For many small business owners, a reliable vehicle is a necessity from making deliveries to meeting with clients. When it comes to claiming any amounts, Canada Revenue Agency (CRA) has very specific requirement to abide. Here is a snapshot to help provide a better grasp of the best way to record and report motor vehicle kilometers for tax purposes.
CRA description of an automobile as a motor vehicle designed or adapted mainly to carry individuals on highways and streets. The seating capacity consists of one driver and a maximum of eight passengers. The vehicle can be driven by the small business owner, an employee using their own vehicle, or the company vehicle.
British Columbia (BC) automobile allowance rate
Each province has their automobile allowance rate standard amount in kilometres (km). In BC the 2018 rates are $0.55/km for the first 5,000 km driven and $0.49/km beyond.
The operation of an automobile as described by CRA may apply to;
- An employee working for the small business
- A person related to the employer
- A person who holds an office or person related to that individual
- A partner or person related to the partner
- A shareholder or person related to the shareholder
Personal driving (personal use)
When the small business owner allows an employee to drive;
- the company vehicle for personal reasons,
- or you reimburse your employee for the personal driving of their own vehicle
NOTE: It is important to recognize this is a taxable benefit that needs to be calculated and included in the employee’s income tax.
Employee driving to several locations during work hours
In any given day an employee may have numerous locations to drive to relating to work or personal use. If an employee has multiple regular work locations and travels between home and several work locations during working hours, only trips from the employee’s home to the first work location or trips from the last work location to the employee’s home are considered personal driving.
NOTE: You must record mileage when the employee travels between work locations. This is recognized as business related.
Keeping accurate records
It is vital that proper record keeping is done by both the small business owner and employee. Calculated usage is done by identifying the amount of business and personal use by the total kilometers driven within a calendar year. To help clarify the mileage, include in the records’ dates, names and addresses relating to the business destinations along with the distance travelled between home and client’s place of business.
Small Business Owners calculate automobile benefits
Make sure to have all your receipts to backup your expense claim to CRA.
Standby charge for the year + operating expense benefit for the year – any reimbursement employees make in the year.
What is a standby charge?
The standby charge is a benefit your employee gets when the company automobile is made available for their own personal use.
NOTE: The taxable benefit only applies when an employee has access to the company vehicle for personal use.
Paying shareholders by the kilometre for vehicle use requires that the shareholders keep track of kilometres travelled for business purposes. Fuel receipts would not be recorded in the company. The result would be a greater deduction in the company (mileage calculations will be greater than actual fuel receipts) and there would be payments to the shareholders or (if preferred) credit to shareholder loans.
To find out more what calculation to use for your small business purpose, visit the CRA website Employers Guide Taxable Benefits Allowances
At Banka & Company, CPA we are here to help you make the best decisions which calculation for vehicle expenses is best suited to your small business. Contact us today to schedule an appointment.