EVs and Motor Vehicle Expenses

Ruth Horst

Since 2017, the adoption of Electric Vehicles (EVs) has surged in popularity. Our current government is poised to follow through on a mandate that will require that hybrids and EVs make up 20% of new car sales (passenger cars, SUVs and trucks) in 2026 with the goal of 100% by 2035.  There are some important tax issues to consider in this ambitious mandate, including, what this will do to the value of fuel-based autos, the CCA write-offs available and most important from an audit standpoint, how to track the receipting for the costs.

The Backdrop: Small Business owners and self-employed taxpayers as well as employees who are required to use their personal vehicles to earn income are able to deduct their motor vehicle expenses when they prepare their tax return. They need to track all of their mileage for the year both personal and work related. They cannot include travel from home to their first business stop nor the last business stop to home as this is considered to be personal travel. They need to keep all of their receipts for fuel, repairs & maintenance, insurance, licensing fees, parking & toll charges. In many cases, especially for individuals working as Personal Support Workers and other professions that involve assisting many clients daily, this is an onerous task.

When the Canada Revenue Agency (CRA) is performing an audit on Employment Expenses, they will request documentation for the amounts claimed, which is fair. Our self-assessment system relies on taxpayers keeping track of their expenses and reporting them accurately. In the Processing Review letters that CRA routinely sends out, when auditing Employment Expenses, electricity is now added to the list (gas, diesel, propane) for deductible expenses.

Gas, propane, diesel receipts are easier to track; the taxpayer buys the fuel, keeps the receipt, and at tax time tallies all the receipts. The log of kilometers driven to earn income against total kilometers driven throughout the year determines the percentage of the fuel expenses that can be deducted.

The Dilemma: What if the taxpayer has either a hybrid or a plug in EV? How are the electricity (charging) costs tracked?

If all of the charging is done at a public charging site, such as a Tesla Supercharger, the amount paid is tracked within an app and the actual dollar amount paid is recorded.

What if most of the charging is done at a home charger? According to Natural Resources Canada, over 80% of EV owners charge at home. How is the cost calculated then?

Electricity rates vary from region to region. Then there are the ‘time of use’ billing rate variances to factor in. Many EV manufacturers have apps which will calculate the estimated home power use and CAA has a calculator that is easy to use. The real challenge is to determine the accuracy of these calculators and how does one really know how much is paid for home charging? I drive an EV and according to my app, the cost of charging my vehicle at home last year was $336. According to the CAA calculator my cost was $437.

The Bottom Line: Since we have a self-assessment taxation system it is up to the taxpayer to provide documentation for any expenses that are claimed against income. It is important to ensure that the amounts for both income and deductions have supporting documentation and are accurate.

To deepen your knowledge on what is deductible and what is not, enrol in the Knowledge Bureau DMA – Tax Services Specialist Program today. The knowledge gained in this course will help you and your clients to minimize tax payable and maximize refunds.

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