Facing a vehicle expense audit by the Canada Revenue Agency (CRA) can feel daunting. But with the right preparation, you can navigate this process smoothly.
If you’ve received a letter from CRA concerning a review of your corporation’s vehicle expenses, here’s a step-by-step guide on how to prepare and respond effectively.
What Does CRA Ask For?
The CRA typically requests:
- A detailed list of transactions related to the vehicle expenses.
- Copies of invoices and receipts for the ten largest transactions.
- A list of makes and models of vehicles owned or leased by the company.
- Ownership or leasing details of the vehicles.
- For personal use vehicles, the percentage of business vs. personal use, a log of usage, and an explanation of how personal use was accounted for.
Sample Letter
Preparing Your Documents
Mileage Tracking
To substantiate the business use of a vehicle, a detailed mileage log is essential. Apps like MileIQ offer a convenient way to track every drive automatically, tagging a trips as Business vs Personal, and ensuring you have precise records for the CRA. Or, there are many free Excel templates here. Ensure your logs include dates, destinations, purposes, and mileage.
Expense Receipts
Keeping thorough records of your vehicle expenses is critical. Apps like Dext make it easy to capture and organize receipts digitally. For the audit, ensure you have receipts for fuel, maintenance, insurance, and any other vehicle-related expenses.
How to Respond
- Organize your documents based on CRA’s requests. Having everything in order will simplify the submission process.
- Use CRA’s online services for businesses to submit your documents electronically. It’s faster and easier to track.
- Respond within the deadline to avoid any negative implications on your assessment. If you think you cannot meet the deadline, or it has already passed, call the CRA agent at the bottom of the audit letter.
Personal Use of Company Vehicle
When you use a car that your company owns for personal stuff, like running errands or going on a trip, the government sees this as a perk.
This perk isn’t just free; it gets added to what you make from your company, kind of like getting a little extra salary. Think of it as the government saying, “Hey, using the company car for personal stuff is a benefit, so it should count as part of your income.”
This way, when tax time comes, you’ll need to include this extra bit on your personal tax return. It’s all about keeping things fair and square with the tax folks.
If You Need Help
If you cannot handle this on your own, our team can help. Get in touch with our tax team here.
Final Thoughts
A vehicle expense audit doesn’t have to be stressful. With good record-keeping and some online tools, you can confidently support your deductions and navigate the audit process. Remember, the key is preparation and organization.
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