Vehicle allowances and deductions can put you on a collision course with the taxman
Automobile expenses continue to be an area of scrutiny for the taxman, so you shouldn’t be surprised if the Canada Revenue Agency starts asking you questions about how you may have claimed any vehicle expenses or employer’s travel allowances on your tax return. Indeed, two recent tax cases decided over the summer dealt with employees and their cars.
The general rule
As a general rule, if you’re an employee that needs to use your car for work, you may be able to deduct some of your automobile expenses on your tax return, but you must meet certain conditions. First, you must normally be required to work away from your employer’s place of business or in different places. Second, under your contract of employment, you must be required to pay your own automobile expenses and this must be certified by your employer on a signed copy of CRA Form T2200, Declaration of Conditions of Employment.
Finally, to claim vehicle expenses, you must not be the recipient of a “non-taxable” allowance for motor vehicle expenses. An allowance is considered to be non-taxable when it is based solely on a “reasonable” per-kilometre rate. For 2018, the CRA considers a reasonable rate to be 55 cents per kilometre for the first 5,000 kilometres driven and 49 cents/km after that. In the territories, the rate is 4 cents/km higher.