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Deducting the use of a car_ van or pick-up for business

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					Page 30 TRUCK NEWS                                                                        July 2011
                     tax talk

                     Deducting the use of a car,
                     van or pick-up for business
                     Know the rules or pay the price
                     Last month I got a call from a cli-
                     ent with questions about a vehicle
                     he planned to lease for his busi-
                     ness. We’ve been his accountant
                                                               Tax Talk
                     for a long time and know each
                     other well.                               Scott taylor
                       When he mentioned some-
                     thing about a pick-up truck, I en-      hicle separately based on its own
                     visioned a Ford or a Chevy – he’s       business use.
                     a pretty austere guy.
                                                                          Valid trips
                       But my client, an owner/opera-
                     tor whose hard work and smart           There are all kinds of business
                     planning over the years certain-        reasons to use your vehicle, from
                     ly has paid off, had something          a revenue-producing courier de-
                     else in mind: a Cadillac Esca-          livery to a trip that involves bank-
                     lade EXT.                               ing, a run to the parts store, or a
                       He rattled off more features          meeting with your carrier.
                     than an ordinary dealer sticker            What’s not valid is the drive
                     should have room for. The only          from home to your truck. This is
                     thing missing was a big red flag        considered commuting – a per-
                     to wave at the tax auditor.             sonal trip. I’ve argued this with
                       One of the great myths of being       CRA numerous times, using the
                     self-employed is that if you lease      logic that since the business of-
                     a service vehicle you can write off     fice is in the home, then driving
                     100% of the payment and related         from the “office” to a work site is
                     expenses as business.                   business travel. I don’t think I’m
                       Others will tell you that the         wrong, but I haven’t found an au-
                     type of vehicle – ie. pick-up truck     ditor yet who has bought the ar-
                     vs. car – affects the amount or         gument.
                     percentage of expenses you can
                                                                              Financing
                     claim. Neither is true.
                       In fact, a tax auditor doesn’t        If your vehicle is categorized as
                     care what type of vehicle you           a “passenger vehicle,” your claim
                     have or how you finance it. He          for your financing expense (ie.
                     only wants to see that your ve-         lease payments or CCA and in-
                     hicle-related expenses were in-         terest costs) has limits. Lease
                     curred to earn business income          payments can’t exceed $800 per
                     and that you have documents to          month.
                     support your claims.                      If you purchased the vehi-
                                                             cle, the cost can’t be more than
                             Allowable expenses
                                                             $30,000.
                     CRA is clear about the type of            If the vehicle cost more, you can
                     vehicle expenses you can deduct.        only add $30,000 plus the appro-
                     These include licence and reg-          priate taxes (PST, GST or HST)
                     istration fees; fuel costs; insur-      onto your CCA schedule. The
                     ance; interest on money borrowed        other cost of purchasing – inter-
                     to buy the vehicle; maintenance         est on your loan – is limited to $10
                     and repair cost; and your lease         per day. So if you own the vehicle
                     payment or capital cost allowance       for the entire year, $3,650 is the
                     (CCA or depreciation).                  maximum claim. If you own it for
                       To support your claim, you must       less, you must prorate the interest
                     keep a record of the total amount       expense claim for the appropriate
                     of kilometres you drive in a year       number of days.
                     (ie. your odometer readings on
                                                                          Resources
                     January 1 and December 31).
                     Then, each time you use the vehi-       CRA’s guide, T4 0 02 Business
                     cle for business, list the date, des-   and Professional Income, is a
                     tination, purpose, and the number       great reference on motor vehi-
                     of kilometres you drive.                cle expenses (look for it online
                       Now you can determine the             at www.cra-arc.gc.ca). Note how
                     percentage of business use to be        many times it mentions support-
                     applied against your expenses.          ing claims with a detailed record.
                     Divide your business-use kilo-            My client knows it. When he
                     metres by your total kilometres         picked up his sweet new ride, one
                     for the year, giving you anywhere       of the first things he did was re-
                     from 1% to 100%.                        cord the date, mileage, and reason
                       If you can’t produce a journal        for the trip in a fresh notebook
                     or log detailing the business use       and tuck it into the driver’s side
                     of the vehicle, validating that per-    door pocket. n
                     centage figure, CRA can deny or
                     reduce your claim.                      – Scott Taylor is vice-president of
                       If you use more than one vehi-        TFS Group, providing account-
                     cle for your business, keep a sep-      ing, bookkeeping, tax return prep-
                     arate record that shows the total       aration, and other business ser-
                     and business kilometres you drive       vices for owner/operators. Learn
                     in each. Calculate and deduct the       more at www.tfsgroup.com or call
                     cost to run and maintain each ve-       800- 461-5970.

				
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