If you use your vehicle for work, you know how expensive that can be (especially with rising gas prices)! I’ve helped clients take massive tax deductions because they bought a vehicle for work or used it for work. Let me show you how!

While taking deductions is great, I’ve also met individuals and corporations who have been audited and faced serious consequences because they didn’t track their mileage correctly.

You absolutely HAVE to track your mileage to be audit-proof.
Estimates do not count.
There are severe consequences to not tracking mileage properly.

How To Track Your Mileage

To claim your vehicle as a tax deduction, you need to keep an accurate logbook of your mileage. Here are the components of a logbook:

Your logbook needs your beginning of year odometer reading
Your end-of-year odometer reading.
For each trip you take that you want the mileage to count as a business expense, you need to include:
- Date
- Starting Point
- Destination
- Purpose of the trip
- Total kilometres driven

Important Note: If you have multiple vehicles during the year, record the dates of the change and the odometer reading when you buy, sell or trade the vehicle. If you use more than one vehicle (i.e. sometimes you may drive your spouse or common-law partner’s vehicle) for your business, keep a separate record for each vehicle.

This list is considered a full logbook, and CRA stated that it is the best evidence to support the use of a vehicle. You would track all of these details for each trip all year.

It Gets Easier After Year One: The Simplified Logbook

After your first year, you can keep a simplified logbook. The CRA allows small businesses to reduce their logbook record keeping and use a three-month sample logbook to estimate business use for the entire year.

Note: This is only available after keeping a full logbook for at least one year. Remember that the full logbook is the best proof for audit, but the simplified logbook is ok.

To use a simplified logbook:

You must have previously maintained a full logbook for one year to establish a base year for business use of a vehicle.
You keep a full logbook for 3-months to create a sample period for the year.
You must have maintained this logbook for one complete year within the past ten years.
Your vehicle usage for the year must be within 10% of the results of your business use of the vehicle you recorded for the base year - check out the example below to see how this works!
You will have to show that the use of the vehicle in the base year remains representative of its normal use.

You will calculate your business use of the vehicle in the following year by multiplying the base year by the ratio of the sample period and base year period. The formula for this calculation is as follows:

(Sample year period % ÷ Base year period %) × Base year annual % = Calculated annual business use

If the calculated annual business use in a year goes up or down by more than 10%, the base year is no longer allowed to calculate the simplified logbook. You will have to maintain a full logbook for the entire year. You can also choose a new base year by keeping a full logbook for 12 months.

Example:

You completed a logbook for an entire 12-month period, which showed a business use percentage in each quarter of 52/46/39/67 and annual business use of the vehicle as 49%.

The following year you keep a logbook for a three-month sample period during April, May and June, which showed the business use as 51%. In the base year, the percentage of business use of the vehicle for the months of April, May and June was 46%.

The business use of the vehicle would be calculated as (51% ÷ 46%) × 49% = 54%

In this case, the CRA would accept the calculated annual business use of the vehicle as 54%. (The calculated annual business use is within 10% of the annual business use in the base year - the acceptable range is 39% to 59%).

Here’s How To Make It Even Easier

If this looks like a LOT of work to you, let’s talk about automating the process!

There are so many apps available now with all the details needed for a full logbook to be confident in your mileage tracking! These apps use your phone’s GPS - so make sure you take your phone on all business trips.

Some of the more popular mileage tracking apps include:

MileIQ (Tyagi Group client favourite!)
TripLog
QuickBooks

These apps have a small fee (about $7/month) but are great at creating a full automated logbook.

Looking for a way to track your mileage manually so you can save that money for other important investments–like really good coffee? Click here to download a free copy of our excel manual mileage tracker!

Read more about logbooks on the CRA website here.

RESOURCES:

Did the words audit-proof make your blood pressure rise? With Business Foundations: Bookkeeping, you’ll have everything you need to write off business expenses without the fear of audits! Click here to learn more.