If you have used one or more of your vehicles to earn business income over the past year, you can claim the related expenses as a business expense on your income tax in the United States and Canada by using a mileage log. But as always, if you want to deduct these expenses, you need to substantiate your claim with evidence in the form of an automobile mileage log book.
How to Keep a CRA Mileage Log
Both the Internal Revenue Service (IRS) and the Canada Revenue Agency (CRA) state that keeping an accurate logbook of business travel maintained for an entire year is the best evidence you can have to support your motor vehicle expense claims.
The following information should be recorded in the log book each time the vehicle is used for business purposes:
- Starting point
- Purpose of your trip
- Vehicle starting mileage
- Vehicle ending mileage
- Total miles, or kilometers in Canada, driven.
Sample Mileage Log
Mileage log books are typically available at office supply stores or you can use the following template. This template can be copied it into a Word, Excel, or similar office document by selecting the text and using the copy and paste options. Using Windows, highlight the text to be selected with the mouse, and on your keyboard select CTRL-C to copy and CTRL-V to paste.
|Date||Mileage Start||Mileage End||Mileage Total||Business Purpose||Park$||Tolls$||Other$|
Automatic Mileage Tracking
Manually entering trip information in a log book is tedious, particularly if you make a lot of business trips. Fortunately, there are several mileage tracking applications available for Apple and Android smartphones that make use of the phone's GPS to keep track of every mile/kilometer driven for business purposes. For a small monthly fee, the app will log your business trip information and enable you to download a mileage summary on your tax return. Some of the more popular mileage tracking apps include:
- MileIQ: IOS and Android
- Mileage Expense Log: IOS only
- TripLog: IOS and Android
- QuickBooks: Mileage tracking is included with QuickBooks Self-Employed
Business Use vs. Personal Use
Both the IRS and the CRA are vigilant about excessive claims for business use of personal vehicles, claiming most or all of your vehicle mileage for business use is a sure way to attract extra scrutiny from the tax authorities and a possible audit.
Therefore, when it's time to claim your motor vehicle business expenses, you will need to know how many non-business-related miles or kilometers you drove. This can be easily accomplished by determining the total miles or kilometers you’ve driven in a year by comparing your vehicle’s odometer reading at the end of the tax year to what it was at the beginning of the year.
Once you have your data for the year, to calculate your motor vehicle expenses claim, you need to tally all of the miles/kilometers you’ve driven for business use over the course of the year. Your personal use is then the total mileage for the year minus the business mileage.
Business Use vs. Personal Use for Employees
Employees who use company vehicles must also keep track of mileage driven for business purposes versus personal use mileage. Mileage driven for personal reasons is a taxable benefit that has to be included in employee income. Note that mileage driven to and from a regular place of employment—other than a point of call—is considered to be commuting and is classed as personal use.
Make sure you have a clear policy on the personal use of company vehicles, including:
- Who can drive the vehicle, such as the employee only or spouse
- What is allowable for personal use, for example, using a company truck to tow a camper or boat
- How to keep accurate mileage records
Three-Month Sample Logbook
To use a simplified logbook:
- You must have previously maintained a mileage log for one complete year to establish a base year’s business use of a vehicle.
- You must have kept this logbook for one complete year in 2009 or a later year.
- Your business use of the vehicle for the year for which you are using the simplified logbook must be within 10% of the results of your business use of the vehicle you recorded for the base year.
The CRA also says that businesses will have to show that the use of the vehicle in the base year remains representative of its normal use.
If all of these requirements are satisfied, you would then be able to keep a logbook for just three months and then calculate your business use of the vehicle by multiplying the business use as determined in the base year by the ratio of the sample period and base year period, by using this formula:
(Sample year period % ÷ Base year period %) × Base year annual % = Calculated annual business use
Note that to do this, you will have to know what your business use percentage was for the particular three-month period in the year you are using as a base year, so you can compare it to your new sample year period. For example, you have kept a simplified CRA mileage log for January, February, and March of the last tax year, and need to know what your percentage of business use of your vehicle was in January, February, and March during your base year when you kept a mileage log for the entire year.
Suppose that you kept a simplified logbook for the first three months of the year and find that your business use of vehicle percentage is 64%.
You go back to your complete full-year mileage log for the 2015 tax year, which you've chosen to use as your base year, look at the records for January, February and March, and find that your business use of vehicle percentage during that time was 68%. Your percentage of using your vehicle for business purposes for that entire base year was 70%.
Then, applying the formula to extrapolate your three months of data in your simplified logbook to cover the entire year:
(64% ÷ 68%) x 70% = 65%
Therefore, 65% is the annual business use of vehicle percentage that you are claiming using your simplified logbook data, a figure that will be acceptable to the CRA because it falls within the 10% allowable range of variation.
Vehicle Purchase Expenses and Capital Cost Allowance in Canada
If you bought a vehicle to use in your business, you will also want to determine how to claim a capital cost allowance. This is important for writing off the cost of your vehicle.