Every year without fail, we have new clients that have vehicle expenses but only provide for us the total amount of kilometers they drove for business purposes in the year. They think that is enough information for us to put something on their tax return for their sole proprietorship or partnership. Unfortunately, it just isn't. It's really silly that corporations have a much easier way of determining that cost. Corporations can simply use the kilometer rate. This is, in 2022, 61 cents for the first 5,000 kilometers and 55 cents for every kilometer after that.

All you have to do for a corporation is keep a log book, tracking your trips and how far you went. It's fairly simple. You don't need to keep receipts. You don't need to worry about any of your personal kilometers. You just keep track of all your business kilometers. You don't need to keep receipts and then you make a journal entry at the end of the year. 

For a proprietorship or partnership to keep track of their vehicle expenses, it's actually much more difficult. You must keep a log book for your entire year. You only have to keep track of your business kilometers like you do with the prior method, but you also have to know the number of total kilometers you drove that year.

Then you have to keep your receipts for every.. single.. thing.. that you do that involves your vehicle. Whether it's a personal trip or not, you have to keep those receipts because you have to take all of those receipts and multiply them by the ratio of business kilometers versus total kilometers. That's how you come up with your expenses. It's really a massive undertaking just for a final number that’s usually fairly small. It would make things much easier if the Canadian Revenue Agency allowed sole proprietorships and partnerships to use the simplified method that corporations use.

Hopefully, at some point in time in the future, they correct that and make it easier for people to report their expenses, because those are reasonable rates and they get adjusted almost yearly. It’s especially frustrating for those people that didn’t know how this system worked and didn't keep their receipts, and those people that just thought that a kilometer rate would be sufficient. Another good reason to speak with a professional at the beginning of your business startup. 

Bryan Petersen is an accountant and entrepreneur with over 20 years of experience mentoring small and medium businesses across Alberta. Learn more about working with Bryan and the dedicated team at Alberta Wide Virtual Accounting.