# Mileage for businesses



## atrp2biz (Sep 22, 2010)

Can a business use the simplified method of calculating vehicle expenses (rate per km as opposed to using the proportion of vehicle costs used for business purposes) as is the case for medical expenses? The methodology for medical expenses are found in the link below, but I can't seem to find a CRA reference that allows businesses to use a per km rate to use as a vehicle expense for the business.

Thanks.

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns248-260/255/rts-eng.html


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## kcowan (Jul 1, 2010)

If you have never depreciated a vehicle then you can use the rate (I think 52 cents/km). But if vehicles are a part of your business, then why bother?


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## ghostryder (Apr 5, 2009)

atrp2biz said:


> Can a business use the simplified method of calculating vehicle expenses (rate per km as opposed to using the proportion of vehicle costs used for business purposes) as is the case for medical expenses? The methodology for medical expenses are found in the link below, but I can't seem to find a CRA reference that allows businesses to use a per km rate to use as a vehicle expense for the business.
> 
> Thanks.
> 
> http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns248-260/255/rts-eng.html



By "business" do you mean a sole-prop or a corp?

Sole-prop No.

If it's a corp and the vehicle is owned by the corp, no. 

If it is a corp and you are an employee and they require you to use your personal vehicle for work purposes, the employer can pay a non-taxable allowance based on mileage to the employee. This cost would be an expense to the business.


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## Addy (Mar 12, 2010)

ghostryder said:


> By "business" do you mean a sole-prop or a corp?
> 
> Sole-prop No.


I have a sole prop business, haven't put in my first tax return yet, so I'm curious as well about this. When you say No for Sole-prop, do you mean you can't claim mileage, or you can only use the proportion of vehicle costs used for business purposes and not the rate per km?

I thought it was the other way around, but then again I haven't checked into it for certain yet.


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## ghostryder (Apr 5, 2009)

Addy said:


> I have a sole prop business, haven't put in my first tax return yet, so I'm curious as well about this. When you say No for Sole-prop, do you mean you can't claim mileage, or you can only use the proportion of vehicle costs used for business purposes and not the rate per km?
> 
> I thought it was the other way around, but then again I haven't checked into it for certain yet.



You must pro-rate your vehicle expenses based on your use of the vehicle for business purposes. You cannot use a per KM rate.


http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slprtnr/bsnssxpnss/mtr/bsnsss-eng.html


There is a specific area on the T2125 statement of business activites form for calculating this. Page 5, Chart A.

http://www.cra-arc.gc.ca/E/pbg/tf/t2125/t2125-09e.pdf


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## atrp2biz (Sep 22, 2010)

This what I thought. I was hoping to use the per km rate though to make things easier. 

If business activities started in August of 2010, could I use the formula below?

business expense = car expenses from Aug-Dec x [mileage for business purposes / total mileage from Aug-Dec]

Also, I've had my vehicle since 2006. What can I use as the undepreciated cost of capital? Would I assume that for the past four years, the vehicle has depreciated for four years using 30% declining balance? So if my car cost $30,000, the UCC for the 2010 tax year would be calculated as follows (using Class 10 @ 30%).

2006 UCC = $30,000
2007 UCC = $30,000 x 0.5(30%) = $25,500
2008 UCC = $25,500 x 30% = $17,850
2009 UCC = $17,850 x 30% = $12,495
2010 UCC = $12,495 x 30% = $8,746.50

I'm assuming I would have to prorate the depreciation over five months so the expense would be $1,093.31. [$8,746.50 x 30% x 5/12] This would then be prorated based on business usage over the five month period.


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## kcowan (Jul 1, 2010)

atrp2biz said:


> If business activities started in August of 2010, could I use the formula below?
> 
> business expense = car expenses from Aug-Dec x [mileage for business purposes / total mileage from Aug-Dec]


No but you can prorate the depreciation/insurance for that period for the portion of your car used for business. Parking is a direct expense.


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## atrp2biz (Sep 22, 2010)

kcowan said:


> No but you can prorate the depreciation/insurance for that period for the portion of your car used for business. Parking is a direct expense.


Can you clarify this? I don't understand why I wouldn't be able to claim the business portion (btw sole prop.) during this period.


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## ghostryder (Apr 5, 2009)

atrp2biz said:


> Can you clarify this? I don't understand why I wouldn't be able to claim the business portion (btw sole prop.) during this period.



The problem with your formula is that it could (very likely) drastically distort your true business related expense claim. You should be pro-rating based on the km's of business use divided by total km for the year and your total vehicle expenses over the year, not just what you incurr from Aug on.

Imagine 2 senarios:

You start business in Aug. You have driven 50,000km from Jan-July and then drive another 5000km from Aug-Dec, of which 3000 are business related. You have spent $1000 in maintenance etc in the first half of the year, and another $1000 in the 2nd half. You used $5000 in fuel Jan-July and $500 in fuel from Aug-Dec.


Using your formula your vehicle expense would be:

=car expenses from Aug-Dec x [mileage for business purposes / total mileage from Aug-Dec]

=($1000 + $500) x (3000/5000)

=$900 expense


Using the whole year:

=(total annual expenses) x (business mileage/total annual mileage)

=($2000+5500) x (3000/55,000)

= $409 expense.


As a practical matter, unless your vehicle expenses are in the thousands of dollars, and seem "unreasonable" for your business, CRA is not going to care about a couple of hundred bucks. It's not material.



As for your CCA, you will have an addition to your CCA schedule for your vehicle. It should be added to your CCA schedule at a cost equal to the FMV of your vehicle when you started using it for business purposes. At least that seems to be the most common way.


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