Tax Relief for the Cost of Driving

It’s something of an article of faith among Canadians that, as temperatures rise in the spring, gas prices rise along with them. In mid-May, Statistics Canada released its monthly Consumer Price Index, which showed that gasoline prices were up by 14.2%. As of the third week of May, the per-litre cost of gas across the country ranged from 125.2 cents per litre in Manitoba to 148.5 cents per litre in British Columbia. On May 23, the average price across Canada was 135.2 cents per litre, an increase of more than 25 cents per litre from last year’s average on that date.

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 and from work and back home. 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 be required to see clients at their premises for meetings or other work-related activities and be expected to use his or her own vehicle to get there. 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, the employee can deduct actual expenses incurred for such work-related travel. Those deductible expenses include:

• fuel (gasoline, propane, oil);
• maintenance and repairs;
• insurance;
• license 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. As well, receipts must be kept to document all expenses incurred and claimed.

While no limits (other than the general limit of reasonableness) are placed on the amount of costs that can be deducted in the first four categories listed above, limits and restrictions do exist 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.

No amount of tax relief is going to make driving, especially for a lengthy daily commute, an inexpensive proposition. But seeking out and claiming every possible deduction and credit available under our tax rules can at least help to minimize the pain.