If you earn self-employed income and use your motor vehicle for the purpose of earning a profit then you will be able to claim the related business expenses on your income tax return and use them to reduce the amount of taxable business income you earned.
On line 9281 of your T2125 form, Motor vehicle expenses, you may be eligible to claim:
- Licence and registration fees;
- Fuel and oil costs;
- Interest on money borrowed to buy a motor vehicle;
- Maintenance and repairs; and
- Leasing costs.
If you also use a motor vehicle for personal use
Then 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.
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. Tying that into a calendar also helps to support a claim.
Then it’s a relatively simple matter to tally how many kilometers you drove for business purposes and how many kilometers you drove for personal reasons and calculate how much of a percentage of your vehicle use was actually directly related to earning income.
Keeping a logbook of each and every trip you make is a tedious process, and for self-employed Canadians, there is some good news on this front – QuickBooks Self-Employed has an app that takes care of the tracking of trips for you, and once you arrive at your destination, the app asks you if that trip was personal or for business. Brilliant, eh? Where was this when I was self-employed?
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.
More good news, as QuickBooks Self-Employed also tracks receipts, allowing the user to take a picture of the receipt and sort it as being either a business expense or a personal expense – the rest of the sorting can be done at home on your laptop or iPad.
Then, when filing your return using TurboTax Self-Employed, it will guide you through the self-employment section, T2125, and the rest of your T1 tax return and make sure you maximize all your business expenses.
TurboTax has you covered!