Should I Keep a Logbook for my Expenses?
Canadian Taxpayers can reduce their taxable income by claiming business expenses against the revenue they received. For individuals and businesses seeking these deductions, the Canada Revenue Agency (the “CRA”) allows you to claim any “reasonable” business expense.
Business expenses are defined as certain costs that are reasonable for a particular type of business, and that are incurred for the purposes of earning income. Business expenses can be deducted for tax purposes. However, personal, living, or other expenses not related to the business cannot be deducted for tax purposes.
For more information on business expenses and examples of expenses, click here.
Therefore, it is essential that taxpayers clearly distinguish between business expenses and personal expenses throughout the year. Some tips include keeping a separate bank account and following recognized accounting practices. However, one essential tip involves proper record keeping, and that is using a Logbook.
What is a Logbook?
Logbooks are used for keeping track of your expenses for work-related expenditures. Generally, the CRA has requirements that must be followed, which may vary depending on the type of expense.
For the purposes of this blog, we will explore three distinct expenses: Motor Vehicles, Gifts, and Meals and Entertainment.
Motor Vehicles
Businesses can generally claim travel expenses for the cost of driving a vehicle. Recording all of your driving in a mileage logbook is the best evidence to support claiming a deduction for your business travels.
Generally, for any trip to be logged as a business-related expense, you’ll need to note the following in your logbook:
- Date;
- Destination;
- Purpose; and
- Number of kilometers driven.
For added certainty, drivers may also take a picture of their odometer before and after their trip to substantiate the number of kilometers driven. You’ll also need to report the odometer reading at the start and end of the year. In the event that you changed vehicles, you will need to record the dates of the vehicle change and the odometer reading when the change occurred.
In addition, motor vehicle expenses can also be deducted if they are reasonable and there are receipts to support the expense. Some examples of Motor Vehicle Expenses include:
- License and registration costs;
- Fuel & oil;
- Insurance;
- Maintenance & repairs;
- Leasing costs; and
- Interest payments on money used to purchase the vehicle.
You can claim a deduction for these expenses in proportion to the use of the vehicle for business purposes. For example, if your vehicle is used 80% of the time for business purposes, then you can claim 80% of the expenses.
Lastly, if there are multiple business vehicles, a separate logbook must be kept for each vehicle.
Gifts
Sometimes gifts are provided and should be considered a business expense. For example, if someone refers you business, you may give them a gift and claim it is a business expense because that gift means they will continue to refer business to you.
Generally, for any Gift, you must log:
- The name and business address of the customer or employee receiving the gift;
- A description of the gift and the purpose it is for (or in the case of an award, the description of what the recipient did to obtain the award); and
- A receipt or other forms of documentation for the purchase.
Meals and Entertainment Expenses
Taxpayers and business owners can claim food, beverage, and entertainment expenses when these expenses are incurred for the purpose of earning income from a business or property.
Generally, for any Meals and Entertainment Expenses, you must log:
- The names and business addresses of the customers or persons being entertained;
- Contact details of the parties;
- A description of the client matter or income that the expense relates to; and
- A receipt or other forms of documentation for the purchase.
The maximum amount you can claim for food, beverages, and entertainment expenses is 50% of the lesser between the actual amount incurred for these expenses and the amount that is reasonable in the circumstances. This amount also applies to employees.
There are some circumstances where you’re allowed to claim 100% of your meal and entertainment expenses. Some examples include:
- Your meal and entertainment are included in the travel fee (for example, when you’re travelling by plane);
- You incurred meal and entertainment expenses for a work event, and you invite all of your employees (or all employees from a particular location). Note: you can only claim for six of such events per year; and
- Businesses that regularly provide food, beverages, or entertainment for compensation, such as restaurants or hotels, can claim 100% of such expenses.
For more information on why you should keep your receipts and records, click here. If you are being audited for your expenses, or CRA has already denied them, call us today! We can help!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
David Liang