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Automobile expense dilemma

Almost all business people use a vehicle for business and claim the appropriate expenses either on a business or personal tax return. The gathering and justifying the actual expenses is one thing but proving the actual usage is another. In all cases the taxpayer must show and prove what the percentage usage was for the automobile.

This has become a major audit issue for Canada Revenue Services and they are denying all of the auto expenses in many cases. They are demanding that the tax payer maintain a daily mileage log which shows personal and business mileage, backed up by readings from the actual odometer on the vehicle. I know of very few business people who keep these logs. We are finding that CRA are very stubborn on their approach and are not willing to negotiate on this point.

Canada Revenue outlines this documentation issue and gives some alternatives on its web page.
Please follow:

To protect our clients from losing these legitimate expenses we have two solutions that we recommend.

  1. Actually keep a mileage log but use a smart phone application to record it for you. There are many of these applications out there and they are very inexpensive. As long as you carry your smart phone with you it can track the mileage using the internal GPS. If you do a lot of business travel this is a good way to go.
  2. Alternate to this would be to keep a detailed business calendar on a daily basis. Using outlook or some other electronic calendar works well. You do not need to put in mileage but keep the details of where you go on a daily basis. You should take the mileage off the odometer at the first of the year and then the end of the year. If you get the call from CRA then you would go back to your calendar and very easily construct a mileage log.