I have a incorporated client whose sole shareholder uses his car to do company business, approximately 100,000 kilometrs per year. Claiming the kilometer rate would give the company a $60,000 expense and no income for him. Is this right? How would RCA react?
They would (should they audit, and they likely will), ask for a log, the purpose of the driving and meetings and look to see if there’s backup that the driving was required and in fact occurred. If your client can produce that, then their claim for both expenses and ITCs should be fine.
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I am doing this for one of my clients. As she is an employee of her corp & receiving the non taxable reimbursement, she is not allowed to write off or claim her automobile expenses. She keeps a complete log which I attach in QBO to the reimbursements.
Also, even when claiming mileage in the corporation, the shareholder should still keep their receipts to substantiate the amount of the claim. The mileage rate is higher because it also includes an estimate for Capital Cost Allowance.
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No need to keep receipts as the claim isn’t based on actual cost IMO. The LOG is what determines this. However, if someone has a lunch meeting (say), keeping a diary record and a receipt for those makes sense as a backup to the necessity for travel.
Have never had someone asked for actual receipts where a proper log is maintained (MileIQ is great for this although its calculations are a bit weird at times).
Thank you everybody. Great reassurance.
Remember to use the lower rate for all km over 5,000.
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At an average work year of 250 days (5 days a week x 50 weeks) that works out to be about 400km per day. At an average speed of lets say 70km/hr (between highway & city driving gas stops etc) that works out to be nearly 6 full hours a day of just driving and pretty much a tank of fuel every single day.
Interesting…
The plot thickens. The director/shareholder is paying himself a dividend instead of a salary although he is doing the work, which technically does not make him an employee (T2200). Does this create a problem?
When you are an employee and a shareholder, you must satisfy two key conditions before you can deduct employment expenses:
- The expenses were incurred as part of your employment duties, and not as a shareholder.
If you are a shareholder, you must establish that the expenses were incurred in your capacity as an employee and not a shareholder. To do this, you must be able to establish that the expenses are comparable to [expenses incurred by employees (who are not shareholders or related to a shareholder) with similar duties at your company or at other businesses similar to your company in size, industry, and services provided.
- You were required to pay for the expenses yourself as part of your employment duties.
Usually, a written contract of employment specifies the expenses a non-shareholder employee must pay. Sometimes there is no written contract or the requirement to incur expenses is not clearly identified in the contract, but there is an implied requirement for the employee to pay the expenses. For example, an employee can demonstrate an implied requirement by showing they face possible disciplinary action from their employer if they do not meet the requirement.
If you are a shareholder-employee, an implied requirement may be more difficult to demonstrate, and a written contract may not be adequate to establish that you were required to pay for the expenses as part of your employment duties.
Given the fact the shareholder owner does not even receive employment income it would be more than an uphill battle to demonstrate the expenses were incurred as part of their employment duties.
I assumed that the mileage is claimed in corporation. So it is not deducted on their T1 but in the corporation as automotive expenses.
It is a good idea to keep receipts anyway. They were sometimes used in court cases to prove the mileage was indeed reasonable.
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Thanks Rein, I believe you are correct.
I did read that the other day but it slipped my mind when I replied today.
I must have started holiday celebrations too early. 