As a small business owner, it’s extremely likely you use your car for business. The Canada Revenue Agency (CRA) allows you claim back a portion of your business mileage as a deduction on your taxes, so it’s important to ensure you’re accurately tracking your mileage throughout the year.
Short Term Pain, Long Term Gain
Unfortunately, many small business owners are careless in tracking this mileage, leaving themselves short of the maximum deductible. Failing to keep accurate records could also lead to issues with the CRA come tax season, when you try to claim for mileage based on best estimates or industry averages.
The only way to ensure you avoid any issues is to accept the minor inconvenience of tracking your mileage accurately each day. This won’t take a massive effort on your part, and technology has made keeping these records easier than ever before.
For years, drivers have used proven solutions such as a small log book kept in their car. In this, you’d jot down the following information:
- Date of travel
- Purpose of travel
- Where you came from / where you went to
The advent of Google Maps has made this process even more convenient. At the end of each day, spend two minutes plotting the distance between your business mileage destinations, jotting them in your log book.
“How much or how little effort you want to put into your log book will usually mean the difference between keeping the tax man happy or facing the prospect of an audit,” said Gabrielle Loren, Founding Partner of Loren Nancke Chartered Professional Accountants.
“It might seem like a bit of work to keep track of, but it will pay for itself when you ensure you get the maximum deductions you’re entitled to when tax season rolls around. If you don’t have some sort of log book to prove your business percentage, the CRA could take the position that you don’t have any business mileage, or your mileage was minimal. Without that logbook, you are at their mercy. You are potentially dealing with someone who doesn’t know your habits on a day-to-day basis, doesn’t know your business very well, and is likely basing it on a statistical analysis of your industry that doesn’t take your personal circumstances into account.”
If you’re seeking more high-tech solutions, there are many apps, both free and paid, available for iPhone and Android that will track your mileage with a press of a button. Most of these apps perform broadly the same task, so try a few out and find the one that best serves your business needs.
Know Your Deductions
A common misconception is your trip to and from work each day can be deducted as business mileage. This is NOT the case. However, trips to see clients, to purchase office supplies, and trips to attend meetings are examples of deductibles. The Government of Canada has published a comprehensive list of the vehicle deductibles available to small business owners.
If you happen to own the vehicle you use for work, you can also claim the value of that vehicle as part of your Capital Cost Allowance. While the amount you are eligible to claim varies based on vehicle type, in most cases, you can claim a portion of the vehicle’s cost each year, and write off the entire value incrementally over time.
Want to Know More?
If you need any further tips on the tax implications of your small business decisions, Small Business BC holds regular Seminars and Ask the Expert sessions featuring tax experts like Gabrielle Loren.