Revenue Canada allows you to deduct expenses you incur to operate a motor vehicle that you use to earn business income. However, a number of factors can affect your deduction.

The type and value of the vehicle that you own (special rules apply to company owned vehicles) can affect the expenses that you deduct. For income tax purposes there are three types of vehicles; motor vehicles, automobiles and passenger vehicles.

With certain exceptions most cars, station wagons, vans and some pick-up trucks are considered passenger vehicles for income tax purposes. Under the Income Tax Act there are limits on the amount you can deduct for either capital cost allowance (CCA) or leasing expenses.

Recording Expenses

Revenue Canada permits the deduction of motor vehicle expenses when they are "reasonable" and supported by receipts.

Record the odometer reading at the beginning and end of the year (if you change cars during the year record the odometer reading for the old vehicle). This will establish the total kilometers driven during the year.

You should also maintain a daily log of the kilometers you drove to earn income.

Types of Expenses

The types of expenses that you may deduct include:

• Fuel and oil;
• Maintenance and repairs;
• Insurance;
• License and registration fees;
• Capital cost allowance;
• Loan interest / leasing costs

If you use your motor vehicle for both business and personal use, you can deduct only the portion of the expenses related to earning income. If you use more than one vehicle to earn income you must calculate each vehicle’s expenses separately.

Company Owned Vehicles

If you supply company owned vehicles to your employees and they are permitted to use the vehicle for both personal and business use you are required to report a taxable benefit, known as a stand-by charge, on their T4s.

Luxury Cars