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How to claim car expenses if you’re employed

 A powerful, yet virtually unknown tax saving strategy,

 that could slice $1,800 off your tax bill

 each and every year

Are you an employed person who uses your car to travel to work each day?

 Did you know that your travel between home and work is not deductible ?

 That’s right.

 Even if it saves you hours of time. Even if public transportation is unsafe… impractical… or even if it doesn’t even exist.  Even if you bought the car just to get to work.

 Even if it’s an absolute necessity to use your car, because otherwise, you just wouldn’t make it to work—

 You still can’t deduct car expenses.

 ( If you want to know why, it’s because travel has to be in “the course of your employment”. And, all the courts have ruled that traveling between your work and your home is not “in the course of employment”. But I’ve found one way you can still deduct such car expenses it if your situation is the right fit. Read on.)

 And, that’s a real shame. Because, face it. You, like most taxpayers, spend more on your car than on almost anything else.

 If you add up the gas, insurance, lease fees, maintenance, interest and so on—you’re looking at

spending  at least $7,000—probably more—each and every year

 And, even if you have deducted it in the past, you should know that your still can’t br eathe easily. Because, if your return is selected for review by the government,

 they can disallow every single dollar you’ve deducted over the past 3 years

Which could leave you with a whopping tax bill. ( Typically in the $10,000 to $15,000 range)

Of course, you’re entitled to think that if you’ve gotten away with deducting car expenses in the past, you could continue deducting them in the future. But, it doesn’t  always work that way.

So, what I’m going to show you is this: I’m not going to show you how to deduct car expenses between your home and work.

 No. For that you’re going to have to consult your accountant and ask him how what I’m about to show you relates to your specific situation.  If it does, at all.

What I’m going to give you is a reported tax case called Haltrecht vs. The Queen.

The case is about a university professor who claims car expenses and home office expenses.

The judge says that he is allowed to claim home office expenses because, as he was only an assistant professor not given an office at the university, he needed an office at home to prepare lectures and mark papers.

Secondly, the judge allowed the professor car expenses for hauling his teaching materials between the university and  his home office. He said this was “in the course of his duties”.

The amazing thing here is that the judge is giving the guy not one—but two—tax br eaks. And, he is piggy backing the car expense deduction on top of  the home expense deduction.

I say it’s amazing because, in almost all the reported tax cases I’ve read, the taxpayer is always the loser. They just won’t let him deduct car expenses between home and office.

So, how does this apply to you?

Well, if you’re an assistant university professor or even a sc hool teacher with no office supplied to you at the place you work, then it’s a simple no br ainer. You should be able to deduct it. (But, watch out! The government boys may still attempt to disallow  it at which point you’ll have to br ing in your accountant to talk with them)

If you’re a computer consultant, I think it might work also.

Check with your accountant on whatever you do.

One word of warning. You should make sure you always have a  form T2200 (declaration of employment conditions)– signed by your employer—in case the government asks for it. Don’t include it with your tax return. Just have it available.

 

I’m not really finished yet, but I have to go.

Here’s the reported case:

 

 

Tax Court of Canada, Bowman, J., Fe br uary 18, 2000 . [Docket: 1999-1831(IT)I]

 

Counsel:

 

The Appellant himself, For the Appellant.

Carol Aultman, Counsel for the Respondent.

 

REASONS FOR JUDGMENT

 

(Delivered Orally from the Bench at Toronto , Ontario on Fe br uary 18th, 2000 )

 

This is an appeal from assessments from 1993 and '94. In filing his return of income, the appellant claimed substantially more than he is claiming now -- automobile expenses, meals, entertainment, parking, supplies, office in home -- a fairly substantial amount. Before this Court, however, he has reduced his claim very significantly. He is, in fact, claiming 14 percent of his utilities and maintenance costs of the home he owns or owned, which works out to $1,173.20 over two years, 50 percent of that each year. He also claims automobile expenses, roughly, 8 percent of his total automobile expenses. He is also claiming something for filing cabinets, depreciation on his filing cabinets.

 

I'll deal with the filing cabinets immediately because I can't allow him anything on those. There is no provision in section 8 of the Income Tax Act that would permit depreciation on filing cabinets, as much as they were a necessary expense.

 

The appellant is a part-time lecturer or teacher of psychology at York University . He has no office at the university and he kept an office at home. I find as a fact that he had to have the office at home to prepare his course materials, to mark, do such research as was necessary for his lectures.

