In our continuing series on business finance, we’ve been covering many of the common questions new business owners have on funding. This week, we’re tackling a fun topic, how to track your business mileage ahead of tax season.
Small business owners tend to rack up the miles behind the wheel when running their business. One of the perks they enjoy is Canada Revenue Agency’s facility to claim back a portion of that business mileage as a deduction on their taxes. From the moment the business begins, it’s vital to ensure this mileage is being accurately tracked throughout the year.
Good Habits Start Early
Unfortunately, a lot of business owners only find out about this perk months into the endeavor, or they’re careless in how they track the mileage. This leaves them short of maximizing their deductible. Entrepreneurs are also leaving themselves wide open for a potentially damaging audit from the CRA if they try to claim for mileage based on best estimates or industry averages.
That’s why it pays to get into good habits early.
While tracking mileage accurately each day is a minor inconvenience, it pays for itself multiple times over. It won’t take a massive effort on the entrepreneur’s part and technology has made tracking mileage easier than ever before.
In years past, drivers have used a trusty notebook, kept in their car, to account for each trip. In this, they would jot down the following details:
- Date of travel
- Why the journey was made
- Where the trip originated and where it ended
Seems a little cumbersome, right? The creation of Google Maps has made this process a piece of cake. Instead of taking a notebook on the road, just spend a minute plotting the distance between business mileage destination. This information should then be jotted into a notebook after the fact.
Why is the Logbook Important?
When dealing with the CRA, it’s best to provide an over abundance of information. Don’t presume they’ll take your word for any deductions you claim. Instead, always be ready with hard evidence to back up your claims. You’ll be dealing with a CRA employee who doesn’t know your business, doesn’t know your day-to-day routine and won’t take your personal circumstances into account when deciding whether an audit is necessary. Having proof in the form of a logbook/notebook nips this issue in the bud.
Know Your Deductions
A common misconception is your trip to and from work each day can be deducted as business mileage. This is NOT the case. However, trips to see clients, to purchase office supplies, and trips to attend meetings are examples of deductibles. The Government of Canada has published a comprehensive list of the vehicle deductibles available to small business owners.
If you happen to own the vehicle you use for work, you can also claim the value of that vehicle as part of your Capital Cost Allowance. While the amount you are eligible to claim varies based on vehicle type, in most cases, you can claim a portion of the vehicle’s cost each year, and write off the entire value incrementally over time.
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