Is there tax relief from the high cost of driving? (August 2021)
Canadian drivers are used to seeing gas prices rise each spring as the weather gets warmer and more people take to the road for day trips, weekends at the cottage, and annual holidays. This year, that trend is accelerated for several reasons. The first, of course, is that as pandemic restrictions ease and the economy opens up, there are more and more reasons to be on the road. As well, employees who have worked from home for the past 16 months are starting to return to the daily commute, either part-time or full-time.
Whatever their reasons for driving this spring and summer, Canadian drivers are experiencing “sticker shock” at the gas pumps to an unprecedented degree. When states of emergency were declared last spring and virtually everyone stayed at home, gas prices in Canada dropped precipitously. In April of 2020, the average cost of gasoline was around 79 cents per litre. That price has rebounded with a vengeance and, as of the end of July 2021, the average gas price in Canada was just under $1.40 per litre — an increase of more than 75% over April of 2020. In some provinces, gas prices have hit a new record high.
While in some cases Canadians can reduce the impact of gas price increases by reducing the amount of driving they do, the practical reality is that, even for those who wish to do less driving and to thereby reduce their carbon footprint, driving less just isn’t a realistic option. While major urban centres are usually well-served by public transit, it’s a different picture outside those centres, where in many cases the public transit option is either non-existent or impractical. As well, as housing prices in major urban areas either continue to increase (or are already out of the reach of the average Canadian), individuals and families must move further from their workplaces in search of affordable housing. Doing so means a longer commute to work, and that commute must often be done by car.
For a number of reasons, then, the cost of driving is often an unavoidable, non-discretionary expense. And, as that cost increases, many wonder whether there are any deductions or credits which can be claimed to help offset that cost.
Unfortunately, for many taxpayers, there’s no relief provided by our tax system to help alleviate the cost of driving to work and back home or the cost of driving that isn’t work-related. In both cases, such expenditures are considered a personal expense for which no deduction or credit can be claimed, no matter how great the cost. That said, there are some (fairly narrow) circumstances in which employees can claim a deduction for the cost of work-related travel.
Those circumstances exist where an employee is required, as part of his or her terms of employment, to use a personal vehicle for work-related travel. For instance, an employee might, as part of his or her job, be required to see clients at their own premises for the purpose of meetings or other work-related activities and be expected to use his or her own vehicle to get to such meetings. If the employer is prepared to certify on a Form T2200 that the employee was ordinarily required to work away from the employer’s place of business or in different places, that he or she is required to pay his or her own motor vehicle expenses (and was not reimbursed for such expenses by the employer) and that the employer did not provide a tax-free allowance to cover such expenses, the employee can deduct actual expenses incurred for such work-related travel. Those deductible expenses include the following:
fuel (gasoline, propane, oil)
maintenance and repairs
licence and registration fees
depreciation, in the form of capital cost allowance
eligible interest paid on a loan to buy the vehicle; and
eligible leasing costs.
In almost all instances, a taxpayer will use the same vehicle for both personal and work-related driving. Where that’s the case, only the portion of expenses incurred for work-related driving can be deducted and the employee must keep a record of both the total kilometres driven and the kilometres driven for work-related purposes. And, of course, receipts must be kept to document all expenses incurred and claimed.
While no limits (other than the general limit of reasonableness) are placed on the amount of costs which can be deducted in the first four categories listed above, there are limits and restrictions with respect to allowable deductions for interest, eligible leasing costs and depreciation claims. The rules governing those claims and the tax treatment of employee automobile allowances and available deductions for employment-related automobile use generally are outlined on the Canada Revenue Agency website at http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/229/slry/mtrvhcl-eng.html.
In larger urban centres, and in the nearby cities and suburbs which are served by inter-city transit, many commuters utilize that transit as a way of avoiding both the stress of a drive to work in rush hour traffic and the associated costs. And, for a time, such commuters were able to claim a tax credit to help mitigate the cost of using such transit. Unfortunately, the federal public transit tax credit was eliminated in 2017 and has never been reinstated.
Given current gas prices, no amount of tax relief is going to make driving, especially for a lengthy daily commute, an inexpensive proposition. But, that said, seeking out and claiming every possible deduction and credit available under our tax rules can at least help to minimize the pain.