 

The requirement in the section -- I'll come back to the question of rent in a moment. The requirement of the statute is that -- in subsection 8(13) -- is, among other things, that the office is the place where the individual principally performs the duties of the office or employment. That is a question of fact. He testified that for two three-hour courses he spent about twenty hours, on average, in preparation. I accept this figure. It's consistent with the university's practice of showing a ratio of about 4.8 to 1 in work away from the university and work lecturing. A decision of this Court, Frank v. Canada , shows an average of 7 to 1. Each of the cases must depend, of course, on its own facts, but whatever figures you use, it is perfectly clear that a great deal more time of a university professor is spent in preparation than in lecturing, and that is particularly true where no office is provided by the university. The situation would be quite different if an office were provided by the university, as they do in the case of a full-time professor. So the appellant has met the first hurdle.

 

The second point, however, is that paragraph 8(1)(i) uses the term "office rent". That point was commented on by Judge Rip in the case of Felton v. The Minister of National Revenue and I think by Judge McNair in Thompson v. The Minister of National Revenue .

 

The administrative practice, however, is to permit certain types of expenses, such as utilities, which is all the appellant is claiming, and maintenance even where the self-contained domestic establishment is owned by the taxpayer. Indeed, in Thompson, that administrative practice was acknowledged and illustrated by the fact that even though the taxpayer owned the property, one-third of the amounts claimed for utilities, gas and hydro were be allowed.

 

I think the interpretation is a sensible one and, in effect, it permits subsection 8(13) to br oaden the rather restrictive provisions of 8(1)(i). I think it is well established that administrative practice is a factor that must be taken into account where two interpretations of a statute are permissible. That was established by the Supreme Court of Canada in Nowegijick v. The Queen, and it's a principle that's been followed in many other cases.

 

There's another provision of the law or at least another principle of statutory interpretation that is applicable as well. It's a Privy Council decision in Bishop of Vancouver Island v. City of Victoria [1921] 2 A.C. 384. Where there are two interpretations of a statute, one of which leads to an absurdity and one of which leads to a sensible conclusion, one should reject the interpretation that leads to an absurdity and adopt the one that leads to a sensible interpretation. Here I think that the administrative practice leads to a sensible interpretation.

 

Therefore, I am prepared to allow the appeal to the extent of permitting in each of the years, 1993 and 1994, 50 percent of $1,173.20 under paragraph 8(1)(i) and subsection 8(13).

 

I come now to the second point, and that is automobile expenses. The appellant is claiming roughly 8 percent of his total automobile expenses. I find as a fact that since he was ordinarily required to carry on the duties of his office or employment away from the university, he meets the provision of subparagraph 8(1)(h)(i) and that the university indeed required him to pay these travel expenses in the sense that they did not reimburse him, yet he had to cart teaching materials, which he prepared at home, to the university, and they did not reimburse him. He received no allowance from the university for doing this. This was an essential part of his employment.

 

However, I think I can only give it to him for one year. Forms T2200 were filed with his return of income for each of '93 and '94. Subsection 8(10) says that you can only get a deduction under paragraph 8(1)(h) if you file a prescribed form signed by the employer certifying the conditions in paragraph 8(1)(h) were met. T2200 for 1993 meets that condition; T2200 for 1994 does not meet it.

 

The appeal will therefore be allowed and the assessments referred back to the Minister of National Revenue for reconsideration and reassessment on the following basis: For 1993 and 1994 the appellant may deduct in each year $586.60 in respect of utilities and maintenance in his home office. In 1993, the appellant is entitled to deduct, as an automobile expense under paragraph 8(1)(h), 50 percent of 1309.94 or $654.97. Since the requirement in subsection 8(10) was not met with respect to 1994, he is not entitled to deduct anything for automobile expense, and I emphasize again that he is not entitled to any depreciation cost for the filing cabinets.

 

Now, half a loaf is better than none, isn't it?

 

MR. HALTRECHT: Yes, Your Honour.

 

MS. AULTMAN: Your Honour, can I just clarify, for the home office a portion of what was claimed was already allowed.

 

HIS HONOUR: Was it?

 

MS. AULTMAN: I think 5 percent, but I'm not sure.

 

HIS HONOUR: Did they allow you a portion?

 

MR. HALTRECHT: Well, yes, they did, Your Honour, and that's on that sheet that you were referring to.

 

HIS HONOUR: I should have mentioned that in my judgment.

 

MS. AULTMAN: So maybe if we could just clarify.

 

HIS HONOUR: This further confirms the administrative practice so that really what -- they were giving him 5 percent -- I guess my judgment should say he's entitled to the 14 percent or those figures that I gave you to the extent that it's not already been allowed.

 

MS. AULTMAN: That's good.

 

HIS HONOUR: Okay. I'll put that in. Thank you very much. That's an interesting case.

 

MR. HALTRECHT: Thank you.

 

--- Upon concluding at 11:43 a.m.

 

 January 01, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Copyright © 2013 B.C. Chastkofsky C.A.
Last modified: January 01, 2013