As every Canadian driver knows, gas prices seem to rise every spring, seemingly in lockstep with the warmer weather. This year, that annual trend has been given an extra push by the implementation of federal and provincial carbon taxes. As of the end of April, gas prices ranged from $1.19 to $1.56 per litre, depending on the province, and most forecasts call for those prices to increase over the summer.
While in some cases Canadians can reduce the impact of gas price increases by reducing the amount of driving they do, the practical reality is that, even for those who wish to do less driving and to thereby reduce their carbon footprint, driving less just isn’t a realistic option. While major urban centres are usually well-served by public transit, it is a different picture outside those centres, where in many cases the public transit option is either non-existent or impractical. As well, as housing prices in major urban areas either continue to increase (or are already out of the reach for the average Canadian), individuals and families must move further from their workplaces in search of affordable housing. Doing so means a longer commute to work, and that commute must often be done by car.
For a number of reasons, then, the cost of driving is often an unavoidable, non-discretionary expense. And, as that cost increases, many wonder whether there are any deductions or credits which can be claimed to help offset that cost.
Unfortunately, for most taxpayers, there’s no relief provided by our tax system to help alleviate the cost of driving as the cost of driving to work and back home, as well as the cost of driving that isn’t work related, is considered a personal expense for which no deduction or credit can be claimed, no matter how great the cost. That said, there are some (fairly narrow) circumstances in which employees can claim a deduction for the cost of work-related travel.
Those circumstances exist where an employee is required, as part of his or her terms of employment, to use a personal vehicle for work-related travel. For instance, an employee might, as part of his or her job, be required to see clients at their own premises for the purpose of meetings or other work-related activities and be expected to use his or her own vehicle to get to such meetings. If the employer is prepared to certify on a Form T2200 that the employee was ordinarily required to work away from his employer’s place of business or in different places, that he or she is required to pay his or her own motor vehicle expenses and that no tax-free allowance was provided by the employer for such expenses, the employee can deduct actual expenses incurred for such work-related travel. Those deductible expenses include the following:
- fuel (gasoline, propane, oil);
- maintenance and repairs;
- insurance;
- licence and registration fees;
- interest paid on a loan to purchase the vehicle;
- eligible leasing costs for the vehicle; and
- depreciation, in the form of capital cost allowance.
In almost all instances, a taxpayer will use the same vehicle for both personal and work-related driving. Where that’s the case, only the portion of expenses incurred for work-related driving can be deducted and the employee must keep a record of both the total kilometres driven and the kilometres driven for work-related purposes. And, of course, receipts must be kept in order to document all expenses incurred and claimed.
While no limits (other than the general limit of reasonableness) are placed on the amount of costs which can be deducted in the first four categories listed above, there are limits and restrictions with respect to allowable deductions for interest, eligible leasing costs and depreciation claims. The rules governing those claims and the tax treatment of employee automobile allowances and available deductions for employment-related automobile use generally are outlined on the Canada Revenue Agency website at http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/229/slry/mtrvhcl-eng.html.
In larger urban centres, and in the nearby cities and suburbs which are served by inter-city transit, many commuters utilize that transit as a way of avoiding both the stress of a drive to work in rush hour traffic and the associated costs. And, for a time, such commuters were able to claim a tax credit to help mitigate the cost of using such transit. Unfortunately, the federal public transit tax credit was eliminated in 2017 and has never been reinstated.
No amount of tax relief is going to make driving, especially for a lengthy daily commute, an inexpensive proposition. But, that said, seeking out and claiming every possible deduction and credit available under our tax rules can at least help to minimize the pain.