Owning and using a vehicle as part of a business can be a headache for managers and executives. The tax rules governing this type of asset are many and complex, both in terms of deductibility for tax purposes and the application of sales taxes. The purpose of this article is to talk specifically about the notion of keeping a travel logbook, an obligation for whom in fact?
As you are no doubt aware, any employee who benefits from the use of an employer-provided automobile is required to keep a mileage log. This register must be submitted to the employer no later than January 10 of the following year for any vehicle made available at the end of the year. In all other cases, the logbook is required within 10 days of the last day on which the vehicle was made available to the employee. In cases of non-compliance with this obligation, the employee is liable to a penalty of $200.
The trip log must include all relevant information, such as the number of days the vehicle is at the employee’s disposal, the total mileage covered during the year, the number of kilometers for each trip made in the course of his or her employment, not forgetting that it is important to note the mileage at the beginning and end of the year indicated on the vehicle’s odometer.
Keeping a record of business and personal kilometers driven enables us to calculate the employee’s taxable benefit, to determine the tax deductibility of the cost of purchasing or leasing the vehicle, and to process the taxes paid on the cost of purchasing or leasing the vehicle.
In GST/HST and QST, an employer will be able to claim an input tax credit and an input tax refund against the GST and QST paid on the acquisition and lease of a vehicle, depending on the percentage of vehicle use, the type of vehicle, the cost of acquisition or lease, and even, depending on who will be using the vehicle – the employee, the shareholder-manager or a person related to the latter. Consequently, a trip log is an essential tool for determining the percentage of use for business purposes.
Even if tax rules do not impose any specific obligation to keep a travel logbook, it is important to mention that every taxpayer must be able to adequately justify travel and the actual use of the vehicle, in order to avoid problems and disputes with the tax authorities. In fact, it is the company that bears the burden of proving and demonstrating the percentage of commercial use of the vehicle for the recovery of sales taxes and for the deductibility of the expense for tax purposes.
On several occasions, the courts have upheld the travel log as objective evidence of the accuracy of commercial use.
It goes without saying that the Agence du revenu du Québec (“ARQ”) is increasingly demanding this travel log during GST/HST and QST audits, even for service vehicles or trucks used entirely for business purposes. The ARQ is more demanding in obtaining sufficient evidence to justify the exclusive use of these vehicles for business purposes.
We are quick to conclude that requiring a logbook for every vehicle in this category is overkill. However, if we think about it, how can a company demonstrate the actual 100% business use of these vehicles without producing a trip log? The question is worth asking and pondering.
As specialists in commodity taxes, we believe it is important to be more rigorous in keeping the proof and documentation required to demonstrate the actual use of vehicles. We invite you to contact us if you have any questions, or if you wish to ensure that you have all the relevant information relating to this type of asset.
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