How to track self-employment car expenses
When a business owner is using a vehicle for both personal and business use, the same philosophy applies as with the home business expenses. Where square footage was used in the home calculation, kilometres driven are used for the vehicle calculation.
Over the course of the year, the business owner maintains an envelope in the car, where all car expenses are stored. These include gas, repairs, insurance (and interest payments if the car is financed). At the end of the year, the business owner then calculates what percentage of those bills are business expenses.
This is directly tied to the kilometres driven for business purposes over the course of the year. To begin to calculate business kilometres driven, the total kilometres driven are required. This is calculated by subtracting the odometer reading at the beginning of the year from the year-end odometer reading. Over the course of the year, it is essential to keep a logbook noting details of all business trips. After each business use of the car, the date, purpose of the trip, and number of kilometres driven should be noted. At the end of the year, adding the business kilometres in the logbook will provide the second half of the calculation. Then, divide the total kilometres driven (derived from the odometer reading) by the business kilometres driven (from the logbook). This will provide the percentage of business use of the vehicle.
If the business is a GST registrant, this is the percentage of GST on vehicle bills that can be claimed for credit as well. This percentage is then applied to all vehicle bills. This is the amount that can be claimed as a business expense. Traditionally, the motor vehicle expense doesn’t appear on the income statement until year-end, due to the fact that the allowable business use portion of expenses (km percentage) isn’t known until the year’s logbook is totalled.