How to Deduct the Business Use of a Personal Vehicle for Your Corporation

When you use a personal vehicle for business purposes, your corporation can deduct the business-related expenses. This guide will walk you through the steps to accurately claim these deductions, ensuring compliance with tax regulations and maximizing your corporation’s tax efficiency.

1. Determine the Business Use Percentage

To start, you need to track the total kilometers driven for both business and personal use over a specific period (typically one year). Keep a detailed logbook noting the date, destination, purpose, and distance traveled for each business trip.

Example:

• Total kilometers driven in a year: 20,000 km
• Kilometers driven for business purposes: 8,000 km
• Business use percentage: (8,000 km / 20,000 km) * 100 = 40%

2. Calculate Eligible Vehicle Expenses

You can claim the business use percentage of the total vehicle expenses. Eligible expenses include:

• Fuel and oil
• Maintenance and repairs
• Insurance
• License and registration fees
• Depreciation (Capital Cost Allowance - CCA)
• Loan interest (if applicable)
• Leasing costs (if applicable)
• Parking fees (if applicable)

3. Reimbursement by the Corporation

The corporation can reimburse you for the business use of the vehicle. This reimbursement can be based on either the actual expenses or a reasonable per-kilometer rate set by the Canada Revenue Agency (CRA).

Using Actual Expenses: Calculate the total annual expenses for the vehicle and apply the business use percentage.

Example:

• Total annual vehicle expenses: $6,000
• Business use percentage: 40%
• Reimbursable amount: $6,000 * 40% = $2,400

The corporation reimburses you $2,400, which is deducted as a vehicle expense on the corporation’s financial statements.

Using CRA’s Per-Kilometer Rate: The CRA sets a per-kilometer rate for business use of personal vehicles. For example, in 2023, the rates are:

• 68¢ per kilometer for the first 5,000 kilometers 
• 62¢ per kilometer for each additional kilometer

Example:

• Business kilometers driven: 8,000 km
• Reimbursement: (5,000 km * $0.68) + (3,000 km * $0.62) = $3,740

The corporation reimburses you $3,740, which is deducted as a vehicle expense on the corporation’s financial statements.

4. Record-Keeping

Maintain detailed records, including:

• A logbook of business trips
• Receipts and invoices for all vehicle expenses
• Reimbursement requests and payments

5. Filing Requirements

Ensure that the corporation correctly reports the vehicle expenses and reimbursements in its financial records and tax returns. If using the per-kilometer rate, the reimbursement is a straightforward deduction. If using actual expenses, detailed documentation is essential to justify the business use percentage.

Example of Implementation:

Step 1: Logbook Maintain a logbook and determine that 40% of the kilometers driven are for business.

Step 2: Calculate Expenses Total vehicle expenses: $6,000

Step 3: Reimbursement The corporation reimburses you $2,400 (40% of $6,000).

Step 4: Record-Keeping Keep all receipts, logbooks, and reimbursement records.

Step 5: Reporting The corporation deducts the $2,400 reimbursement as a vehicle expense on its financial statements and tax return.

Conclusion

By following these steps, you can accurately claim deductions for the business use of a personal vehicle, ensuring compliance with CRA requirements and maximizing your corporation’s tax efficiency. Proper documentation and regular review of your records are essential to maintaining accurate and compliant expense claims.