The Income Tax Act and the Excise Tax Act (GST and HST) do not set out specific documention requirements to support a tax deduction or HST\GST claim, however, the general rule is that the person must retain records that would enable an objective determination of the person's tax payable.

The best evidence to support this deduction is a logbook that tracks the details of business travel for any given taxation year. Details would include the destination and purpose of the trip, as well as the distance travelled.

Many taxpayers find this cumbersome, and the fact that few people (about 20% is the number I heard) kept logs, and the fact business interest groups lobbied hard for change, the 2008 federal Budget introduced a method to simplify the record keeping requirements as they relate to motor vehicle expense claims.

Essentially, after keeping a detailed log for a year to establish a base, in subsequent years a three month sample logbook can be used to extrapolate business use for the entire year, providing the usage is 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.

In any case, documentation obligations increase with amounts claimed 

CRA auditors will generally consider the business use of a vehicle in the context of the entire operation of that particular business. For small claims, the fact that a viable business is carried on is usually a strong indicator that a person incurred vehicle expenses, and their normal books and records, which would include invoices, delivery documents, appointment diaries etc might suffice if they can substantiate the claims made. Other such evidence considered includes:

1) The nature of the business and expected related business travel
2) Whether or not he taxpayer has another vehicle available for personal travel
3) How the vehicle is insured, ie commercial vs personal policies
4) To what extent the taxpayer and their families use the vehicle

If the claimed travel seems out of proportion in this overall context and\or there is insufficient appropriate evidence, the auditor would first make a proposal to a portion. It is then up to the taxpayer to furnish further proof, which, if the amounts are small, might consist of an expanded narrative of how and when the vehicle is used for business, along with some supporting evidence.

As claims increase in dollars and percentage used for business, either a detailed log book is appropriate, and a sample log book as described above might also be sufficient

Note that where in a subsequent year the calculated annual goes up or down by more than 10%, the base year is not an appropriate indicator of annual usage anymore and the taxpayer should revert back to maintaining a detailed log book for the year and use it to establish a new base year.

Note too that these detailed log books must be kept for a period of six years from the end of the tax year to which it relates.


© 2015 John B Voorpostel CPA, CA, CMB
iaccountant.ca