CRA Car Expenses Review With No Logbook: What You Can Do

CRA auto expenses review and no logbook: what happens to the claim?

A vehicle claim with no logbook stands only on the other evidence behind it. The CRA says vehicle expenses are deductible only when they are reasonable and supported by receipts, and calls an accurate logbook of business travel, kept for the entire year, the best evidence of business use (CRA: motor vehicle expenses). Income Tax Act section 67 allows an expense only to the extent it was reasonable in the circumstances.

The CRA's motor vehicle pages do not say what the CRA accepts in place of a log that was never kept, and the archived IT-521R bulletin is silent too. A log rebuilt later is evidence, not a guaranteed substitute, and nobody can promise it will be accepted.

A case like this is not simple, and a professional should look at it, when a CRA letter already asks for the log, when several years were claimed the same way, when the claimed business share is high, or when a corporation owns the vehicle. Receipts prove what was spent, not how much of the driving was for business, and that share is what a log proves.

A GST/HST registrant's input tax credits are available only to the extent the purchase is used in commercial activities (CRA: input tax credits; Excise Tax Act, section 141.01), so missing vehicle records can reach the credits on the vehicle's costs too. The credit is worked out under GST/HST rules, which are not always the income-tax business share; see buying a car through your business.

Gather these first:

• Receipts and statements for fuel or charging, insurance, repairs, licence, lease or loan interest, and parking.
• Dated odometer readings: service, repair, inspection and insurance paperwork often show one.
• Calendar entries, job tickets, client invoices and emails that give dates and addresses.
• The vehicle's purchase or lease papers.
• The returns that claimed the vehicle (T2125 or T2), and any note showing how the business percentage was worked out.
• The insurance policy or renewal showing the use and yearly kilometres declared.
• The CRA letter, with the years it covers and the date it sets.

For what to send and how long a response may take, see CRA reviews and audits.

Can a three-month sample logbook replace a full year I never kept?

No. The CRA's simplified logbook starts with a full logbook for one complete year, which sets a base year; only after that year can a three-month sample estimate business use for the year (CRA: motor vehicle records; T4002, chapter 3). Without a base year there is nothing to compare a sample with, so the formula cannot be run.

The formula divides the sample period's business use by the base year's business use for the same months, then multiplies by the base year's annual business use. The result must stay within 10% of the base year's results, and the business must show the base year still represents normal use of the vehicle. If the result moves outside that range, the sample is reliable only for the three months it covers; the CRA says the rest of the year must then be shown by an actual record of travel or "alternative records", which it does not define, and that a new 12-month base year should be considered. The full test is in the CRA vehicle logbook guide.

A three-month log kept now, with no base year behind it, records those three months and nothing more.

What does the CRA expect in a mileage log and receipts, and is there a template?

The CRA expects a record of total kilometres, business kilometres, and a receipt for each expense claimed. Its motor vehicle pages list the items below and name no required form or template, so a notebook, a spreadsheet or an app can hold them (CRA: motor vehicle expenses; CRA: motor vehicle records):

Whatever is missing, produce the closest document to each item: every receipt, every dated odometer reading, and a dated record behind every business trip. For missing receipts, see expenses without receipts; for what a receipt must show, see CRA receipt requirements.

Can I rebuild a vehicle logbook after the fact?

You can assemble a record of past trips from other documents. It is supporting evidence, and the CRA decides what weight it carries.

1. Find total kilometres for the year. Best are dated odometer readings near its start and end; service, repair, inspection, insurance or sale paperwork often prints one. If the readings fall inside the year, use them, state the dates they cover, and treat the log as covering only that span.
2. List each business trip that a dated document proves: invoice, job ticket, calendar entry or client email. One row per trip: date, destination, purpose, kilometres. Take the distance from a map route between the two addresses and write "map distance" in the log.
3. Leave out trips between home and a regular workplace; they are generally personal. For a sole proprietor they count only if home is the base of business operations (archived IT-521R, paragraph 24; the CRA's employer-automobile page treats home-to-workplace travel as personal). Flag any doubtful trip separately.
4. Add up the business kilometres and divide by total kilometres for the same span. That is the documented business share.
5. Compare it with the share claimed. Applied to the receipted running costs for the same span (fuel, insurance, repairs, licence), it shows how much of the claim the documents support so far. Business parking and supplementary business insurance are deducted in full, not by share (T4002, chapter 3). If the records cover only part of the year, do not stretch the share over months with no records.
6. Label the log as rebuilt. Record the date it was made and the documents used, and keep those documents. Never date a rebuilt log as if it were kept at the time.

Add no trip that a dated document does not support, so the documented share can come out lower than the share claimed.

A rebuilt log also does not give a later year a shortcut. The CRA describes a base year as a logbook maintained for one complete year; whether a rebuilt past year can serve as one is not answered on its pages, so the sample method cannot be assumed to work from it.

Each past year is separate. If several years were claimed without a log, every year needs its own evidence. The CRA letter names the years under review. Normally the CRA can reassess an individual or a Canadian-controlled private corporation up to three years after the original notice of assessment (four years for other corporations), and with no time limit if there was a misrepresentation through neglect, carelessness or wilful default, or if a waiver was filed (section 152). Records must still be kept six years. The rest is in CRA reviews and audits.

