Proving Automobile Business Use

Many restaurant owners use their automobiles for picking up supplies for the business, researching other restaurants, and making trips related to the restaurant’s operations. In Canada, individuals are able to claim a reasonable portion of their automobile expenses against their employment income from the business.  Even if you don’t draw a salary, you’re still considered an employee, by being a director of the company.

A “reasonable portion” is usually considered to be the percentage that the business kilometres is of the total kilometres driven during the year.  This percentage is applied to all automobile related expenses, such as gas, oil, repairs and maintenance, insurance, licence costs, and leasing (or capital cost allowance and car loan interest).  There are some restrictions on leasing and capital cost allowance, but I won’t go into those here.

Expenses related to the use of a car for employment or business purposes has always been an area that attracts the attention of the CRA.  Apparently, some taxpayers take liberties when estimating the percentage of business use of a car!  The documentation required to properly support a claim are pretty onerous.

The Canada Revenue Agency has always required the use of a mileage log to keep track of the business use of each automobile.  In the past, they may have allowed automobile expenses without a mileage log, as long as the expenses appeared to be reasonable.  They always stipulated that if a log was not maintained in the future, all automobile expenses would be disallowed.

Well, it seems that they are now disallowing most automobile expense claims unless a proper mileage log is maintained.  In other words, you need to prove your business trips. If you have ever tried to maintain a mileage log, it can be quite an annoyance.  We’re usually in a rush to be somewhere and it takes time to write down the details of each trip.  Other times, we forget to write the trips down, making the log incomplete.

There is a solution.  If you have a smart phone, there are apps available to help you keep track of your trips.  I found a pretty good app that works on my Android phone, and it’s free.  It’s called MyDriversLog.  It works by using your phone’s GPS to track each trip (it has to be turned on).  If you have a Bluetooth device, the app will start a trip as soon as the device connects to your phone.  When you arrive at the destination, turn off or disconnect the Bluetooth device to automatically end the trip recording.  The app can also be started and stopped manually, by pressing a button on-screen.

You can add notes for each trip, and mark them as “Business” or “Private”.  The trip log can be exported to Excel for more detailed notes and summarizing.  Also, you can create an account with the developer (free) and log in from your desktop to view your trips and download monthly details into Excel.

I’ve been using it for the last three months, and I’ve found it to be quite a time-saver.  There are many apps on the market for all types of phones.  Find the one that’s easiest for you to use and start keeping track of your automobile usage.  Otherwise, you may be in for a big shock when the CRA denies your claim for automobile expenses!

UPDATE:

I have been using a mileage tracking app for five years now.  I have also been through a CRA review of my automobile expenses related to HST ITC claims.  By maintaining an electronic log of my trips, I was able to support my percentage business use of my car to the satisfaction of the CRA.

If you would like more information about this and other tax related topics, please visit my website at paulshewittcpa.ca.

One Reply to “Proving Automobile Business Use”

  1. I operate a pizza delivery restaurant and was curious what the best way is to compensate the delivery drivers for use of their personal vehicles? If I pay them an allowance that is not based upon a per km rate then CRA may consider it a taxable benefit but keeping track of kms is very difficult in this situation since we don’t own the vehicles. There must be an easier more practical way? If we pay them a flat amount per delivery or an hourly premium then that could also be considered taxable income correct? Any practical solutions would be helpful. Thanks.

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