The trade-off for moving further from work in order to be able to purchase an affordable home is, of course, the daily commute. And, while gas prices aren’t currently at the levels seen a year or two ago, commuting is never inexpensive, leading many to wonder whether our tax system provides any relief for unavoidable commuting costs incurred.
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, and therefore is not tax deductable. There is also no tax credit allowed, no matter how great the cost is.
What's the good news?
There is a growing number of self-employed individuals and they can claim a deduction for business-related driving expenses. There are some circumstances (outlined below) in which employees can claim driving-related costs. And, finally, for those who decide that the daily drive has just become too costly or too stressful 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 that transit.
Employees
The one circumstance in which an employee can claim a deduction for driving costs is when that 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, as part of his or her job, be required to see clients at their own premises for the purpose of meetings or other work-related activities, and be expected to use their own vehicle to get to such meetings. If the employer is prepared to certify on a Form T2200 that the employee was ordinarily required to work away from his or her 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 is provided by the employer for such expenses, the employee can deduct actual expenses incurred for such work-related travel, including the following:
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 are outlined on the Canada Revenue Agency (CRA) website.
Public Transit
In other circumstances, where a taxpayer has the option of taking public transit, the after-tax cost of getting to and from work each day can be reduced by claiming the public transit tax credit. NOTE that this tax credit is no longer available after July 1, 2017.
That credit 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.
As well, 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 which provides for unlimited travel – for example high school or university students who use transit to get to and from school – can be aggregated and claimed on the return filed by either parent for the year.
So, a family of four which incurs an average of $700 a month in transit costs (not difficult to do where an inter-city commuter pass can cost up to $400 a month and city transit passes, even for students, can cost over $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. Details of the costs which qualify for the public transit tax credit are summarized on the CRA website.
No amount of tax relief is going to make driving, especially for a lengthy daily commute, an 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.