On June 27, 2010 the Canada Revenue Agency announced changes to logbook requirements.¬† They’ve been hinting at this for a couple of years or so, and it’s great to see they produced some action.
First, a bit of background on logbooks.¬† If you use your vehicle in your job or business, and you wish to deduct vehicle expenses from your income, you are required to keep a logbook.¬† Why?¬† Well, it’s because the government wants us to be able to prove what the actual business use of the vehicle is.¬† Most of us use our vehicles for both business and pleasure driving.¬† By keeping a logbook, we are able to identify what the exact amount of business use is.
Keeping a logbook really isn’t that difficult.¬†¬†To begin, you write down the odometer reading at the start of the year.¬† Next, during the year you log your business trips that you make with your vehicle. For example, if you go to visit a client at his business place, you should record the date of the trip, the distance, and the purpose of the visit.¬† Last of all, at the end of the year, record the vehicle’s closing odometer.
By following these steps, we can very easily determine the business portion of the vehicle, simply by adding up all the business kilometres, and dividing this by the total kilometres driven.¬† To illustrate, lets suppose that all of your business kilometres added up to 10,000, and the total distance driven with the vehicle during that year was 20,000.¬† That means that we can claim 50% of your vehicle as business use.
In the past, you were required to keep a log book all year, every year.¬†
That brings us to the new & improved part of the article.¬† You are still required to keep a full 12 month log book to establish a “base year.”¬† Following that full 12 months, you only need to keep a log book for 3 months of the year, referred to as the “sample period.”¬† This sample period will be used as your full year’s useage.
Of course, the government is never truly happy until they’ve thrown a number of twists into something.¬† So, in typical style, here are the exceptions.¬† You can’t use the sample period if:
You¬†have not¬†previously filled out and retained a logbook covering a full 12-month period.
You have not kept a 3 month sample period logbook for each year since then.
The business use of the vehicle changes by more than 10 percent, either up or down.
To summarize, it is great to see that the Canada Revenue Agency recognizes that the log book is difficult to keep, and is prepared to make things easier on the small business.¬† Whether or not this will actually encourage more people to keep log books remains to be seen!!
Filed under: Business tax
by David Boese
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