Is Car Insurance Tax Deductible?
Personal auto insurance is something that all car owners must have. It is a necessity for anyone getting behind the wheel of their own vehicle or a company vehicle. If you are self-employed and are required to travel for work, you may be able to claim your car insurance on your next tax form. The same goes for people who are employed by a company or organization that must travel for work.
Below, we’ll outline how car insurance is tax deductible and what you need to claim it on your next tax form.
Personal auto insurance for self-employed people
Those that are self-employed can claim certain expenditures on their taxes. For example, if you have dinner with a client, you would be able to claim that on your taxes if you paid for your portion of the meal or the whole thing. The same goes for car insurance but only if you use your vehicle for work. A freelance reporter who travels across the province to interview subjects for their reports is entitled to claim their car insurance. Basically, any time you would need to travel for work as a self-employed person, your car insurance is tax deductible.
Personal auto insurance for those who are employed by a company/organization
In order to claim a vehicle-related tax deduction, you need to have a company car. That doesn’t mean that the company purchased the vehicle for you but it does mean that the vehicle is designated for work use only. Furthermore, you need to pay for all vehicle-related expenses, such as car insurance. If your employer is paying for your personal auto insurance then you are not entitled to a tax deduction. In some cases, your employer will grant you a non-taxable allowance or reimbursement to pay for your vehicle expenses. If this is so, you cannot claim car insurance because technically it is being paid for by your employer.
To be able to claim your car insurance as an employed person you need to work away from your head office or company place of business. For example, if you are a sales rep, it’s safe to say you spend less time at your desk and more time on the road. Also, as previously mentioned, you need to pay for your own vehicle expenses and cannot receive an allowance or reimbursement. If you do receive an allowance or reimbursement but it does not cover the full expenses of your vehicle then you can claim the difference on your taxes. In addition, you will need a copy of the Declaration of Conditions of Employment. This must be signed by your employer and states that the conditions of your employment involve you having access to or owning a company vehicle. You can view this form here.
Is car insurance tax deductible on personal-use vehicles?
The only way you can claim auto insurance or other vehicle-related expenses is when you use the car for work activities. Canada Revenue Agency, the organization responsible for tax collection, understands that there will be some personal use with your vehicle and you will not be penalized for using your own car for non-work needs. However, you will need to keep track of the kilometres that were driven for personal use so you can subtract it from the overall kms that the car made throughout the tax year. An example would be, if you have $900 in vehicle operating expenses but used your car for personal use about 50% of the year, you would be able to claim $450.
What other car-related expenses can you deduct on your taxes?
Besides your personal auto insurance, you can deduct various other car-related expenses on your tax form. Items like licence and registration fees, leasing costs (eligible only), interest that you paid on the vehicle’s purchase loan and capital cost allowance (a percentage of the cost you paid for the car, allowing for depreciation over the years) are tax deductible. Moreover, you can also claim maintenance and repairs and fuel. Just make sure to keep the receipts to give to your accountant when you file your taxes.
What happens if you have more than one vehicle?
You can only claim personal auto insurance on your taxes for the vehicle you use for work. If you happen to use two different vehicles for your job then you can make a claim for the expenses of each car.
Where can you get a personal auto insurance policy?
If you do not have car insurance already, please contact WB White Insurance. We offer comprehensive car insurance packages designed for the individual. Whether you are self-employed or a key member of a large organization, you need a car insurance policy that makes sense for your driving needs.
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