Vehicle expenses for the self-employed can be a grey area – especially with respect to travel to and from work and home.
Many, if not all, self-employed individuals and business owners claim some sort of travel expenses. But the question always arises, just how much can you claim? The purpose of this piece is to address a more specific question – “Can I claim travel to and from work and home?”
We should all know by now that for an expense to be deductible, it must be incurred for the purposes of generating income from business or property. More specifically, paragraph 18(1)(a) of the Income Tax Act (ITA) denies a deduction in computing a taxpayer’s income from a business or property except to the extent that that the outlays or expenses are made for the purposes of producing income from a business or property. In addition, section 67 limits an otherwise deductible amount to an amount that is reasonable in the circumstances.
Generally speaking, travel expenses incurred in travelling to and from work and home are not deductible. However, travel expenses incurred in travelling between different premises of the same business are deductible.
But what about the many business owners who have legitimate offices within their homes? For those individuals, is there an exception to the rule? Yes. If it is established that the home office is the base of the business, travel to and from home and work is deductible.
Taxpayers do need to be careful here, as if you have an office or fixed place of business located elsewhere, your home is not likely to be regarded as your base of business. Having said that, if all the goods and services you render are provided at some other place of business, that does not, in itself, make that your base of business. You may also designate your home as your base of business even though a room within it is not set aside and used exclusively for the purpose of earning income.
Some examples of individuals having a home as the base of business are:
1. Medical practitioner who performs business functions and takes calls at home, provides services at hospitals, and has no other place of business other than at home.
2. Real estate agent who has a home office, has no designated office location elsewhere, and provides services to clients at their home or the site of the property.
Plumber who has a home office and keeps supplies in their home, has no designated office elsewhere, and provides services at whatever customer sites as necessary.
If you are concerned or have questions about your situation, then do not hesitate to contact Deuzeman & Associates and we would be glad to help you.