What Motor Vehicle Expenses Can Your Small Business Claim?

If you use one or more motor vehicles in your business, you’ll be able to claim the related business expenses on your income tax return.

On line 9281 of your T1 tax return, Motor vehicle expenses, you can claim:

  • licence and registration fees;
  • fuel and oil costs;
  • insurance;
  • interest on money borrowed to buy a motor vehicle;
  • maintenance and repairs; and
  • leasing costs.

(Notice that there is no mention here of the cost of a motor vehicle. That’s because that expense can only be written off over time through Capital Cost Allowance on Form T2125.)

There is a catch, though.

1) If you also use a motor vehicle for personal use

You can only deduct the portion of the expenses that are directly related to using your vehicle for earning income – except for parking fees and the cost of supplementary business insurance for your vehicle; you can claim the entire cost of those expenses.

So if you use your vehicle for both business and personal use and end up with a list of expenses similar to this one:

  • Licence and registration fees – $200
  • Gas and oil – $2,400
  • Insurance – $1,200
  • Interest – $650
  • Maintenance and repairs – $400
  • Total expenses $4,850

You can only claim the portion of these expenses that are directly related to business use.

2) How do you know how much of your use of the vehicle was directly business related and how much was personal?

The obvious way to do this (and the way the Canada Revenue Agency (CRA) recommends) is to use a logbook. “The best evidence to support the use of a vehicle is an accurate logbook of business travel maintained for the entire year, showing for each business trip, the destination, the reason for the trip and the distance covered.”

Then it’s a relatively simple matter to tally how many kilometres you drove for business purposes and how many kilometres you drove for personal reasons and calculate how much of a percentage of your vehicle use was actually directly related to earning income.

Just as obviously, keeping a logbook of each and every trip you make is a tedious process. There’s some good news on this front, though – the CRA now provides a Simplified Logbook option for those who have kept a logbook before (since 2009).

Once you have kept a logbook for one full year to establish the base year, you can then use a three-month sample logbook to extrapolate business use for the entire year, as long as the usage is within the same range (within 10%) of the results of the base year. Read more details about using a Simplified Logbook here (CRA).

3) Remember all your expenses need to be documented.

Gas, oil changes, that windshield repair – as always, if you want to claim it, you need the receipt. Putting all your vehicle receipts in one place as soon as you get them is a good habit to get into.

And another good habit to get into is using TurboTax Home & Business to do and file your income tax. Designed specifically for contractors and sole proprietors, it will guide you through the self-employment section of the T1 tax return and make sure you maximize all your business expenses.