Introduction
Vehicle expenses are claimed by nearly every incorporated professional — and challenged in nearly every CRA field audit. The rules are not complicated, but they are specific, and the four errors below appear with remarkable consistency across professions and income levels.
Mistake 1: No Logbook
The CRA requires a contemporaneous vehicle log to support the business-use percentage claimed for vehicle expenses. A contemporaneous log is one maintained at or near the time of each trip — not reconstructed from memory months or years later.
The log must record: the date of each trip, the destination, the business purpose, and the kilometres driven. At year end, the total business kilometres as a fraction of total kilometres driven produces the business-use percentage.
A vehicle claimed at 85% business use without a logbook is a deduction at high risk of significant reduction on audit. A professional who drives 30,000 km per year and claims 85% business use — but has no log — will typically have the auditor allow 50% or less, based on the nature of the practice, with no further discussion.
Mistake 2: Claiming 100% Business Use on a Vehicle That Is Not 100% Business
A vehicle claimed at 100% business use must truly be used exclusively for business — it must not be driven for any personal purpose. For most incorporated professionals, this means the vehicle is parked at the office at night, not at home. If the vehicle is taken home — even occasionally — it is not 100% business use.
Most incorporated professionals drive their primary vehicle to work and personal destinations throughout the year. Claiming 100% is not credible. The CRA treats 100% claims with heightened scrutiny, and the audit adjustment is typically to a significantly lower percentage.
Mistake 3: Claiming the Vehicle Through the Corporation Without the Standby Charge
When a corporation owns or leases a vehicle and makes it available to a shareholder-employee for personal use, the shareholder must include a "standby charge" and an "operating benefit" in their personal income. This is the employee benefit rule for employer-provided vehicles.
Many incorporated professionals run a vehicle through the corporation and claim all costs as corporate deductions — without calculating or including the standby charge in their T4. The standby charge is 2% per month of the original cost of the vehicle (or 2/3 of the lease payments for a leased vehicle). For a $60,000 vehicle, the annual standby charge is approximately $14,400 — a required T4 inclusion.
Where the vehicle is used predominantly for business (more than 50% business, less than 1,667 km per month personal), a reduced standby charge may apply. But the calculation must be done and reported.
Mistake 4: Claiming Both Vehicle Expenses and the CRA Kilometre Rate
A corporation cannot deduct both actual vehicle expenses (fuel, insurance, maintenance, lease payments) AND reimburse the shareholder-employee at the CRA per-kilometre rate. These are two methods of the same deduction — not additive.
A corporation that pays all vehicle operating costs directly and also reimburses the owner at $0.72/km for business kilometres has claimed the same deduction twice. One method should be chosen and applied consistently.
When to Speak With a CPA
Vehicle deductions should be reviewed annually — the business-use percentage, the standby charge calculation, and the method of claiming (actual expenses vs. per-kilometre reimbursement) should be confirmed each year, not carried forward without review.