Automobile Expenses The CRA Is Rejecting In 2013

automobile expensesAutomobile expenses are a common occurrence in business and some businesses have more than others. Revenue Canada is actually quite reasonable but you need to have your bases covered and play by the rules or it may end up costing you.

This year we have seen an increase in errors with automobile expenses that the CRA has been rejecting and with recent updates to tax laws it is likely time for a refresher.

Automobile Expenses As An Employee Expense

Since filing 2012 personal tax returns, Revenue Canada has been flagging people that are claiming automobile expenses as an employee expense. An employee that uses their own vehicle for work must get a form signed by their employer saying that is required for the job and you’re driving within a certain area.

Once the employer signs that form it’s up to the employee to provide the expenses and make their own claim.

We found that Revenue Canada is asking for those signed forms this year and it’s actually quite interesting how few people had their employers sign it so that’s becoming a big issue.

You’re Claiming It Wrong

In many cases, automobile expenses are being claimed incorrectly. We recently had a client come in and their job is essentially driving around and meeting with clients all day. It’s very legitimate that he has to use his own vehicle and that he has a lot of expenses but the problem is that he claimed a number on his tax return based on $0.52/km for however many kilometers he drove that entire year.

Revenue Canada doesn’t like that for an employee because the rules are very specific. They say you have to track all of your expenses, track all of your kilometers and claim that percentage, as long as your employer signs off on it.

They’re asking for automobile logbooks, copies of all gas receipts – and this is just for employee expenses. For the most part, they are not big numbers that people are allowed to deduct because they might only use their car for a few trips a month. This has created a lot of trouble for people this year who have not kept good records.

Properly Tracking Automobile Expenses

When it comes to tracking kilometers, this means literally tracking the mileage for each individual trip done for business purposes. This requires you to clear your odometer at the beginning of your business trip and track the kilometers driven once you reached your destination. Another legitimate option would be putting your trip into Google Maps and then recording the distance.

On January 1st you should write down the kilometers on your vehicle and then on December 31st you will know what your total is for the year. This should be done in addition to tracking individual business trips. Also include details such as where you went and the purpose of the trip so they can assess its relevance to your claim.

Tracking your kilometers accurately is crucial because automobiles expenses can be substantial and result in a significant deduction. If you don’t play by the rules, Revenue Canada may choose not to honour your expense deductions.

Bad Records Will Come Back To Haunt You

What you should remember is that Revenue Canada’s starting point is to deny your claim. At that point you have to appeal it and potentially engage in a stressful process that I’m positive you would rather avoid altogether.

The reality is that one of our clients basically lived out his vehicle meeting clients and that’s how he made his income. He would not have made his money without driving to all those various destinations. Despite this, Revenue Canada denied all of his automobile expenses because he didn’t keep proper records.

They left it to him to determine how he was going to argue his case.

For this one particular person, he did not keep a single record. He shredded Visa statements, receipts…in hindsight, definitely NOT a good idea. Take this as a good lesson if you slip up with receipts, keeping records or tracking automobile expenses.
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