Tax time is finally over. Ahhhh. A collective sigh of relief for us in the office and for you as well.
If you had to calculate the cost of your car for your job or business, this blog will really … drive the message home.
Most people rely on a car in the course of operating their business. And the majority of those drivers use that same car in their personal lives. Canada Revenue Agency has implemented a fairly complicated set of rules in order to ensure (from their perspective) that only the portion of the costs relating to business use are deducted come tax time.
Basically, if you drive your own car in the course of your job or your business you may write off your work-related automobile costs against your employment or business income. It’s a helpful small business tax deduction. Similarly, if your employer (or corporation) provides you with a car that can be used for both business and personal reasons, you will be assessed a taxable benefit for your personal use of the car.
The taxable benefit is quite onerous; 2% of the original cost of the car per month (no matter how old the car is or what it is worth today) or two-thirds of the monthly lease cost. It doesn’t stop there: the portion of all operating costs that relate to personal driving is also included in the taxable benefit. It’s a lot to juggle during year end tax planning.
The effect of these rules can be significantly reduced if you are able to demonstrate that your personal use of the vehicle is relatively small. The practical solution is to keep a log detailing both types of car trips. Once you understand the relative percentages of your business and personal driving, you can calculate the most appropriate benefits in your income or percentages of business driving that you can deduct. In addition, by having an appropriately documented log you are in an ideal position to defend any challenges that may be put forward by Canada Revenue Agency.
Here’s the catch: how many people do you know who actually do this? It’s complicated and cumbersome to have to document every single trip that you make and, frankly, most people forget.
Starting in 2010, the CRA has offered a simplified log book solution for reporting business travel. However, it still requires a full log book for one complete year in order to establish a base year. Now, business owners can choose a three month sample log book to extrapolate business use for the entire year, as long as the results are within 10% of the base year. While this is better than having to log every trip, it is still a difficult task.
Here’s a simple solution. At a recent technology conference, I saw an interesting device called Odo Track. You simply plug Odo Track in your car cigarette lighter and select the type of trip: either business or personal. Utilizing GPS technology, Odo Track keeps track of both types of driving and can provide you with a complete trip report for the year, which can then be used for your year end tax planning.
Besides being an excellent tool in what can be a cumbersome process, it is also another interesting example of how people are able to develop interesting solutions to meet customer needs, while providing excellent business opportunities.