Keeping Up With Your Kilometers: A Simple Guide To Getting Started
It’s highly likely that you own a vehicle of some kind for personal use, business use, or both. However, if you’re not logging the kilometers but still claim them on your tax form you could end up in a tax dilemma if you get audited. If you aren’t claiming them then you are missing out on being able to write off some of your taxes. These write-offs may result in significant year end savings for your business if claimed properly. Many Kelowna bookkeepers will tell you that logging kilometers accurately will always help with both keeping an eye on your vehicle to ensure it’s performing properly and help when it comes time to claim taxes. No matter what, it benefits you to log your business vehicle’s kilometers correctly. Here’s how to get started.
Step 1: Buy A Log Book
Log books are not only inexpensive, they can be found in most office/supply stores. Often they are set up in much the same way with sections for odometer, gas prices, notes, etc. If you have maintenance performed somewhat regularly buy one that has the according section for that.
If you don’t mind not having a physical version, another option is to get an app that can help you log kilometers. Two options that work on both Android and iOS are MileIQ and TripLog Mileage Tracker. Both are free to use, making your log book one less item to pay for.
Step 2: Separate Personal Use From Business Use
Separating personal use from business use is especially important for your taxes. It helps those reviewing your claims to see the distinction between the two and avoids any discrepancies in case they arise (and helps you avoid being audited). In addition, this section of your tax claims is one of the most highly scrutinized by the CRA so it’s important to give special attention to distinguishing this correctly in your log records. This brings us to our next step…
Step 3: Maintaining Your Log Book
After all that it’s important to know what to write down to avoid missing any info for your claim. While previously, the CRA was mainly concerned with kilometers logged and nothing else, in the last year this has changed. Now the CRA requires the following information every time that a vehicle is used for business purposes:
- The date
- The starting point
- The destination
- The purpose of your trip
- The vehicle starting mileage
- The vehicle ending mileage
- The total kilometers driven
If you’ve already been keeping track of logged kilometers that’s great! In fact you can cut down on the amount of info you need to track and just extrapolate after collected log data for three months as long as you satisfy the criteria below:
- You must have previously maintained a mileage log for one complete year to establish a base year’s business use of a vehicle.
- You must have kept this logbook for one complete year in 2009 or a later year.
- Your business use of your vehicle for the year you are using the simplified logbook must be within 10% of the results of your business use of your vehicle you recorded for the base year.
The CRA also says that businesses will have to show that the use of the vehicle in the base year remains representative of its normal use. All of these points being satisfied, you would then be able to keep a logbook for just three months and then calculate your business use of vehicle by multiplying the business use as determined in the base year by the ratio of the sample period and base year period, by using this formula:
(Sample year period % ÷ Base year period %) × Base year annual %
= Calculated annual business use
Notice that to do this, you will have to know what your business use percentage was for the particular three month period in the year that you are using as a base year so you can compare it to your new sample year period.
Is this still a bit unclear? Not sure if your current situation is affected by this? Kindret Business Solutions can help you organize your records and advise you on the best plans moving forward.