# Vehicle Expenses - tax deductability



## Jay204 (Jan 27, 2014)

I am a salaried employee working in sales and receive a monthly car allowance. This car allowance is taxed and appears on one of my bi-weekly paycheques every month. Each year, I deduct expenses such as car washes, oil changes, insurance, and major repairs at a ratio of roughly 55% work use and 45% personal use. The ratio varies from year to year depending on work demand but it does stay in a fairly consistent range. 

This year, I purchased a set of snow tires & wheels for $1800. I also significantly upgraded the stereo for $3500. I have no hesitation adding the snow tires and wheels to my annual vehicle costs when filing my tax return but what about the stereo? Is this something that I can include as well?


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## stardancer (Apr 26, 2009)

That's iffy because a stereo is not regular maintenance. If you were self-employed, you could add it as a class of depreciable property, but as a salaried employee that's a headache. You could add it to the maintenance expenses and deduct the prorated portion; CRA may question why maintenance was so high for the year and may ask for receipts and an itemized list, in which case they will either allow it or not. I couldn't find any article dealing with a stereo in terms of vehicle expenses.


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## Jay204 (Jan 27, 2014)

Yeah, that's my gut feel too. This same year I have the winter tires & wheels to add which are completely legitimate. Adding the stereo would be pushing it. Even then, aside from whether I can "get away with it", there's the question as to whether it's truly legitimate.


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## domelight (Oct 12, 2012)

Jay204 said:


> Yeah, that's my gut feel too. This same year I have the winter tires & wheels to add which are completely legitimate. Adding the stereo would be pushing it. Even then, aside from whether I can "get away with it", there's the question as to whether it's truly legitimate.


 You can depreciate the capital cost of the vehicle as part of your expenses. So This is a capital improvement and should be added to the original cost of the vehicle and depreciated accordingly. Think about it like this if you had of bought a new car and ordered a factory upgrade then that would be part of the overall capital cost of the vehicle. Just because CRA dosent like it dosent mean its not within the scope of the tax act. The tires obviously are maintenance, the stereo is a capital improvement of an existing component which is standard in any vehicle.


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## Zeeshanbmerchant (Jan 4, 2014)

by the way, ratios are not good enough anymore. 

You need to keep a log, every day. However if your travel is similar every day every year, you can just have one for say March, and that sample is representative of the year. I am only mentioning this, because this is a super hot auditing topic this year. Every seminar i have attended has mentioned that CRA will be looking into auto deductions this year. By just this one little act, of sitting down and getting a month together, you can avoid a lot of headache in the future trying to argue your case

The CCA suggestion is the right one as mentioned. Both the tires and the stereo will give benefits more than a year, and as such are capital improvements,


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## Jay204 (Jan 27, 2014)

Thanks guys... really appreciate the input. Adjust the capital cost of the vehicle upwards to reflect the improvement done to the vehicle. Totally makes sense.

And yeah, I do know that a log book is the proper way to go. I just meant that my work usage does happen to be quite consistent in that range of 50% to 55% each year. I've been at the same job for 16 years and haven't moved residences for 10 years. Aside from the odd personal road trip, things are pretty samey.


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## Homerhomer (Oct 18, 2010)

This will never fly, cra clearly states that the expenses have to be reasonable, and $3500 stereo system doesn't qualify as reasonable expense and the factory installed system would do just fine.

Luxury cars have limit as to how much can be depreciated, and unreasonable expenses can't be claimed at all. If audited there is no way $3500 stereo system would be approved, capitalized or not.


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## KRIS_KROSS (Jan 28, 2014)

If you look to the Income Tax Act, paragraph 8(1)(h.1) is met to deduct motor vehicle travel expenses when:
1) Employee was ordinarily required to carry on duties of employment away from the employer's business; and
2) Employee was required under contract (signed T2200) to pay for vehicle expenses in the performance of employment.

Thus, I am assuming the above is met.

As the auto expenses to be allowed are not detailed in the Act, we must look to IT-522R, which is an interpretation by CRA (but is not law). It states the following:
"3. Where a "motor vehicle" is used by an employee in a taxation year partly to earn income from an office or employment and partly for personal purposes, the deductible amount is normally that proportion of the aggregate of the
*(a) total operating expenses (see 5 below) of the vehicle incurred by the employee in the year,
(b) capital cost allowance (see 15 to 19 below)*, and
(c) interest
5. The term *"operating expenses"* referred to in 3(a) above includes the cost of fuel, maintenance (for example, car washes, oil, grease and servicing charges), *repairs (other than accident repairs - see 7 below)*, licences, insurance and, except as noted in 6 below, the "eligible" leasing cost (see 8 and 9 below).
15. W*here an employee, who is entitled to deduct expenses under either paragraph 8(1)(f) or (h.1) and satisfies the requirements of subsection 8(10) (see 58 below), owns a "motor vehicle" used in the performance of the duties of the office or employment, capital cost allowance on it may be deducted by virtue of paragraph 8(1)(j)*."

Conclusion:
The stereo could either be claimed as an addition to your vehicle's CCA or as an outright repair expense. I would say that you are more likely to be reviewed or audited by the CRA if you claim as an outright expense (as fully deductible this year) vs CCA (only 30% deductible each year declining-balance as a class 10 addition). 
I would certainly recommend reporting the stereo, and would recommend reporting whichever way you feel comfortable.
There should be no reason the stereo could not be argued to qualify as a reasonable expense...especially with the costs of touch-screen, navigation stereos in $30,000 new cars these days.


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## Jay204 (Jan 27, 2014)

I am most comfortable including it as an addition to my vehicle's CCA. It makes the most sense to me especially when viewed as domelight suggested above : it's as if I'd ordered an upgraded stereo with the vehicle. I did have the work done within the first three months of taking possession of the new vehicle. I also plan to keep it for 10+ years so will depreciate it down to zero anyways. I'll see the overall tax benefit over time.


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## lb71 (Apr 3, 2009)

Jay204 said:


> I am most comfortable including it as an addition to my vehicle's CCA. It makes the most sense to me especially when viewed as domelight suggested above : it's as if I'd ordered an upgraded stereo with the vehicle. I did have the work done within the first three months of taking possession of the new vehicle. I also plan to keep it for 10+ years so will depreciate it down to zero anyways. I'll see the overall tax benefit over time.


You can only depreciate up to $30,000 pre HST/GST on new passenger vehicles. So if your original purchase price was above that, this won't work.


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