Attention Canadian Self-Employed Individuals! Tax Deduction Tips for Vehicle Expenses

Did you know that you can deduct vehicle expenses related to your business when filing your taxes? This can help you save a significant amount on your taxes! Here are some detailed tips and practical advice to ensure you make the most of these deductions.

How to Deduct Vehicle Expenses:

Track Your Mileage:

Record the mileage for every business-related trip, including the start and end locations.
At the beginning and end of the year, note your vehicle’s total mileage.

Calculate Business Use Percentage:

At year-end, divide the total business kilometers driven by the total kilometers driven to get the business use percentage.
For example, if you drove 20,000 km in a year and 5,000 km were for business, your business use percentage would be 25%.

Keep All Related Receipts:

Save all receipts for vehicle-related expenses, including fuel, maintenance, insurance, and licensing fees.
These receipts will help you accurately calculate your deductible expenses.

Specific Deductible Expenses Include:

licence and registration fees
fuel and oil costs
electricity costs for zero-emission vehicles
insurance
interest on money borrowed to buy a motor vehicle
maintenance and repairs
leasing costs

Important Considerations:

Commuting Doesn’t Count: Mileage for commuting from home to a fixed place of business typically doesn’t count as business mileage.
Detailed Records: The Canada Revenue Agency (CRA) may require detailed records, so ensure you keep all logs and receipts. It’s recommended to keep them for at least six years.
Simplified Method: If calculating actual expenses is too complex, you can use the simplified method, which allows a fixed rate per kilometer. For 2023, the simplified rate is 59 cents per kilometer.

Additional Tips:
According to the Canada Revenue Agency (CRA), self-employed individuals should ensure all reported information is accurate and keep all relevant records for at least six years in case of an audit. For more detailed information, you can refer to the CRA’s comprehensive guide: CRA – Motor Vehicle Expenses.

Properly deducting vehicle expenses not only reduces your tax burden but also gives you a clearer picture of your business expenses. We hope these tips are helpful!