How to Keep a CRA Mileage Log & Survive an Audit of Vehicle Expenses [Jun 25, 2019]
Canada Revenue Agency (CRA) is taking a closer look at vehicle used for business purposes this year. What is known as a limited review audit is targeting vehicle expenses for the 2016 & 2017 tax years. Keeping an accurate logbook of business travel maintained for an entire year is the best evidence you can have to support your motor vehicle expense claims.
The following information should be recorded in the log book each time the vehicle is used for business purposes:
- Date
- Starting point
- Destination
- Purpose of your trip
- Vehicle starting mileage
- Vehicle ending mileage
- Total miles, or kilometers in Canada, driven.
Sample Mileage Log
Mileage log books are typically available at office supply stores or you can use the following template. This template can be copied into a Word, Excel, or similar office document.
Automatic Mileage Tracking
Manually entering trip information in a log book is tedious, particularly if you make a lot of business trips.
Fortunately, there are several mileage tracking applications available for Apple and Android smartphones that make use of the phone’s GPS to keep track of every mile/kilometer driven for business purposes. For a small monthly fee, the app will log your business trip information and enable you to download a mileage summary on your tax return.
Some of the more popular mileage tracking apps include:
MileIQ: IOS and Android
Mileage Expense Log: IOS only
TripLog: IOS and Android
QuickBooks: Mileage tracking is included with QuickBooks Self-Employed
Business Use vs. Personal Use
The CRA are vigilant about excessive claims for business use of personal vehicles, claiming most or all of your vehicle mileage for business use is a sure way to attract extra scrutiny from the tax authorities and a possible audit.
Therefore, when it’s time to claim your motor vehicle business expenses you will need to know how many non-business-related miles or kilometers you drove. This can be easily accomplished by determining the total miles or kilometers you’ve driven in a year by comparing your vehicle’s odometer reading at the end of the tax year to what it was at the beginning of the year.
Once you have your data for the year, to calculate your motor vehicle expenses claim, you need to tally all of the miles/kilometers you’ve driven for business use over the course of the year. Your personal use is then the total mileage for the year minus the business mileage.
Business Use vs. Personal Use for Employees
Employees who use company vehicles must also keep track of mileage driven for business purposes versus personal use mileage.
Mileage driven for personal reasons is a taxable benefit that has to be included in employee income. Note that mileage driven to and from a regular place of employment—other than a point of call—is considered to be commuting and is classed as personal use.
Make sure you have a clear policy on the personal use of company vehicles, including:
- Who can drive the vehicle, such as the employee only or spouse
- What is allowable for personal use, for example, using a company truck to tow a camper or boat
- How to keep accurate mileage records
Three-Month Sample Logbook
The CRA has updated their requirements to allow small business people to reduce their logbook record keeping and use a three-month sample logbook to extrapolate business use for the entire year.
- To use a simplified logbook:
- You must have previously maintained a mileage log for one complete year to establish a base year’s business use of a vehicle.
- You must have kept this logbook for one complete year in 2009 or a later year.
- Your business use of the vehicle for the year for which you are using the simplified logbook must be within 10% of the results of your business use of the vehicle you recorded for the base year.
The CRA also says that businesses will have to show that the use of the vehicle in the base year remains representative of its normal use.
If all of these requirements are satisfied, you would then be able to keep a logbook for just three months and then calculate your business use of the vehicle by multiplying the business use as determined in the base year by the ratio of the sample period and base year period, by using this formula:
(Sample year period % ÷ Base year period %) × Base year annual % = Calculated annual business use
Note that to do this, you will have to know what your business use percentage was for the particular three-month period in the year you are using as a base year, so you can compare it to your new sample year period. For example, you have kept a simplified CRA mileage log for January, February, and March of the last tax year, and need to know what your percentage of business use of your vehicle was in January, February, and March during your base year when you kept a mileage log for the entire year.
For More Information or assistance with claiming Business Vehicle Expenses contact Kevin Cox, CPA, CGA at kevincox [at] coxandcompany {dot} ca
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