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Automobile Kilometer Allowance

The easiest way to write off a car in a business is for the business to pay the automobile owner a kilometer allowance. Simply keep track of all the business kilometers driven and pay out an allowance.

The following limits apply for 2015:

For most of Canada
55 cents per kilometer for the first 5000 kilometers
49 cents per kilometer for every kilometer thereafter
Plus 4 for the Yukon, Nunavut and the Northwest territories


This allowance is tax free to the recipient and may be written off for tax purposes by the business. A GST input tax credit should also be calculated and claimed.

Where an automobile is used substantially all of the time for business, or is used more than 50% of the time for business AND related expenses such as depreciation and interest are high, consider claiming the proportionate business share of all car expenses directly on your personal tax return. In this case you should also ensure you file a Conditions of Employment Form that states you must supply your personally owned automobile for business use.

Your best result though is to use a fully owned (i.e. no interest expense), older car (i.e. little depreciation expense) for your business that is cheap to run, and claim the kilometer allowance. You'll literally make money every time use it for business because it likely costs less than the allowance you receive to operate it.

Remember though to keep accurate records. If you don't, CRA will look to see what is reasonable in the circumstances, which will most likely be less than what you would otherwise be entitled to.

The alternative of the business actually owning the automobile should not be overlooked, especially if it is used almost exclusively for business. Despite the increased complexity due to the need to calculate and pay tax on the taxable benefit associated with personal use, it may still be the best alternative.

Note you can find the news releases from Canada's Department Of Finance here. Simply use their search box for "kilometer allowance" or any topic you are looking for. 


© 2015 John B Voorpostel
CPA, CA, CMB
iaccountant.ca


 
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