I have a client who uses his own vehicle for employment purposes and pays for all expenses on the car. He keeps an exact mileage log and receives a signed T2200 from his employer. Rather than keep all his gas receipts (which fade over time), etc we opt to claim a reasonable motor vehicle expenses using the CRA prescribed rates for the tax year.
Since the ITA allows an employer to reimburse its employees a reasonable “mileage amount” by using the prescribed mileage rate X actual KM’s driven, why cant the employee use the same method to claim the expense? This amount paid to the employee is not considered taxable income in their hands but is also a deductible expense by the employer.
Has anyone had the CRA refuse to accept motor vehicle expenses claimed on a T1 that were calculated using actual business kilometers and the CRA prescribed mileage rates for the year?
If you receive a “reasonable” per km allowance, you don’t have the option to claim your vehicle expenses minus the allowance paid. If your allowance is unreasonably low, you can claim the difference. If your employer reimburses you using the CRA rates, you’re making money. At 60+ cents per km, it’s impossible to lose money, unless you’re driving a motor home. I keep meticulous records of my auto expenses. I had a Chrysler Neon once that, over 10 years and 400,000 km, cost me $0.18 per km. Capital cost, gas repairs, maintenance, and insurance. And, CRA does not touch these reimbursements. Had a client years ago who was a social worker whose caseload took him all over the province. His salary in those years was around $30,000, and his car allowance paid by the provincial government at federal rate per km was another $30,000. He drove a Toyota Corolla, and he bought a new one every 4 or 5 years and paid cash.
By the way, what’s with the mileage rate table from the IRS for US taxpayers?? What’s the point?
The employee receives a flat rate allowance monthly, which is a taxable benefit and included in box 14 of the T4 slip.
The simplified method for claiming motor vehicle expenses using prescribed mileage rates is an allowed method, so I am puzzled why the CRA is refusing to accept the claim.
That’s a different kettle of fish. A flat rate allowance is just another part of his salary, and it shows up in box 14 of his T4. It is not also in box 40. An individual cannot claim employment expenses using a rate per km, full stop. He has to keep records of his car expenses, km driven, and claim the portion applicable to employment. No reduction in the resulting total for the allowance as it is already taxed. The allowance is disclosed by his employer on the T2200, as well as the fact that it’s on his T4. This method puts a lot of admin work on the part of the employee.
Far better for both parties if car expenses are reimbursed on a per km basis, using any rate up to the CRA allowed rates. Going over those rates and you risk CRA requiring the employer to justify the rate. Staying within those limits will never be questioned. Employee is simply required to maintain a travel log.
Because that’s how it’s written in the Income Tax Act. If you want CRA to allow that kind of a simplified method on a T777, you have to get your MP to bring it up in parliament and present a private member’s bill to change the law. Or, if you have friends in the federal Finance department, get THEM to include it in their annual budget bill. There may be other ways…I’m not a politician, so I don’t know. Bottom line is that the Income Tax Act would need to be changed, and that has to receive royal assent from parliament.
A taxpayer can choose either the detailed method or simplified method to calculate motor vehicle expenses (and meals) for deduction on their tax return.
Detailed Method: Under this method, you would keep a detailed record of all your vehicle expenses, including receipts for gas, maintenance, insurance, and other related costs. You can then calculate the portion of these expenses that is attributable to your employment use of the vehicle. This can be a more accurate method but requires meticulous record-keeping.
Simplified Method: The simplified method allows you to claim a flat rate per kilometer driven for employment purposes. The Canada Revenue Agency (CRA) sets the prescribed mileage rates each year. You can multiply the number of kilometers driven for work by the prescribed rate to calculate your deduction. This method is more straightforward but may not always result in the highest deduction.
