If you’re self-employed and using your vehicle for business use, are you keeping a mileage log?
If you’re audited by the Canada Revenue Agency (CRA), and you don’t have one, the CRA could reject your claims for motor vehicle expenses.
Avoid CRA scrutiny with our tips and tricks on keeping a mileage log.
What is a mileage log?
A mileage log, also known as a logbook, is a record of your business travel for the entire year.
If you’re self-employed and want to claim expenses on a car used for business use, you must keep a detailed logbook record.
You’ll need to note each business trip, the destination, the reason for the trip and the distance travelled by the vehicle throughout the year.
How do I keep a mileage log?
“Whether you like to use a paper logbook or an app, the key thing is to be tedious in your logging,” says Adam Ecarnot, Local Tax Consultant with FBC’s Calgary office.
One way he helps FBC Members with their tax planning is by identifying deductible expenses personalized to their business situation.
He also keeps track of his own mileage since he uses his car for business use.
Ecarnot says your logbook should always contain the following information:
- The date
- Your starting point
- Your destination
- The purpose of your trip
- Your starting mileage
- Your ending mileage
- Total kilometres driven on the trip
“Have it handy, it should be a habit like when you put your seat belt on — to me, part of that is just writing my mileage,” Ecarnot says. “More information is always better, because if it comes down to an audit the CRA will likely ask for your logbook.”
He says if you want to go digital, there are several mileage apps on the market. These apps use your smartphone’s GPS to track your mileage while you drive.
When the trip is over, you classify if it’s a personal or business trip. You can download a report at the end of the year for your files so you have a paper copy for the CRA if needed.
But a paper logbook works just fine if you don’t want to use an app.
Why do I need to keep a mileage log?
If you can’t provide a record of your mileage, the CRA will disallow your vehicle expenses as a tax deduction.
“You need the log, otherwise we're pulling numbers out of thin air,” Ecarnot says. “Guessing is not good because a lot of times when people guess they want to play it safe. They think, ‘Oh, if I go too high, I'll get audited. Or if I get audited, I can't prove it.’ But if you just do the diligence and track it properly, it’s likely you’ll get more write-offs than you thought you would.”
The business usage of your vehicle may be higher than you think, and then you can legitimately write it off.
It might only be an extra 5%, but that’s more money in your pocket!
How do I deduct vehicle expenses?
You must keep your logbook for the entire tax year - from January 1 to December 31.
“Get in the habit of updating your logbook daily, because going back and making one retroactively is extremely challenging and it's difficult to make it accurate,” Ecarnot says.
For each tax year, you must record your total kilometres from the year, and the kilometres you drove while earning business income.
Don’t forget to record your odometer reading at the beginning of the tax year, and at the end of the tax year.
If you change vehicles, note the dates of the change and the odometer reading for the new or leased vehicle.
If you’re keeping track of the numbers, you can be confident in your tax deduction.
You will use your logbook to calculate what percentage of your vehicle was used to earn business income.
Let’s look at an example:
- Your odometer reading at the end of the year was 40,000 km
- Thanks to your logbook, you know 32,000 km was for business use
- Divide 32,000/40,000 to find out what percentage of the time the car was used to earn business income
- We get 80%, which means you can deduct 80% of your eligible vehicle expenses as business expenses
Eligible vehicle business expenses include:
- License and registration fees
- Loan interest
- Lease costs
- Maintenance and repairs
To calculate your vehicle deduction, use the same percentage:
- Let’s say your vehicle expenses were $6,000 for the year
- If you multiply $6,000 by 80%, you get $4800, which means you can deduct $4800 of your vehicle expenses on your tax return
If you use more than one vehicle for your business, keep a separate record for each one that shows the total kilometres driven in one year and the business kilometres driven, and all the associated expenses with each vehicle.
You’ll have to calculate the expenses separately for each vehicle.
What records do I need besides a logbook?
Aside from a copy of your logbook for the CRA, keep all your receipts for automobile expense deductions.
“Store your receipts, keep them and write off as much as you can — anything pertaining to the vehicle is an eligible expense if it's a business vehicle,” Ecarnot says. “Don't lose receipts because if you do, you're losing out on deductions.”
How long should I keep my logbooks?
Ecarnot recommends keeping your logbooks for 7 years (6 years after your last Notice of Assessment): “It’s standard protection. I have logbook after logbook sitting in my basement. It’s a nice feeling to be able to say you’re covered.”
If the CRA challenges your automobile expenses, you have the proof.
The less tax you can pay, the better, so be diligent about tracking your mileage and keeping your automobile receipts.
You’ll be in a good position to claim as much as you can when tax season rolls around.
Disclaimer: The material above is provided for educational and informational purposes only. Please contact a tax professional like FBC regarding your specific tax situation.