I regularly get questions from my business and tax clients about how they should record their vehicle expenses and the records that need to be kept. A simplified logbook for vehicle expenses was announced in 2010 by Canada Revenue Agency (CRA). According to the CRA, the introduction of the simplified logbook was to ease the tax compliance burden on business owners. The logbook can be used for businesses and those that incur vehicle expenses as a requirement through employment.
The type of logbook can be one that you purchase, a spreadsheet that you create or record in software like QuickBooks. In whatever format you choose, there is specific information that must be included. The following is the information required for business and employment expense;
1) The date of travel
2) The destination
3) Number of kilometers driven
4) Purpose of the trip
Remember to record your odometer reading at the beginning of the year for each vehicle. If you change vehicles during the fiscal period, record the date of change and the odometer reading at the time you buy, sell or trade.
What you will end up with, is a record of the total kilometers you drive and those that are driven to earn business. An example of this is – if you drove a total of 50,000 Kms in a year and 25,000 Kms were for business (number 3 above) then you potentially could expense 50% of your vehicle expenses (25,000/50,000 = 50%). If you click here, you’ll find a handy automobile worksheet you can work from.
To be eligible for the simplified logbook method, you need to keep a detailed logbook book for one year. If you kept a detailed logbook for 2011 then you will be eligible to use a simplified logbook for 2012. The 2012 logbook is a detailed continuous 3 month period which the CRA considers a sample period. The 2011 logbook establishes a base year and is used to help determine the percentage of allowable expenses you can use for 2012. It does not take into consideration the actual expenses incurred. For more information regarding the calculation, please click here.
The types of expenses that you will want to collect and include are:
- Repairs & Maintenance
- License & Fees
- Interest on money borrowed to purchase the vehicle
- Leasing costs and
- Capital cost allowance (depreciation).
Records and supporting documents are required to be kept for a period of 6 years from the end of the tax year to which they relate. But, the full year, or 12 month logbook, must be kept for a period of six years from the end of the tax year for which it was last used to establish business use.
If you have any questions, please post them right here on the blog! I love getting feedback. And, here on this blog, you’ll get commentluv. This is a great opportunity to leave a link back to your own blog when you leave a comment.
Until next time,