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Limited seating, for more information or to register,
- Business use of Car Expenses
I have a home based business, how much of my car
can I write-off?
As mentioned in the March issue discussing home
expenses, let's re-word the question. What you
actually should be asking is: What can I expense?
When accountants hear the word write-off it usually
pertains to transferring an aged (old) receivable to a
The first step is deciding how much of your car
(expenses) represent earning income for your
There is one "real" method but many people have a
difficult time as it involves tracking each trip's actual
Most people choose a conservative (see the definition
section) percentage based on estimating how much
mileage was used for business versus personal.
There is no right amount, as long as you feel you can
justify the percentage.
Once the percentage has been established, these are
the items you can expense:Monthly loan or Lease payment
Repairs & maintenance (examples: oil changes,
car washes, snow tires, to name a few)
License Plate Renewal
How does one record Car Expenses on their
The business portion of car expenses are recorded
on your General Tax Return, in a specific section of the
T2124 (Statement of Business Activities)
If you lease your car, there is an additional lease
section to fill out.
Separate parking receipts and parking tickets; if they
pertain to the business. Include them in travel
expense, as they should be recognized as 100%
Group like items together and total. For example,
instead of recording each gas receipt, add up the total
gas receipts for a month. Staple together and use the
|Did You Know ?
Unlike house related costs, the percentage of car
expenses should vary from year to year (seeing as it's
based on actual mileage used for business.)
||For more Did You Knows?
In March's issue we introduced one of the
Generally Accepted Accounting Priniples,
Conservatism is another principle.
Text Book Definition: "The concept holds that where
acceptable alternatives for an accounting
determination are available, the alternative having the
least favourable outcome (immediate influence on
owners' equity) should be selected." (taken from the
3rd Canadian Edition of Intermediate Accounting by
Welsch, Zlatkovich, Harrison, Nelson and Zen).
Using this principle for car expenses means, when
estimating (I don't want to use the word "guessing"),
you should estimated a lower value.
For example, if you feel you're using the car 25% of the
time for business, if you can't prove this, you may want
to expense 20%.
For more definitions ...
Unless you're producing monthly and / or quarterly
reports, it is not necessary to record these car
expenses until year-end.
However, if you need to produce reports for external
use, you should calculate car expenses monthly (or at
I recommend you keep the details on a
Add each expense, ie. gas, let's say the total for the
year was $2,120 (including gst), take this and multiply
by the business percentage, ie. $2,120 x 32% =
$678.40 (don't forget if you have a GST account, to
record the GST separately).
As these are car expenses, I am assuming
the expenses were paid for on your personal bank
debit: Auto expenses
debit: GST (if applicable)
credit: Owner's contribution / draw
Remember to keep the receipts as backup.
|Next Issue - Keeping & Organizing paperwork
Learn:Who's asking for what
How to organize papers to find them quickly
What to keep, what to toss
Do I have to keep everything and why
How long is it necessary to keep everything?