Good handling pays off

published by Josée Jeffrey, D. Fisc. Pl Fin.

Focus on retirement and taxation inc.

Whether you're self-employed, salaried or a commissioned employee, you may be entitled to significant employment or business deductions if you use your vehicle for work or business-related travel.
What's more, you may be entitled to a refund of taxes (GST and QST) paid on certain eligible expenses.

For salaried and commissioned employees, your employer must complete and sign a form confirming that the use of your vehicle is necessary for the performance of your duties. Supporting documents are kept on file to demonstrate all expenses incurred in relation to distances traveled.

A complete register for better deduction

Keeping a complete travel logbook is very important, if not essential, to substantiate all actual travel (date, destination, distance traveled and reason for travel). You'll be able to calculate the portion of your travel that qualifies by establishing the ratio between the number of kilometers travelled for business or employment purposes and the total kilometers travelled throughout the taxation year in question.

Simplified register, but complex calculations

In 2010, the Canada Revenue Agency introduced the simplified registry for self-employed workers. This measure allows you to increase the percentage of your vehicle use for business purposes by up to 10%.

This provision does not exempt you from keeping the full register. You must establish a base period (twelve consecutive months) before defining a representative period of three months which will be compared with your base period, according to very precise criteria.

Let's take, for example, a taxpayer whose total motor vehicle expenses amount to $10,0000 in a given year. According to his complete register, he determines that the percentage of business use is 76%. With the simplified logbook, the percentage calculated for his best representative period of three consecutive months the following year represents a rate of 86%. His employment deduction will increase by $1,000. For a tax rate of 40%, this taxpayer increases his tax refund by $400.

The calculation remains rather complex and laborious, to say the least.

The risk of random percentages

Gone are the days when taxpayers estimated a random percentage of their business mileage in a given tax year, without any justification. The tax authorities are stepping up their audits, asking for proof of such travel. If you fail to provide a logbook and supporting documents, the taxman may, in addition to the year being audited, open your file for previous years and present you with a hefty bill for revised taxes, not to mention interest and penalties.

Good tools at your disposal

There are various ways of keeping a travel log acceptable to the tax authorities, including hand-written or in a notebook that you keep in your vehicle. However, this requires a great deal of discipline, and certain oversights will reduce your tax refund.

Do your homework by taking the time to properly document your files, and look your best in the event of a tax audit.

Lighten your workload and drive with peace of mind by automating all your journeys with an electronic device plugged into your vehicle. Odotrack records all your data for you, while complying with tax requirements. Your trip log is kept in real time. Maximize your tax deduction by saving time and money.

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