By now, we’ve all filed our taxes.
If you haven’t, you either haven’t finished your fiscal year as an incorporation, or you’ve missed the deadline for sole proprietors and individuals. You’d better hop to it!
Let’s talk about how to get ready for next year. Sure, you should have started this planning back in January, but it’s better late than never.
A lot of our clients seek advice on claiming motor-vehicle expenses against their business income. We’ve guided you through claiming those expenses.
Today, let’s talk about how to keep a good logbook.
The Canada Revenue Agency advises that business owners keep an accurate logbook of business travel to prove your motor-vehicle expenses are reasonable and eligible.
Along with your receipts for fuel, maintenance, repairs and other expenses, you must keep a record of the total kilometres you drive and the total kilometres you drive to earn a business income.
The first step is to record the odometer reading at the start and end of your fiscal period. For sole proprietors, that’s January 1 and December 31, respectively. If you change motor vehicles during the fiscal period, you must record the dates of the change and the odometer reading of each vehicle.
For each business trip, you should record:
- The date of travel
- Your destination
- The purpose
- The number of kilometres driven
Isn’t there an easier way?
Well, yes. And isn’t that a bit surprising because owning a business and doing your taxes are rarely easy.
You must keep a detailed logbook for at least one year to establish a base of business use for the vehicle(s).
Once you’re through that first year, you can use a three-month sample logbook to extrapolate business use for the entire year — provided the usage is within the same range (about 10 per cent) of the results of the base year.
You will have to prove the use of the vehicle in the base year remains representative of its normal use.
The formula for calculating your business use is:
(Sample year period % / Base year period %) x Base year annual % = Calculated annual business use
According to the CRA, if your calculated annual business use goes up or down by more than 10 per cent, the base year isn’t a good indicator of your motor-vehicle use.
So, if you expect the business use of your vehicle to be greater or less than your base year, you might want to continue keeping a complete logbook.
Can you help?
We sure can. We specialize in small-business accounting and financial services. Contact one of our tax specialists and we can help you optimize the tax benefits and credits available to self-employed individuals and small businesses.
Fill out our contact form or give us a call at 403-226-8297.