In a blustery late afternoon, when the day darkened with angry flurries sweeping the streets, a farmer, a fisherman, and a gonzo reporter all died in a car crash on the DVP. They levitated from their dead bodies and assembled at the golden gate of heaven, waiting for their final judgment. The wait was long, and the three got bored. Turning to each other, they started chatting, first in mumble, then bursts of a chuckle. Despite their different walks of life, they found out that being self-employed, they shared more in common than they knew.
While they were exchanging anecdotes at their family barbecues on the last Independence Day, a goddess slinked toward the gate from the other side. Her plump breasts were half bare under the gossamer, her skin was porcelain, and her hair satiny. The goddess graced the three with a touch of a smile, and the three were smitten. Lifting a corner of her lips, she pronounced that God had viewed their applications to heaven and believed that they had been good in life. That being said, they would still need to pass the final assessment on their tax reports. Given how they were all self-employed prior to death and had deducted expenses incurred to the motor vehicles they used to run their businesses, the goddess wanted to check if they had calculated their mileage in good faith in the last five years.
Hence, three logbooks – including the information of their vehicle types, as well as the date, the destination, the purpose, and the number of kilometers they drive for each business trip – were presented to the goddess, with the one from the fisherman thicker than the others. As it transpired, however, other than something fishy, the farmer and the gonzo reporter had opted for the simplified method.
The CRA allows taxpayers to use the three-month sample logbook to foresee business use for the entire year after establishing the base number by maintaining a full logbook for one complete year, so long the usage is within the range of 10% variation from the base year’s numbers. Once all the numbers are collected, you can calculate the business use of the vehicle in the subsequent year by applying the following formula:
(Sample year period % ÷ Base year period %) × Base year annual % = Calculated annual business use
However, because the fisherman couldn’t work out the math behind the formula, he picked the slow but more straightforward route and kept a full logbook for every year.
Judging by the contents of the books, it seemed that all three men had been honest. But the devil is always in the details. Within all the kilometers they had put down, are they all for business use? First off, it’s imperative that we understand how the CRA defines “business travel”. According to the CRA, the distance between your home and your primary location for work should not be included as such. Simply put, the commute doesn’t count, however counter-intuitive it may sound. Given that the three men were all self-employed and didn’t have to commute to work, our concern next in line surrounds the definition of primary location for work. The farmer-owned the farm; however, he didn’t live on the farm. The travel between his home and his farm should not, therefore, be included as “business travel”. On the other hand, the fisherman conducted and monitored most of his trade from home; his home, in another word, is his office. Even though he couldn’t sail from his backyard, the distance he drove between his home and the fishing port is ruled as business travel. Likewise, the gonzo reporter also used his kitchen as his office. That means, all the business travel should start from his home. However crazy and tending to slip out on a limb from time to time, he made no mistake with his mileage, and the distances he logged in his book are irreproachable.
But let’s say, the reporter signed a lease and rented a studio somewhere on the outskirts of Toronto. Would his return trip from an interview be considered as business travel? That would have to depend on whether he returned to his studio or home. If it was the latter, the corresponding kilometers should be excluded.
Now, with all that being said, does it mean that only the poor farmer will stray indefinitely in the limbo without ever passing the gate to eternal happiness? Well, the CRA also rules that in order to be eligible for mileage deduction, the vehicle you drive for business should be acquired from a “no arm’s length transaction”. That is, the vehicle should not be gifted by a relative; nor should it be purchased at a slashed price from a close friend. The gonzo reporter got his Honda SUV from his old man. Never had he thought the CRA would take issue with him because of an old Honda that got him killed, and indeed, the CRA had never questioned how he got his death ride over the last half of a decade. He thought that he was eligible by default.
But none of the three men knew what’s going on in the mind of the goddess, who, again, only graced them with a touch of her thawing smile. With a snap of her fingers, she sent her final report to God and left their fate in his (or her, maybe thy? Aw, who knows) hand.
Despite the authority of the tax laws, the CRA, like God, will take into account specific circumstances of events, and ruling results often vary between individuals. Better than God, however, the judgment of the CRA can be overruled. If you have the evidence that works in your favor, you may as well contest your grievance. Hence we’d like to remind you to document all your mileage and any other expenses incurred to your business at all times. Unlike the three, primitive men who still keep their numbers in actual notebooks, you can take the advantage of technology that has streamlined bookkeeping. Like the goddess who sent her report to God with a snap of her fingers, you may as well get organized for as little as 2 dollars a day by registering with Quickbook Online. For more information, please refer to our website for QBO training.