Updated: Feb 2
Alright. So you have a personally-owned vehicle used for both personal and business purposes and want to make sure you get your deduction for the business part. What do you need to do about this?
I've met a fair share of business owners that, when asked, just give their bookkeeper a percentage to claim. That's fine if you have the backup that matches the percentage, but if you guesstimate it instead of actually keeping some form of mileage log, CRA would likely disallow every little bit of the vehicle expense should you be audited.
Another common pitfall CRA looks for is whether the business purpose is valid: driving from home to your place of business is not a business trip under regular circumstances.
Here is an example:
Would you reimburse your employees for driving to work?
Or when they go pick up some food on their lunch break?
That's what I thought, and the same common sense applies to you as the business owner. If you are carrying business supplies that you keep at your home or stopped by a supplier to pick up goods, CRA might accept that part of the trip was for business, but then you have to find a way to document you were carrying supplies.
"So how do I go about claiming my business mileage?" you ask. You have two options:
Track all of your mileage (date, number of km, and purpose) and assign each trip as either business or personal purpose.
Then track all your vehicle expenses and allocate them based on the percentage of business mileage. This is full CRA proof and gets you every penny you are entitled to.
The downside: it’s a lot of tracking.
Track only your business mileage (again, date, number of km and purpose), but then use a flat rate that the company will reimburse you. This works very well if the company has other employees for whom you provide the same reimbursement.
For 2019, CRA allows $0.55 per km on the first 5,000 km and $0.49 for km thereafter. CRA revises the rates every year, so check here if you're reading this in the future.
**2023 update: Current CRA rates are now $0.68 per km for the first 5,000 km and $0.62 for km thereafter. **
Which is the better option?
Both options require a degree of tracking, but option 2 is less onerous in that you only track the business mileage and don't have to care about personal usage. Also, in practice, we found that the flat rates amply cover the cost of the vehicle maintenance... even for the lighter pickup (e.g., Tacoma, F150).
Option 1 will serve you better if you drive a truck that's a guzzler, or are doing most of your mileage on dirt roads (i.e., lots of wear and tear).
With both options, any reimbursement from the company is tax-free to you, so that's not a factor.
All that remains is how to go about tracking this efficiently.
A simple notebook works well if you using option 2 and have few, but bigger business trips.
As the number of trips increases or your trips are mostly small out-and-about town trips, then automating some of the process so you don't miss any trips starts making sense. There are tons of mileage-tracking apps that you can install on your phone and will automate all or part of the tracking process using the phone's GPS.
If you already use Xero, you can add their expense management tool to your plan for $5/month. This will allow you to track and submit mileage as well as capture and submit expense receipts on the go.
Not a Xero user? Here are some Apps that rank well on Google Play and iTunes Store at the time of writing:
MileIQ is one part of some Office 365 business bundles and one of our favourites.
GoFar actually comes with a device that plugs into your vehicle's computer and tracks more than just mileage: fuel usage, car faults, maintenance reminders and such.
Any other questions? Reach out!