March 28, 2018
So, we’re a few weeks into taxes and many Canadians are getting their paperwork work together to file their tax returns. Did you know that your vehicle could be helping you increase your tax refund?
If your work requires you to drive your vehicle for work-related purposes you could save money on your tax return by writing off some of your vehicle-related expenses. Many people can advantage of these potential savings, but there are some catches worth noting.
Both employees and business owners can claim expenses occurred while driving for work and they can quickly add up to a significant amount. The lines are pretty clear when it comes to what can be claimed and what can’t be claimed. Driving to the other side of town to meet up with a client is valid while driving to Tim Horton’s because it’s your turn to make the team coffee run is not. Also, the mileage you put on your vehicle for your typical drive to and from work does not count (only if you were to stop and have a meeting while making the trip)
Your boss must sign off on the fact that driving your vehicle is a condition of being employed in your current position. They will need to sign a T2200 that stipulates that your vehicle is being used as part of your job.
It’s also important to note that you can’t claim your vehicle expenses twice. You cannot claim vehicle expenses on your tax return if your employer has already reimbursed you for the use of your personal vehicle.
You cannot claim your vehicle payment on your taxes, regardless of how much it’s used for your work, but you can claim the interest you pay on your car loan. Many people who drive as part of their job will lease a vehicle, lease payments are allowed to be claimed on income tax returns. There are still more tax savings if you own your vehicle.
With car ownership comes depreciation. The government does allow you to claim a certain percentage of your vehicle’s depreciation on your tax return. The claim amount will be based on a set percentage based on the amount you originally paid for the vehicle. During the first year of ownership, you can claim 15 percent of the price you paid for the vehicle, plus any related sales tax. Afterwards, the cap will increase to 30 percent of the remaining balance.
Let’s pretend you purchased a vehicle for $20,000, including sales tax. During year one you could claim $3,000, the following year you would make a claim for 30 percent of the remaining amount owing ($17,000).
Here’s the thing, Revenue Canada will not let you claim the full percentage of that brand-new Ferrari that you’ve always dreamed about, there’s a cap on both depreciation and lease payment claims. You are only able to claim up to $30,000 in your vehicle’s value and interest claims cannot exceed $10-a-day.
Car repair, maintenance, gas and insurance can also be claimed on your taxes, but it’s important to keep track of your receipts. You don’t need to submit these receipts with your actual tax return, but you Revenue Canada does have the right audit your taxes and they can go back as far as six years.
Remember, you cannot make claims for the personal use of your vehicle. All your car-related expenses must be prorated to give an accurate picture of how often it’s used for work. That means if 40 percent of your driving is related to your job, you can only claim 40 percent of your vehicle’s expenses. Many people keep a logbook in their car so they can easily track their driving patterns, there are also some great mobile apps on the market that can make this tasks much easier.
When filed properly, owning a vehicle that’s used as part of your job can help improve your tax return. It’s important to keep all your documentation and provide honest information when filing. Learn more about how you can benefit from tax savings at Car Credit Kingston by speaking with one of our experienced and talented Experience Leaders today.