By Evelyn Jacks
If you’re in the gig economy or required to use your auto to earn salary or commissions, it’s likely you will want to deduct your auto expenses. But you need to be audit-ready, as this is one of the most audited claims and if selected, you’re in for a giant time commitment if you can’t produce an auto log. Here’s what you need to know.
Are You Eligible? There are a couple of categories you could fall into. First are the self-employed who file a T1 return as unincorporated proprietors. Your tax filing deadline, by the way, just passed on June 15. The second eligible group are employees who negotiate contracts on behalf of their employers, and/or are employed commission salespeople. These folks must file a return by April 30.
What’s claimable? Auto expenses may include the costs of filling up at the pump and maintenance and repair costs like oil changes, restoring breaks and other auto parts. Also claimable are the costs of insurance, license and registration fees. Certain costs are restricted to maximum claimable amounts: monthly interest charges, leasing costs and capital cost allowance.
In both cases, you must account for “mixed use” – the kilometers driven for employment or business use, compared with the personal use driving distance. Importantly, driving to and from your place of work is considered “personal” driving. That’s one of the first issues in an audit, unless you can show that you drove from home to perform a work-related function. That’s where a good auto log comes in.
The Log: simplified or detailed? This, of course, is the hardest part. Remember the onus of proof is on the taxpayer. To begin, don’t forget to write down the odometer reading at the start and end of each fiscal period. For most people that’s January 1 and December 31. In between, record accurately, the details for each employment business trip, including the date, the destination, the reason for the trip and the distance covered.
Good news: you can keep a “simplified” or “detailed” logbook. Here’s the difference:
• Simplified records. In the first year of using your auto for employment/business purposes, establish a detailed full-year log which acts as your “base” year. After this you can use a three-month sample logbook to make the claim for the whole year, as long as the distance driven is within 10% of the results of the base year. Should driving fluctuate more than 10%, the employment/business use of the vehicle must be re-determined. In other words, you’ll need to establish a new base year for 12 months of driving.
• Detailed records. Keep detailed records every year for the full year. This is always the best route – you’ll likely be able to claim more if you go the distance and be precise.
Defining personal use: This can be tricky. Driving from home to work is considered to be a personal expense, even if the trip is outside of normal work hours. A few exceptions to consider and record:
• Employees. If your employer instructs you to drive directly from your home to a different location than your usual work location to perform company business, or do so on the way home, the distance you travel is consider “employment” related and not personal.
• Self-employed individuals. If you operate your businesses out of your home and drive from there to meet with a client/employee, supplier or subcontractor, or perhaps to pick up supplies or the mail, your driving is for business use from the time you leave your home. Trips from home to an office at another location where you work will be considered personal driving except, when some business activity is performed enroute.
Save receipts. Save all receipts and mark any unreceipted items in your auto log which can be an electronic log. This includes parking costs, for example. The expenses are first totalled using the actual receipts and the log of cash expenditures like car washes or parking meters. Then the total amount of the expenses are pro-rated by a formula: the portion of business/employment kilometres driven, over the total kilometres driven in the year.
And don’t forget, your tax records must be kept for a period of six years from the end of the tax year to which they relate. In the case of the auto logbook, there is an important additional nuance: it must be retained for the full 12-month period from the end of the tax year for which it is last used to establish business use.
Evelyn Jacks is the best-selling author of 55 books on tax preparation and planning and a multiple award-winning business leader. Tune in weekly to her new podcast: Real Tax News with Evelyn Jacks and Friends.
Listen to Evelyn Jacks podcasts at https://podcast.knowledgebureaureport.com/