Writing Off Your Vehicle as a Business Expense

Many companies continue to provide cars for business travel and a growing number of businesses have reimbursement programs in place for their employees that use their own vehicles for company business activities. In this case, employees are generally reimbursed three different ways, flat kilometers, fixed periodic reimbursement, and automobile standard costs.

Flat Kilometers:
Many provide a flat allowance per km plus reimbursement for any additional charges like parking expenses, highway tolls, or even parking tickets. The big advantage of this type of reimbursement is that it is easy to administer both for the accounting side and also for the office manager to regulate. The problem is that this system can be inaccurate which could result in the employee either overpaying or underpaying for their car related expenses. Keeping track of expenses in this way with receipts is a relatively effective means of getting fair reimbursement and also for firms to show transparency in their car expenditure.

Fixed Periodic Reimbursement:
Some firms reimburse their drivers with an even more simplistic method. The fixed periodic reimbursement model simply allocates a fixed amount of car allowance per day, week, and/or month. The advantage to this is that is a clearly communicated benefit of the role or title within the organization, which can be broken down in terms of its dollar value. The disadvantage to this is that is highly inaccurate and could result in the abuse of the benefit. For example, if a person has a car expenditure allowance of $50/day but hardly uses it, they may feel obligated to use the funds allocated in fear they may be reduced or taken away in the future.

Automobile Standard Costs:
There are some examples of companies who have taken action to better measure the costs associated with driving for work related activities. Some companies like CarDATA Consultants Inc. (link) provide their employees with fair and accurate reimbursement based on their regional vehicle service and location data. By tracking the vehicles that are being used for business purposes, the head office can easily and accurately determine the vehicle related expenses and add those funds to the employee’s next paycheck in the form of reimbursement.

If you own and operate your own business and periodically use your personal vehicle for business, you are able to write off some of your annual driving costs as business expenditure. It would be strongly advised where possible to keep personal auto expenses separate from that of business. Keeping receipts and a detailed log of KM’s is always a wise idea not only for employees to get back fair reimbursement but also for business owners to show transparency to the Canada Revenue Agency if they ever ask. For complete details on tax deductions for your vehicle and its use for business purposes, we encourage you to seek the professional advise of an account or a represent of the CRA.