Watching gas prices rise as the weather grows (slightly) warmer is a regular experience for Canadians—a rite of spring, if you will. The difference this year is that gas prices, which are, in mid-April, already at a three-year high in some provinces (at around $1.50 per litre in Montreal and Vancouver) seem likely to break new records this summer.
All of this has left Canadians searching for just about any way to reduce their cost of getting around. The problem is that for most of us the purchase of gasoline is, for all practical purposes, a non-discretionary expense. Most Canadians have to get to work each day and, except for those who live in large cities or the bedroom communities surrounding those cities, public transit isn’t usually a practical option. For everyone else, since the money has to be spent, the question becomes, does our tax system offer any relief by way of a deduction or credit for the cost of driving?
The answer, as it usually is in tax, is yes … and no. The bad news for most taxpayers is that the cost of driving to work and back home, as well as the cost of most non-work driving is considered a personal expense, for which no deduction or credit is allowed, no matter how much it costs. The news is not, however, uniformly bad. The self-employed, of whom there are an increasing number, can claim a deduction for business-related driving expenses. As well, all taxpayers are permitted to claim a deduction for driving or travel expenses incurred for certain specific purposes, like moving to take a job or travelling to obtain medical care. And, finally, for those who decide that the daily drive has just become too costly and turn to available public transit (which includes everything from subways to suburban commuter trains to ferries) as an alternative, a tax credit is available to help offset the cost of taking transit.
There is, however, one instance in which employees can claim a deduction for driving costs. Where employees are required, as part of their terms of employment, to use their own vehicle for work-related travel (e.g., someone who is required to visit clients at their own premises for the purpose of meetings or other work-related activities), tax relief is available for the related costs. 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 travelling expenses, and that no tax-free allowance is provided by the employer for such expenses, the employee can deduct actual expenses incurred for such work-related travel, including the following:
- fuel (gasoline, propane, oil);
- maintenance and repairs;
- insurance;
- license and registration fees;
- depreciation, in the form of capital cost allowance;
- eligible interest costs paid on a loan used to buy the motor vehicle; and
- eligible leasing costs.
In the majority of cases, a taxpayer will use the same vehicle for both personal and work-related driving. Where that’s the case, only the percentage 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 to document the expenses claimed.
The rules governing the taxation of employee automobile allowances and available deductions for employment-related automobile use (summarized on the Canada Revenue Agency website athttp://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/229/slry/mtrvhcl-eng.html) can be complicated. But, given the recent run-up in the cost of gasoline, as well as the anticipated increase ahead, it’s likely worth ensuring that every possible dollar of eligible expenses incurred as a result of employment-related car use is claimed.
Our tax system also permits a deduction for driving or other travelling costs incurred where a taxpayer moves to take a job (which would include students moving to take up a summer job) as well as for travelling costs which are incurred in order for the person or a member of their family to receive medical treatment.
Where it’s necessary to move to take up employment or self-employment, and the move takes the taxpayer at least 40 kilometres closer to the new place of work, the costs of that move can be deducted from income earned at the new job. When it comes to travelling costs, the taxpayer has the option of either itemizing the various costs incurred (including operating expenses such as fuel, oil, tires, licence fees, insurance, maintenance, and repairs and ownership expenses such as depreciation, provincial tax, and finance charges) for the year and then claiming a pro-rated amount which reflects the percentage of kilometres driven which relate to the move. Such an approach requires a fair amount of record keeping and many taxpayers choose instead to claim the standardized per-kilometer rate provided by the federal government. For 2013 (the 2014 rates will be posted on the CRA website early in 2015), that standardized rate ranged from 45.5 cents per kilometer in Saskatchewan to 63.5 cents per kilometer in the Yukon Territory. Where the standardized rate is claimed, no receipts are required, but the taxpayer is required to keep a record of the number of kilometers travelled in relation to the move.
The same approach (itemized approach or standardized rate claim) applies where a taxpayer is claiming travelling expenses related to medical care. The basic rule for claiming travel expenses in such circumstances requires the taxpayer to travel at least 40 kilometres (one way) from his or her home to obtain medical services which were not available any closer to home. Where that requirement is met, the taxpayer may claim the public transportation expenses paid (for example, taxis, bus, or train) as medical expenses. Where public transportation is not readily available, the taxpayer may be able to claim a pro-rated share of vehicle expenses (both operating expenses and ownership expenses, with receipts, as outlined above) or opt for claiming the standardized per-kilometre rate. As is the case with all medical expense claims, a claim is available only where the total amount claimable exceeds the lesser of 3% of net income or (for 2014) $2,171.
Finally, where a taxpayer decides that driving is just too expensive and opts instead for public transit, a tax credit for the cost of using that public transit is offered by the federal government and by several of the provinces, and there is no limit on the amount which may be claimed. The federal credit is calculated as 15% of the cost of public transit, and while provincial credit amounts vary, an average would be around 7%. A taxpayer would therefore be able to claim a credit (and reduce taxes which would otherwise be payable for the year) by 22% of eligible public transit costs incurred during that year.
The public transit tax credit isn’t limited to costs incurred for transit use to and from work. Costs incurred by either spouse and by any dependent children under the age of 19 who regularly purchase a weekly or monthly transit pass (e.g., high school or university students who use transit to get back and forth from school) can be aggregated and claimed on the return of either parent for the year. So, a family of four who incurs $700 a month in transit costs (not difficult to do where an inter-city commuter pass can cost up to $350 a month and city transit passes, even for students, can cost around $100) can claim $8,400 in eligible transit costs per year, for which they would be able to reduce their tax bill for the year by just under $1,850—the equivalent of almost 3 months travel costs.
No matter how it’s done, commuting back and forth to and from work every day is tough, and no amount of tax relief is going to make driving that daily commute an easy or 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.
