Claiming Automobile Expenses as a Health Professional

While the Income Tax Act provides tax relief for individual and corporate taxpayers by allowing automobile expenses to be deducted from income, it can be a bit of a grey area, especially for health professionals. Generally speaking, only automobile expenses that are incurred for the purpose of earning business income can be deducted from a taxpayer’s income. Since most vehicles are used for both personal and business purposes, it is important that detailed records are maintained if a taxpayer wishes to claim automobile expenses. Keeping track of all expenses incurred - including maintaining receipts, invoices, and records of the number of kilometres travelled for personal and business use - are required to substantiate the deduction claimed on the tax return in the event the Canada Revenue Agency (the “CRA”) requests support on a review or audit.

The CRA and the tax courts have identified that travelling from a taxpayer’s home to their regular place of work is not considered business use and automobile expenses related to those trips cannot be deducted. However, automobile expenses incurred travelling to a place that is not the taxpayer’s regular place of work or principal place of business may be eligible for a tax deduction.

The importance of having a home office for business travel claims

For starters, for a health professional to claim travel from home to the hospital, clinic, or the professional’s practising office, the taxpayer must have a home office. Whether the home office is considered the taxpayer’s regular place of work or principal place of business is a question of fact. The CRA may take the position that a health professional’s principal place of business is where they report to daily and generate their revenues. Most often, this is the place where the professional meets their patients. On the other hand, the courts have suggested that a taxpayer’s principal place of business may instead be where they undertake administrative duties (e.g., bookkeeping, billing, reconciling cash receipts, etc.), charting or documenting on patients, or self-study and research. This is especially true if they have no designated physical space to carry out these activities at the hospital, clinic, or practising office. Given this alternative view on the professional’s principal place of business, it is quite probable that some, but not necessarily all, health professionals could take the position that a home office is their principal place of business and therefore the travel between home and the hospital, clinic or practising office could be considered business use. Health professionals wishing to take such a position should speak to their tax advisors.

Provided that all the requirements have been met, the types of automobile operating expenses that can be deducted include:

• Gasoline;
• Maintenance;
• Oil change and repairs;
• Car washes;
• Insurance;
• License renewal fees;
• Registration fees;
• Parking charges; and
• Expenses relating to zero-emission vehicles, such as charging fees.

In addition, capital cost allowance (i.e., a tax proxy for depreciation), lease costs (of up to $900 + GST/HST per month for leases entered after January 1, 2022, and $800 + GST/HST per month for leases entered before), and interest (up to $300 per month) can be deducted.

Track all your business travel in a logbook

It is important to note that these expenses must be allocated between personal and business use, with only the business portion being deductible. The method of allocation is calculated based on the distance travelled for each purpose. As such, the best evidence to support the business use of the vehicle is to keep a business travel logbook including the following information:

• Date of travel;
• Destination;
• Business purpose of trip; and
• Number of kilometers driven on that trip.

Two relatively recent court cases not determined in favour of the taxpayers, reinforce the importance of maintaining a logbook. In Cossette v. QRA, the self-employed taxpayer used his vehicle for business use when visiting his customers. The taxpayer claimed 93 per cent of his automobile expenses as a deduction in his tax return. The court agreed with the Minister’s position that the automobile expenses needed to be substantiated through a reasonable source of documentation to prove the proportionate use of his motor vehicle for business purposes. The taxpayer was unable to provide a logbook and instead, attempted to estimate the amount of usage for business purposes after the fact, based on an estimation of mileage travelled to his customers throughout the year. The court did not accept his unsubstantiated business use percentage and decreased his automobile expense claim significantly. Similarly, in Quraishi et al vs. HMQ, the taxpayer failed to keep a logbook to substantiate his automobile business usage and was unable to refute the Minister’s reassessed claim.

Final Thoughts

Claiming automobile expenses as a tax deduction is not cut and dry, especially for health professionals. Taxpayers who do wish to make a claim must ensure that they keep proper records of their business travel and maintain copies of the expense receipts. Without this support, it is quite likely that the CRA will deny all or a portion of the tax deduction, resulting in additional tax, interest and possibly even penalties in certain circumstances.  

This article has been prepared for the general information of our clients. Please note that this publication should not be considered a substitute for personalized advice related to your situation.