres you drove for business purposes.

Once you have these two numbers, you simply plug them into the CRA formula for calculating your mileage deduction. You can deduct the full amount of allowable expenses for the car (for the portion of time you used the vehicle for business purposes). So, if you had $5,000 in total car expenses (licence fees, insurance, maintenance, etc.) and drove 10,000 miles for business out of 20,000 miles total for the year, your deduction for vehicle expenses would be $2,500.

Other Deductible Expenses

In addition to mileage expenses, the CRA also allows self-employed individuals to add other vehicle expenses to the total motor vehicle deduction.

Additional expenses include:

  • Fuel
  • License and registration fees
  • Insurance
  • Lease expenses,
  • Maintenance and repairs.

Similar to the mileage expenses you deduct, you can only claim the costs associated with your business travels. For some expenses, like repairs and maintenance, you may not be able to determine the cost directly related to your business use. In this instance, you’ll need to apply the percentage you use in your mileage calculations to these other costs.

Lastly, you can deduct the amount of lease payments for a vehicle you used for business. There is a limit, however, on how much of the leasing costs you can deduct if you use a passenger vehicle. The CRA website has a calculator for estimating your leasing cost deduction limit; and, of course, TurboTax software will calculate this automatically for you based on info you fill in.

For those self-employed Canadians who want to ensure that they claim every eligible deduction possible, the QuickBooks Self-Employed App is exactly what you need to track your mileage for business, for personal use and even those dead kilometers which are not claimed on your drivers summary, in the case of ride share driving.

QuickBooks Self-Employed is also a fantastic tool to use for keeping track of expenses as it allows the user to categorize expenses as being either personal or business, with the swipe of a finger. This makes year-end tax filing using TurboTax Self-Employed so much easier and more accurate. It’s a must-have for those who want to pay the least amount of taxes legally possible.

Capital Cost Allowance

Capital Cost Allowance, or CCA, is a cost-recovery method that allows you to recover the physical cost of your vehicle. While you can’t deduct the entire cost in one year, the CRA allows you to recover a little bit each year through the CCA deduction. This also accounts for the depreciating value of your property over time.

References & Resources

  • Darryl Francis, Professional Tax Preparer and Accountant; Vancouver, British Columbia