Live and Let’s Deduct

Written By: Mariann Karageorgievski, J.D. candidate 2015

As we emerge from the long, bitter winter and welcome the long awaited summer sun, we are also met with the dreaded rising cost of fuel. This is a dance we all know too well. The price of fuel rises continually, we all complain, and yet we still take out our wallets and pay. Now what if there was a way to reclaim some of the money already spent? You may be able to counteract some of these expenses through careful tax planning.

Who is eligible?

Aside from corporate deductions, you as an individual may be able to deduct your fuel costs in relation to the nature of your employment. These deductions are often made in, but not limited to, the service field, i.e. plumbers or lawyers, as they typically require individuals to drive to multiple locations during the day for clients or meetings.

Individuals who may be eligible to claim a deduction include:

Individuals who operate and own a business (sole proprietor), or an independent contractor

It is much easier to claim deductions as a sole proprietor or independent contractor as your fuel expenses are considered to be your business and/or operating expenses and are thus deductible.^[1] However, driving from home to work may be difficult to deduct as a business expense unless you first drove to a meeting prior to attending work, or drove to a meeting and then drove home. In these instances one would be able to deduct the total distance driven from home to meeting to place of business, as this would be considered an expense incurred for the business.

If you own your own business, fuel will be considered an expense under motor vehicle expenses. If you wish to claim such expenses you must complete Chart A – Motor Vehicle Expenses of Form T2125 on the CRA website. ^[2]

Individuals who are a partner in a business

Individuals who are a partner and use their own vehicle to perform their partnership duties can deduct via line 9943 in Form T2125 Part 6. ^[3]

Individuals who are employees

Who are required to use their own car to perform their employment duties

These individuals will have a more difficult time claiming deductions as these cars will be considered a mixed personal and business use and it is recommended that they should keep a log of the time spent driving solely for business purposes.

Who use a company car to perform their employment duties

Deductions will be easier, as vehicles are used strictly for business purposes and as a result all fuel costs in relation to this vehicle for employment duties may be deductible.

What are all the available vehicle deductions?

A deduction of fuel costs is but one of a list of allowable automobile expense deductions. A full list includes:

• fuel (gasoline, propane, oil)
• maintenance and repairs
• insurance
• licence and registration fees
• capital cost allowance (CCA)
• eligible interest you paid on a loan used to buy the motor vehicle; and
• eligible leasing costs ^[4]

How is an employee able to qualify for fuel deductions?

To qualify you must meet the following criteria:

1. “You were normally required to work away from your employer’s place of business or in different places.” ^[5]

•  For example, meeting with clients or visiting different work sites (construction workers).

Martorelli v R.

Mr. Martorelli was a construction worker who drove from his home in Hamilton to a site in Nanticoke. ^[6] In determining whether the individual worked away from his employers place of business it was necessary to determine whether the Nanticoke site could be considered the employers permanent place of business. ^[7] The court found that the construction site was not the employer’s permanent place of business and he was therefore entitled to deduct the actual motor expenses incurred. ^[8]

An exception from the general rule is appropriate in this case, in my view. The appellant worked at temporary construction sites, often away from the municipality in which he lived and that in which his employer was based. From a common sense point of view, and in the context of s. 8(1)(h.1), traveling to and from these construction sites is not a personal activity but is part of the duties of employment. ^[9]

2. “Under your contract of employment, you had to pay your own motor vehicle expenses.” ^[10]

•    These expenses must be incurred in performing the duties of their office.. 

3. “You did not receive a non-taxable allowance for motor vehicle expenses. Generally, an allowance is non-taxable when it is based solely on a reasonable per-kilometre rate.” ^[11]

•    Following recent case law, an unreasonable allowance, which is not based entirely on a per-kilometre rate will be included in income and the individual will then be able to deduct the actual employment-related motor vehicle expenses. ^[12]

4. “You keep with your records a copy of Form T2200, Declaration of Conditions of Employment, which has been completed and signed by your employer.” ^[13]

What should you remember?

It is important to stress that any fuel cost deductions must be a true business expense as you cannot deduct fuel cost for personal use. It is important to tread carefully when the car you are claiming fuel cost deductions for is considered a business and personal use vehicle. In such instances it is advisable that you keep detailed records of the kilometers (km) you drive during business hours and any receipts you may have to protect yourself in the instance that the CRA contests your deduction. However, while it is important to keep a record of the mileage expended you must be able to show what your actual cost is and that is what is deductible.

You must also note whether or not your employer gives you a partial allowance for your travel expenses and whether or not the vehicle you make the deductions on is your own personal vehicle or owned by the company/employer. If your employer allows you a travel expense you must determine whether or not your employer’s vehicle expense allowance is reasonable or not. If the expense is considered reasonable you will not be able to deduct your expenses, but in the case that the allowance is unreasonable you will be permitted to take a deduction. ^[14]

Speaking with Warren Orlans, accountant and owner of Intaxicating Tax Services, he explains that in recent years the CRA has refused to accept debit receipts due to fraudulent activities. ^[15] In these instances, he recommends that individuals pay with their credit card and maintain each receipt for future verification.^[16] Using this knowledge as a tool will better enable you to plan ahead and not be distressed with the ever-fluctuating price of fuel.

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