Information

This document explains the ways in which a person who uses a vehicle in a job or self-employed business can keep track of business travel.

When a vehicle is used partially for business purposes and partially for other purposes, the expenses relating to its use must be apportioned. Only those expenses relating to the business travel or commercial activity are considered eligible for a business deduction and for input tax credits on GST/HST. The proration in such cases is done based on the distances driven. To support a deduction or claim, the person must know and be able to demonstrate the distance travelled for business purposes and commercial activities.

Full Logbook
The best evidence to support the use of a vehicle is an accurate logbook of business travel maintained for the entire year, showing for each business trip, the destination, the reason for the trip and the distance covered.

Alternative records
The fact that a viable business exists is usually a strong indicator that a person incurred vehicle expenses, because it is extremely difficult to carry on a business without doing at least some driving. Claims for a very low amount {guess about 15%} of business use do not require extensive records to demonstrate business travel. As the percentage of business use and the related expense claims increase, more documentation, as discussed below, is expected to be available.

For many persons, the books and records they already retain as part of their normal business operations may be indicative of the presence of and the extent of business driving. An appointment diary indicating what addresses were visited and why, or a log of service calls might be sufficient. Purchase or sales invoices may indicate that items were picked up or delivered by the taxpayer. Examples of other evidence that may be taken into consideration may include:

whether the person has another vehicle for personal travel
The type of vehicle
The nature of the business and the business travel likely required
Who else drives the vehicle (e.g., family)
How the vehicle is insured
Indications of other personal travel

CRA auditors will generally consider the usage of a vehicle in the context of the entire operation of that particular business. A proposal to disallow a portion of a claim for vehicle expenses would only occur where the claimed travel seems out of proportion in that overall context and is not supported by sufficient evidence as described here. However, it should be noted that individuals will be responsible for providing sufficient evidence to demonstrate the accuracy of their claims for business distances driven throughout the year.

Logbook for a sample period
The CRA would be prepared to afford considerable weight to a logbook maintained for a sample period as evidence of a full year’s usage of a vehicle if it meets the following criteria.

The taxpayer has previously filled out and retained a logbook covering a full 12-month period that was typical for the business (the “base year”). The 12-month period is not required to be a calendar year.
A logbook for a sample period of at least one continuous three-month period in each subsequent year has been maintained the “sample year period”).
The distances travelled and the business use of the vehicle during the three-month sample period is within 10 percentage points of the corresponding figures for the same three-month period in the base year (the “base year period”).
The calculated annual business use of the vehicle in a subsequent year does not go up or down by more than 10 percentage points in comparison to the base year.

The business use of the vehicle in the subsequent year will be calculated by multiplying the business use as determined in the base year by the ratio of the sample period and base year period. The formula for this calculation is as follows:

Sample year period % ÷ Base year period %) x Base year annual % = Calculated annual business use

Where the calculated annual business use in a later year goes up or down by more than 10%, the base year is not an appropriate indicator of annual usage in that later year. In such a case, the sample period logbook would only be reliable for the three-month period it had been maintained. For the remainder of the year, the business use of the vehicle would need to be determined based on an actual record of travel or alternative records, as discussed above. In these circumstances, the taxpayer should consider establishing a new base year by maintaining a logbook for a new 12-month period.

Example
An individual has completed a logbook for a full 12-month period, which showed a business use percentage in each quarter of 52/46/39/67 and an annual business use of the vehicle as 49% (this percentage is based on annual distance, and not the average of the percentages for the four quarters). In a subsequent year, a logbook was maintained for a three-month sample period during April, May and June, which showed the business use as 51%. In the base year, the percentage of business use of the vehicle for the months April, May and June was 46%. The business use of the vehicle would be calculated as follows:

(51% ÷ 46%) x 49% = 54%

In this case, the CRA would accept, in the absence of contradictory evidence, the calculated annual business use of the vehicle for the subsequent year as 54%. (i.e., the calculated annual business use is within 10% of the annual business use in the base year – it is not lower than 39% or higher than 59%).

Even through records and supporting documents are only required to be kept for a period of six years from the end of the tax year to which they relate, the logbook for the full 12-month period must be kept for a period of six years from the end of the tax year for which it is last used to establish business use.

Year of acquisition of a vehicle.
The business use of a vehicle in the year it is bought or leased can also have implications as to how the vehicle is defined and limitations on amounts that can be claimed for certain expenses. Individuals should take extra care to document its use in that year. Further information is provided on the

Nanstax Services 370 Steeles Avenue West, Unit 209, Thornhill, Ontario L4J 6X1 Tel: 905 731 1666 Fax: 905 731 7666

Net Worth Assessments : If your records are inadequate to properly determine your tax liability, the CRA may assess you on a “net worth” basis. This is done by determining your assets and liabilities (i.e., net worth) at the end of the taxation year and at the end of the last previous year for which your tax could be determined, and assuming that your income for the intervening period was equal to the increase in your net worth in the period plus the estimated amount spent for personal and living expenses. No allowance will be made for the possibility that part of the increase in your net worth results from gifts and other non-taxable items, unless you can produce satisfactory evidence.

2023 Tax Changes

Documenting the use of a vehicle

------Document from Canada Revenue Website------

FRAUDS - BE AWARE ! - check with us if unsure

Many new fraudulent schemes to steal information and money from taxpayers. Please never give out your personal information, especially banking information. So do not respond. CRA will never phone you without having sent you several letters first. The Canada Revenue Agency never uses email, nor will they send the Police to have anyone arrested.

