Keep a mileage log to support your vehicle expenses in Tax Return

February 26, 2018

Tax Accounting Services Toronto

Do you often use your vehicle for business? If you use your personal car to earn some form of business income, you can claim the money you’ve used as a business expense in your income tax filing. You’ll need a mileage log in order to claim this expense. This log is simply a way of substantiating your claim. We will share with you details below on how to keep a mileage log and the kind of motor vehicle expenses that you can claim.

How to keep Your Mileage Log

The CRA will require you to keep a mileage log for at least one year which is evidence for your car expense claims. This log book should have the following information:

  • The date in which the vehicle is used for business
  • The starting point and destination
  • The purpose of the trip
  • The car’s starting and ending mileage
  • The total miles covered for that trip

You can get a mileage log book at the local office supply store. The other option would be to find a template online which you can copy into Word or Excel. If you don’t like the idea of manually entering the trip information in a log book, a good option would be to use a tracking application on your smartphone. There are apps that have been designed to keep track of miles driven for business purposes. This is especially useful if you make so many business trips. The app can even calculate and provide your mileage summary on your tax return.

How to Avoid Your Claim Being Rejected

The CRA is very keen to ensure that taxpayers do not claim all their car mileage for business use.  If you do this, it will raise a red flag and attract a lot of scrutiny from the tax authorities. Therefore, take it upon yourself to find out how many miles or kilometers you drove that are not related to your business. You can figure this out by checking the miles you’ve driven over the course of a year and at the very beginning.

The Simplified Logbook

The CRA has come up with a way to help small businesses simplify the record keeping process when they want to claim vehicle expenses in tax return. For you to use this, you will need to have maintained a mileage log for at least one year (in 2009 or later). Also, you must have used the car for business at least 10% for the year which you will be using the simplified logbook.

Once you have fulfilled all the requirements to use the simplified logbook, the CRA will allow you to keep a logbook for only 3 months and after that calculate your business use using the following calculation.

(Sample year period % ÷ Base year period %) × Base year annual % = Calculated annual business use

There’s information that you’ll need in order to use this formula such as your business use for that three-month period for the base year. You’ll need this to compare with your sample year period.