Documents Please

The Canada Revenue Agency developed an alternative system for recording business travel with the aim to assist businesses in substantiating the business use of a motor vehicle that was used for business and personal reasons. Businesses can choose to maintain a full logbook for one complete year to establish the business use of a vehicle in a base year. After one complete year of keeping a logbook (starting in 2009 or thereafter) to establish a base year, a three month sample logbook can be used to extrapolate business use for the entire year, providing the usage is within the same range (within 10%) of the results of the base year. Businesses will need to demonstrate that the use of the vehicle in the base year remains representative of its normal use. Thus, for both income tax and GST/HST purposes, the motor vehicle record keeping burden is being reduced.

Documenting the use of a vehicle 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 per-son must know and be able to demonstrate the distance travelled for business purposes and commercial activities. The Income Tax Act and the Excise Tax Act do not set out specific documentary requirements for re-cording the usage of a vehicle. The general rule is that the person must retain records that would enable an objective determination of the person’s tax payable. 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 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 in that year. Further information is provided on the CRA’s website at: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slprtnr/bsnssxpnss/mtr/typ-eng.html. For More Information Contact Mark Stebbing – CEO Number Plus Ltd – Mississauga Ontario Canada Tel: (289) 290-3322 Fax: (289) 290-3321 www.numbersplus.ca info@numbersplus.ca The information presented is only general in nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office http://www.numbersplus.ca. for more information on this subject and how it pertains to your specific tax or financial situation.

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