Deducting Vehicle Costs and Travel Related to Employment

There are tax deductions available for travel related to earning income.  You cannot deduct the cost of travel to and from work.  However, if you incur costs related to employment such as travel to locations different from your employer’s place of business and expenses during travel for work – these costs may be deductible.

To claim these deductions, your employer must complete and sign a T2200 form (declaration of conditions of employment) to be submitted along with your tax return.  You will then have to complete a T777 (statement of employment expenses) along with your personal tax return.  If you own your business and use your personal vehicle for work – it would still be prudent to complete the related forms, however, be cautioned that CRA may not accept the T2200 for a business owner.  In any case maintaining a milage log is best practice to support the expense.

If you are an employee, the strict rules should be considered.  The Tax Act only allows deductions for “the cost of supplies that were consumed directly in the performance of duties of… employment and the… employee was required by the contract of employment to supply and pay for.”  As such, your employing agreement should support the requirement to use your own vehicle.

Vehicles

A common cost incurred is for travel to sites outside of the employer’s place of business.  Oftentimes the employer will reimburse the employee for the vehicle cost.  Generally, an allowance is non-taxable when it is based solely on a reasonable per-kilometre rate.  However, if you did not receive an allowance for motor vehicle expenses – then you are able to deduct a reasonable cost if you were normally required to work away from your employer’s place of business or in different places and under your contract of employment and you had to pay your own motor vehicle expenses.

The automobile allowance rates change annually as prescribed by CRA.  On December 23, 2021, the government announced the following effective January 1, 2022:

• CCA for zero-emission (new and used) passenger vehicles will be $59,000 (previously $55,000)
• CCA for passenger (new and used) vehicles will be $30,000 (previously $34,000)
• Deductible leasing costs will be $900 per month (previously $800) for new leases
• Deduction of tax exempt allowance for personal vehicles used for business purposes will be $0.61 per km for the first 5,000 kms and $0.55 per km thereafter (previously $0.59 and $0.53)
• The taxable benefit for employees using an employer’s automobile for personal use will be $0.29 per km (previously ($0.27)

For travel to the Northwest Territories, Yukon, and Nunavut, there is an additional $0.04 per km allowed for travel.

If you receive an allowance that is unreasonably low – you are still permitted a deduction less that allowance.

If you use your vehicle for both earning income as well as personal use – you can deduct the portion that relates to earning income.  The types of expenses that can be deducted include:

• fuel (gasoline, propane, oil);
• maintenance and repairs;
• insurance;
• licence and registration fees;
• capital cost allowance;
• eligible interest you paid on a loan used to buy the motor vehicle; and
• eligible leasing costs.

Parking

Generally you cannot deduct the cost of parking at your employer’s office, such as monthly or daily parking fees or the cost of traffic infractions.  However, you can deduct parking costs related to earning your employment income if you did not receive a reimbursement for vehicle costs.  If you did not receive an allowance for motor vehicle expenses you are able to deduct the cost of parking if you were normally required to work away from your employer’s place of business or in different places and under your contract of employment, you had to pay your own motor vehicle expenses.

This information is for discussion purposes only and should not be considered professional advice. There is no guarantee or warrant of information on this site and it should be noted that rules and laws change regularly. You should consult a professional before considering implementing or taking any action based on information on this site. Call our team for a consultation before taking any action. ©2022 Shajani LLP.

Shajani LLP is a CPA Calgary, Edmonton and Red Deer firm and provides Accountant, Bookkeeping, Tax Advice and Tax Planning services.