Personal and Business Vehicle Tax Claims

personal and business vehicle tax claims

When it comes to the use of company vehicles for business purposes or personal activities, the line can be grey. Who used what, and for what purpose? We’re here to bring clarity to the situation.

CANADA

There are many businesses that operate vehicle fleets. From service businesses to delivery and everything in between. In Canada, there is a clear distinction between the expenses incurred at work, and personal expenses. Once you separate the business and personal expenses for the year, you will then be able to deduct those expenses from your tax claim.

business vehicle fleet taxesBut what kind of expenses are deductible? Things such as license and registration fees, fuel, insurance, interest, preventative maintenance, and repairs can all be deducted. Along with parking and supplementary business insurance costs. All these costs add up and can represent a significant portion of your taxes being deducted. Let’s run through a brief example:

Dave owns a Parts Delivery Service business. He has 3 vans that deliver parts to shops all around town. Dave notes that each van drove 40,000 kilometers that year. 35,000 of those being driven in relation to the business, thus earning an income. Each van was also driven an extra 5,000 that year for personal reasons (presumably for the drivers to get to and from work, etc.).

Here are the expenses incurred by each van for the year:

  • License and Registration Fees: $150
  • Fuel Costs: $3,000
  • Preventative maintenance: $250
  • Insurance: $2,000
  • Interest: $1,000
  • Total Expenses per Van = $6.400

After all, the expenses are calculated you simply multiply the ratio of business/personal mileage by the expense amount. It looks like this: 

Business & Personal fleet expenses

$5,600 is the deductible amount of business expenses per van. After this stage, any parking and suppletory insurance fees can be added. In this example, parking fees were $100  and supplementary business insurance was $200. 

That brings the claim amount per van to $5,900. Multiply that by the number of vans (3) and you get a total claim amount of $17,700. 

UNITED STATES 

If you are operating a business in the U.S. and that business uses vehicles (either personal or company owned) for the purpose of producing an income, you can make tax claims. The wording “producing an income” is a notable difference to the wording in Canadian Tax Law. Where Canadian tax law discusses deducting expenses that were paid in the pursuit of earning an income, U.S. tax law specifies deductible expenses should be for the purpose of producing a profit.  

The U.S. has two sets of rules you can choose to follow for the claiming of deductions. Actual Car Expenses and Standard Mileage Rate. Actual car expenses are very similar to Canada’s system for claiming deductions, the only exception being that in the U.S. you can also claim depreciation. Because of this, we won’t run you through an example, as it functions the same as the Canadian system. 

Standard Mileage Rate

This system is simple, and in many cases, offers a larger deduction. To compensate there are restrictions on who can make this type of claim. To start, the IRS decides a flat rate that can be claimed per mile. The rate for 2017 was $0.535USD, that means for every mile driven (for the purpose of producing a profit) fleet owners can claim $0.535USD.  

To use the Standard Mileage Rate, you must: 

  • Have 5 or fewer vehicles operating at the same time 
  • If you own the vehicle(s), you must choose to use Standard Mileage Rate during the first year of ownership, if you don’t then you cannot use it later. However, if you do choose to use it in the first year you may switch to Actual Car Expenses when it is suitable 
  • If you are leasing the vehicle(s), then you must use the Standard Mileage Rate for the entire duration of the lease.  

It’s important to note that your business is permitted to have five or more vehicles for the purpose of producing a profit, it’s simply that no more than five are allowed to operate at the same time. So why does the U.S. have two options for tax deductions regarding business vehicles? Well for those businesses that have purchased or leased new vehicles, it would be beneficial to choose Standard Mileage Rate over Actual Car expenses, because new vehicles use less fuel, don’t need repairs as often, and overall have fewer upkeep costs when compared to older vehicles. In your own business, calculate the deductions you receive with both methods and decide which one to use based on the size of the claim, in this case, bigger is always better.  

HOW TITAN GPS CAN HELP 

A common thread between the Standard Mileage Rate, Actual Car Expenses, and Canadian methods is a need to calculate how many kilometers are business related and how many kilometers are for personal reasons. Typically, these things are self-reported by the drivers. As you can imagine, in many cases this system results in less-than-accurate reporting. Luckily Titan GPS has developed a workable, easily implemented and accurate solution, with our Driver ID technology.  

Titan GPS Driver I.D. is a system that pairs drivers to vehicles and other motorized assets using a simple key fob. The typical application for our Driver I.D. system is to identify which driver is operating which asset at any given time, a useful feature for businesses that have fleet assets which are utilized by multiple operators. However, we’ve also developed a Personal Trip-Logging system based off Driver I.D. Drivers will be given two small keyfobs that fit on one keychain, one will be used for personal travel and the other for business travel. Drivers simply tap whichever fob is appropriate before they drive and miles are automatically recorded in the Titan GPS system. Then at the end of the year, during tax season, you’ll be able to be specific on your recorded mileage and submit an accurate claim. Worried that drivers won’t use the fob? The Driver I.D. system will release audible alerts within the cab until a fob is tapped.

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