Maximizing Your Mileage Deductions as a Self-Employed Professional in Canada: Understanding the CRA Guidelines

As a self-employed professional in Canada, keeping track of your mileage and expenses is crucial for maximizing your deductions come tax season. However, navigating the rules and regulations around mileage deductions can be confusing. In this post, we’ll provide a guide to understanding mileage deductions for self-employed professionals in Canada, based on the guidelines published by Canada Revenue Agency (CRA).

What is Mileage Deduction?

Mileage deduction allows self-employed professionals to deduct the expenses associated with using their personal vehicle for business purposes. The deduction can include costs like fuel, insurance, maintenance, and depreciation, among others. The CRA allows self-employed individuals to claim these expenses as long as they meet certain criteria.

Tracking Your Mileage

To claim mileage deductions, you must keep accurate records of your business-related trips. This includes noting the date, purpose, origin, destination, and the distance of each trip. You can also record the expenses associated with each trip, such as fuel, parking, tolls, and maintenance. Keeping detailed records will help ensure that you are able to claim the maximum deduction possible.

Calculating Your Deduction

Once you have tracked your mileage and expenses, you can calculate your deduction using one of two methods: the detailed method or the simplified method.

The Detailed Method

This method involves adding up all the expenses associated with your vehicle for the year, including fuel, insurance, repairs, maintenance, and depreciation. You will then need to determine what percentage of these expenses was related to business use. This percentage is based on the total distance you drove for business purposes compared to the total distance you drove for personal use. You can then deduct that percentage of your total expenses as a business expense on your tax return.

The Simplified Method

This method allows you to claim a flat rate for each kilometer driven for business purposes. The rate set by the CRA for the 2023 tax year is 68 cents per kilometer for the first 5000 business km driven annually, and 62 cents per kilometer beyond that. More info about CRA mileage rates.  To use this method, simply multiply the number of kilometers driven for business purposes by the current rate.

Which Method to Choose?

The method you choose will depend on your specific circumstances. If you have a high proportion of business use, the detailed method may result in a higher deduction. On the other hand, if you have a low proportion of business use, the simplified method may be easier and result in a similar deduction.

Using Psngr to Track Your Mileage

Keeping accurate records of your mileage and expenses can be time-consuming and tedious. However, using a mileage tracking app like Psngr can simplify the process and reduce the risk of errors. Psngr allows you to track your mileage automatically using the GPS on your mobile phone. You can categorize each trip as business or private with a simple swipe. The app will also automatically categorize repeating trips and apply the correct rate per km for each trip. You can also add notes to each trip to provide further context. Psngr generates detailed mileage reports that you can export to Excel or PDF, making it easy to calculate your deductions at tax time.