Reviews and Audits of Car, Rentals, and Business Expenses increased dramatically.

Keep all your receipts, invoices, and accurate records and statements. If you are an employee you need a form T2200 completed and signed by your employer to claim any expenses including your automobile, CRA DEMANDING YOU KEEP A MILEAGE LOGBOOK.

YOU MUST

HAVE AN APPOINTMENT

TO SEE ANY PREPARER

If you cannot email then you can mail, or fax to our preparers attention.If you need to drop offyour information you can do so by putting it through the mail slot at office 208 (across from the elevator). You will NOT be able to see preparer without an appointment, so make sure your email, phone and preparers name are on your sealed package.

Arrangements will be made by your tax preparer on how to respond and complete your return and determine if, when and what kind of appointmentmay be necessary

CRA - Increase in late filling tax penalty to 10% plus 2% for each month late, up to maximum 20 months. Interest in addition to this.

COVID Work from home expenses - No longer allowed (was $500)

Tax-Free First Home Saving Account (FHSA). This new registered plan would give prospective first-time home buyers the ability to save $40,000 on a tax-free basis. Like a Registered Retirement Saving Plan (RRSP), contributions would be tax deductible, and withdrawals to purchase a first home-including from investment income-would be non-taxable, like a Tax-Free Savings account (TFSA).

Multi-Generational Home Renovation Tax Credit - available on January 1, 2023. Provides a one time 15 per cent tax refund for renovation costs up to $50,000 for a secondary unit to permit an eligible person (senior or a person with a disability) to live with a relative.

Anti-flipping rules - scheduled to come into force on January 1, 2023. The principal residence exemption will not be available on the sale of your home if you've owned it for less than 365 consecutive days (with certain exceptions). The gain will be 100 per cent taxable as business income.

Home Accessibility Tax Credit - If you're 65 or older, are eligible for the disability tax credit, and have re-modelled your home for safer access, you can claim up to $20,000 of your related HATC expenses. Increase from $10,000 credit 15% of the amount. You must have proper receipts from your contractor, and for materials: receipts must specify the work being done for safety.

Underused Housing Tax - Separate form from tax return. 2022 year due April 30, 2024. Everyone who own a residential property {on land registry system} fully, or partly, in a partnership, corporation, or as a trustee, or in a charity qualifies to determine if they pay this tax and file the appropriate form. An Affected owner (or one of several) - MUST FILE ON TIME {penalty $5000 minimum}

Bare Trust - for income tax purposes is a trust arrangement under which the trustee can reasonably be considered to act as agent for all the beneficiaries under the trust with respect to all dealings with all of the trust's property.

NEW - Bare Trust has to file a T3 Trust return, due April 2, 2024. Penalty is greater of $2,500 or 5% of value of property.

TOOLS - deduction for tools for trades people and apprentice mechanics for 2023 and later years, the maximum employment deduction for tools has increased from $500 to $1,000.

Ontario

Ontario Staycation Tax Credit - CANCELLED

Ontario Seniors Care at Home Tax Credit has been introduced to help seniors 70 years of age or older on December 31, 2022, resident of Ontario at the end of the year and family's net income is less than $65,000. Refundable personal income tax credit for eligible medical expenses, including expenses that support aging at home. The credit is equal to 25% or your eligible medicals up to $6,000, for a maximum credit of $1,500.

Ontario Seniors' Home Safety Tax Credit - CANCELLED

Information about Receipts and Records

CRA is auditing/reviewing far more tax returns.

If you claim employment expenses, rental expenses or business expenses

you MUST keep all receipts for each category of expenses; a mileage log of employment/business/rental travel in your vehicle, and if you claim meals you need the names of you entertained and why. Therefore, you must have receipts for all expenses and ownership paper for assets.

Credit Card statements and Bank statements are NOT acceptable for CRA.

All receipts, and records must be retained for seven years.

NEW CRA PROCEDURES

For Authorizing a representative for business accounts

Self-Employed and/or Corporations

(This only applies to clients we do not already have authorization for or new business accounts.)

Clients now have to register their "My Business Account" with CRA so they can give us access.

Go to this link for the "My Business Account" page: https://www.canada.ca/en/revenue-agency/services/e-services/e-services-businesses/business-account.html

(a) If you already have a CRA "My Account" for your personal taxes, you can click on CRA sign in" and enter your credentials. You will have to enter your business number. For new corporations, if it states that you are not the owner of the corporation, you will have to contact CRA's business section and speak to an agent to get it resolved. The telephone number is 1-800-959-5525. Have the incorporation documents close by as you will need them.

(b) If you do not have a CRA "My Account", click on CRA Register. It will ask you for your SIN, postal code and a line number from your tax return. Have your latest filed return close by. Once the account is registered, a code will be mailed to you. When you receive the code, go back to the link and select"CRA sign in". At that point, you will be prompted to enter the code.

Once in the business account select "Profile" or "Business Profile" at the top of the page. Look for manage authorized representative then select authorize a representative. Use the info below to give us authorization.

Our firm's information is as follows:

BN or business number = 882858947

Name = Nan's Tax Services Inc.

Level of authorization = 2

Expiry = none

Program accounts = all