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Automobile Kilometer Allowance
The easiest way to write off a car in a business is for the business to
pay the automobile owner a kilometer allowance. Simply keep track of all
the business kilometers driven and pay out an allowance.
The
following limits apply for 2009:
For most of Canada
52 cents per kilometer for the first 5000 kilometers
46 cents per kilometer for every kilometer thereafter
For the Yukon, Nunavut and the Nortwest territories
56 cents per kilometer for the first 5000 kilometers
40 cents per kilometer for every kilometer thereafter
This allowance is tax free to the recipient and may be written off for
tax purposes by the business. A GST input tax credit should also be
calculated and claimed.
Where an automobile is used substantially all of the time for business,
or is used more than 50% of the time for business AND related expenses
such as depreciation and interest are high, consider claiming the
proportionate business share of all car expenses directly on your
personal tax return. In this case you should also ensure you file a
Conditions of Employment Form that states you must supply your
personally owned automobile for business use.
Your best result though is to use a fully owned (i.e. no interest
expense), older car (i.e. little depreciation expense) for your business
that is cheap to run, and claim the kilometer allowance. You'll
literally make money every time use it for business because it likely
costs less than the allowance you receive to operate it.
Remember though to keep accurate records. If you don't, CRA will look to
see what is reasonable in the circumstances, which will most likely be
less than what you would otherwise be entitled to.
The alternative of the business actually owning the automobile should
not be overlooked, especially if it is used almost exclusively for
business. Despite the increased complexity due to the need to calculate
and pay tax on the taxable benefit associated with personal use, it may
still be the best alternative.
Note you can find the news releases from Canada's Department Of Finance here.
Simply use their search box for "kilometer allowance" or any
topic you are looking for.
© 2008 John B Voorpostel CA www.iaccountant.ca
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