What is Considered While Calculating Mileage Tax Relief

What is Considered While Calculating Mileage Tax Relief

Do you use a vehicle to travel from one place to the other place? If yes, then your mileage can result in a tax relief. The sound knowledge of the number of kilometres travelled by you for business purposes can come in handy in the calculation of deductions related to the use of your business vehicle. Precise monitoring of mileage can assist you in saving time at the time of submitting an income tax return.

Why is It Necessary to Monitor Mileage?

Noting down the odometer readings in a timely manner is the sure-fire way of presenting the data about how you have used your vehicle for business purposes to the CRA. For best results in this regard, it is strongly recommended that you should note down the odometer readings on a real-time basis to prevent the possibility of any discrepancy. Keeping a logbook handy can help understand how your vehicle was used during business travel or trips.

How to Mention Mileage to Claim Tax Relief?

Usually, the Statement of Employment Expenses is used for the purpose of reporting vehicle expenses. In order to claim the vehicle expenses, it is important on the part of the owner of the vehicle to report information about it including the following details:

The make, model and the year in which the vehicle was manufactured

  • Total kilometres for which the vehicle was driven throughout the year for business purposes
  • The total distance covered using the car (in kilometres) throughout the tax year
  • The calculation of your motor vehicle expense deduction

In addition, the following information should also be furnished:

  • Maintenance and repairs
  • Fuel
  • Licence and registration
  • Insurance
  • Applicable interest
  • Capital cost
  • Leasing
  • Extra costs
  • Mileage allowances
  • Prescribed rate
  • Automobile benefit

Calculation of Motor Vehicle Expense Deduction

Once you work out the total amount of money which needs to be taken into consideration for the calculation of the vehicle expense deduction of your motor, the rest becomes simple and easy. All you need to do is apply the following formula:

Motor Vehicle Deduction = (Business kilometres/total kilometres) x total vehicle expenses

Allowances Related to Mileage

Regardless of whether or not a vehicle is owned by an employee or their employer, the CRA applies specific rates for the consideration of reasonable per-kilometre allowance. It applies whenever an employer pays for the reimbursement of mileage for an employee.

It is necessary to stay within the rates as specified by the CIA to keep the motor vehicle benefit tax free. Further, it is not necessary on the part of the employees to make a mention of the allowance while reporting the income at the time of filing an income tax return. Any expense which does not come under the allowance is liable to attract taxes.

According to the CRA, an allowance is reasonable when the following conditions are applicable:

  • The allowance is worked out using the number of business kilometres for which a vehicle was driven in a year
  • The amount of money paid towards rate per kilometre is fair and reasonable
  • The employee has not received any reimbursement with regard to vehicle expenses.

Automobile Benefit

At the time of determining an automobile benefit, which is provided by an employer, the calculation is done using the standby charge. The following aspects are taken into consideration:

  • Mileage
  • Operating expenses
  • Costs
  • Fuel
  • Repairs

For more information about CRA tax audits, problems & representation in North York Ontario, contact us now!