Discover Secret Vehicle Expense Deductions for Your Rental Properties and Small Business

2017_toyota_sienna_hq_wallpaperHello fellow real estate investors and small business owners,

Ever since Robin was born, we noticed that a small 4-door sedan just isn’t big enough for a family of four (including our furry baby, Jackson, a 50lb German Sheppard mixed).

We have wanted a bigger and more practical vehicle for the past year. We finally decided to lease a new 8 passenger minivan.

It’s definitely not as sexy as my original sedan.

But on the bright side, now we can go on road trips with Robin & Jackson together!

What does that mean when you lease or buy a new car to a real estate investor or a small business owner?

If you purchase the minivan–

Using the 8 passenger minivan as an example, assume the purchase price is $35,000 with HST 13% = $39,550. Lease rate is 2.99% and monthly lease payment is $559 including HST.

If you purchase a passenger vehicle, the maximum amount you can capitalize and depreciate is $30,000 + HST = $33,900. Similar to all capital assets, you are allowed to deduct the capital cost allowance (CCA) on the car.   The rate of deduction allowed is 30% a year (1/2 year rule applied the year of acquisition and the year of sale).

Year 1 – maximum amount you can deduct $5,085 ($33,900 * 30% * ½)

Say in 2014 you drive a total of 10,000km using this car, of which, 3,000km is incurred for the purpose of earning rental income, you are allowed to deduct $5,085 * 3,000km / 10,000km = $1,525.50.

Year 2 – maximum CCA you can deduct is $8,645 (($33,900 – $5,085) * 30%)

Say in 2015 you drive a total of 20,000km using this van, out of which 7,500km is incurred for the purpose of earning rental income, you are allowed to deduct $8,645 * 7,500km / 20,000km = $3,421.88.

If you lease the minivan –

The maximum eligible leasing cost allowed to be deducted is $800 on a monthly basis.

A complicated formula is used to determine the maximum eligible leasing cost can be deducted on an annual basis. You can follow this example in Canada Revenue Agency’s website (http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slprtnr/bsnssxpnss/mtr/ddctbl/ls-eng.html).

In our example, the maximum we can deduct for the first year is $559 per month.

Year 1 – maximum eligible leasing cost that can be deducted is $559 * 6 = $3,354

Similarly, this needs to be adjusted for the usage specifically for the purpose of earning rental income. In 2014, you are allowed to deduct $3,354 * 3,000km / 10,000km = $1,006.20

Year 2 – maximum eligible leasing cost can be deducted is $559 * 12 = $6,708

Again, adjusting for the mileage used specifically for earning rental properties, maximum amount of eligible leasing cost you are allowed to deduct is $6,708 * 7,500km / 20,000km = $2,516.

What if I use my vehicle for both my self-employed business and my rental properties?

If you are also a small business owner, you drive the same car for your self-employed business and your rental properties, you are still eligible to deduct the business portion for your self-employed business an rental portion in your rental properties.

Say in year 1, you drive 5,000km for your self-employed business and 3,000km for your rental properties.

If you purchase the minivan, you can deduct CCA for $5,085 * 5,000km / 10,000km = $2,543 for your business.   You can also deduct an additional CCA for $5,085 * 3,000km / 10,000km = $1,526 for your rental properties.

Administratively, you are required to record the mileage specifically used for your business and the mileage specifically used for your rental properties separately.

What other automobile expenses can I deduct?

As an example, you can deduct the following automobile expenses –

  • Fuel and oil
  • Interest
  • Insurance
  • License and registration
  • Maintenance and repairs
  • Any other expenses that are directly related to operating your vehicle (I usually include my 407ETR bill as other expenses)

The total of these expenses are then prorated based on the business use mileage or rental use mileage for deduction purpose.

You can also deduct parking expense, but only business use and rental use parking expense are allowed to be deducted. No proration is necessary for parking expense.

Hopefully, you get a better understanding on how the automobile expenses are deducted in your personal tax return.

Until next time, happy real estate investing.

Cherry Chan

Your real estate accountant

 

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.
3 replies
  1. Chuck
    Chuck says:

    Could it be better or easier just to charge your corp the mileage only if you do not have a new or leased car. Example – 30 kms x $0.52 / kms ( not sure if this is the maximum allowed CRA )………

    Reply
    • Cherry Chan, the Real Estate Accountant
      Cherry Chan, the Real Estate Accountant says:

      Yes, it will definitely be easier if you have a corporation and charge the prescribed rates allowed by CRA. Unfortunately for the investors who have no corporations, they can’t do it that way and they are required to keep track of their mileage and expenses for deductions.

      Reply

Trackbacks & Pingbacks

  1. […] Take a picture of your odometer For the real estate investors who incur auto expense for their rental portfolio, it is important to keep a record of your odometer reading at the end of each year. This is the basis to record how much mileage you have incurred for this year and next year. All the expenses incurred for rental portfolio are prorated over the mileage you have driven for the year. See my mileage blog post for more details. […]

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