If I start a logbook today, how does it set a base year for later years?

A full 12-month log kept from today becomes the base year, and it supports later years through the three-month sample. It says nothing about years before it. The CRA's base year is one complete year of logging, with every business trip recorded and the odometer read at the start and end of the fiscal period (CRA: motor vehicle records).

Work out the business share for the whole year and for each three-month block. The formula needs the base-year share for the same months as the later sample, not only the annual figure.

A new vehicle needs its own record from the day it is bought. If the CRA finds a taxpayer's records inadequate, section 230(3) lets it name the records to be kept from then on; what it would name depends on the case.

My corporation owns the vehicle: what records does the CRA expect from me?

The CRA says an employee who has a corporation's automobile available must keep a logbook or daily record of trips, showing business (employment-related) and personal kilometres, and give a copy to the employer (CRA: automobile provided by the employer). An owner who works for the corporation and drives its vehicle can be that employee, but first decide whether the car is provided because of the job or because of share ownership. The CRA calls that a question of fact, and a shareholder benefit cannot be claimed as a business expense, unlike an employee benefit (CRA: shareholder benefits). The log is the evidence behind both the benefit and the corporation's vehicle costs, which are separate calculations: the CRA's motor vehicle pages are written for unincorporated businesses, but the duty to keep records in section 230 and the reasonableness limit in section 67 apply to a corporation as to any person carrying on business.

The personal kilometres also drive a taxable benefit for the owner. The "standby charge" is the CRA's charge for having the company vehicle available for personal use, and the reduced standby charge needs business driving above 50% of the distance, with personal driving inside the CRA's limits. The standby charge also depends on the days the car was available to the owner, driven or not, and the benefit is figured for the owner's calendar year, which may differ from the corporation's fiscal year. Under the fixed-rate method, the personal kilometres also set the operating expense benefit; the optional method needs more than half of the driving to be for the job and the employee's written notice to the employer before the end of the year, so it cannot be chosen afterwards for a year already over. If no record was kept or is no longer available, the CRA says the corporation, as employer, must still be able to reasonably account for the personal and business kilometres (for an owner-manager, the owner's own) to use the reduced charge. Otherwise its page points to the simplified standby charge calculation, which has its own conditions, including that the employee is not eligible for the reduced charge.

A missing log can therefore affect the owner's taxable benefit as well as the evidence behind the corporation's vehicle costs. An employment benefit that was never reported on a T4 leaves tax unwithheld, which the corporation owes, and a director can be personally liable for it under section 227.1, subject to its conditions and a due-diligence defence. The benefit calculations are in buying a car through your business. Two cases need their own review. A van or pick-up that seats at most the driver and two passengers and is used primarily to carry goods or equipment to earn income, or that is used all or substantially all for earning income, falls outside the Act's definition of "automobile" (section 248(1), tested in the year it is acquired or leased), so it follows different rules. And if the car is provided because the owner is a shareholder rather than an employee, the shareholder-benefit rules apply.

How long do I keep the logbook once I start?

Keep the base-year logbook for six years from the end of the last tax year for which it is used to establish business use (CRA: motor vehicle records). Each later year's sample uses the base year, so the base-year log outlives the year it was kept in.

Receipts and other records are kept six years from the end of the last tax year they relate to (section 230 of the Act; CRA circular IC78-10R5). A return filed late, an appeal, or a written CRA demand to keep records sets a different period; the other cases are in the CRA vehicle logbook guide.

Example

These examples are illustrative; all amounts are in Canadian dollars.

Plumber with no logbook and a CRA letter

A sole-proprietor plumber claimed C$9,000 of vehicle expenses at 80% business use for the year under review, a deduction of C$7,200. The CRA letter asks for the log. Receipts cover the C$9,000, all of it shared running costs (no business-only parking or insurance). No log exists.

Assume two service invoices, dated at the start and end of that year, show odometer readings 24,000 km apart. Job invoices with addresses, dated inside that span, document 15,600 km of business trips. The documented share is 65%, so applied to the receipted costs it gives C$5,850. The C$1,350 gap is the part of the claim that no document supports yet. Each other year claimed the same way needs its own evidence and its own figure.

Consultant starting a log now

Year 1: a consultant keeps a full-year log. Business use is 48% for the year and 50% for March to May. Year 2: a March to May sample shows 52%. Calculated annual use is 52 ÷ 50 × 48 = about 50%, inside the range of 38% to 58% around the base year's 48%. The CRA's own example reads the 10 as percentage points: with a 49% base year, it allows results from 39% to 59%. The business must still show the base year represents normal use.

Had the Year 2 sample shown 70%, the result would be 70 ÷ 50 × 48 = about 67%, outside the range. The sample would then cover March to May only, and the CRA says a new base year should be considered. The log says nothing about the years before Year 1.

Incorporated owner with a corporation-owned van

A corporation owns a van that counts as an automobile under the Act, and its owner drives it for work and on weekends. No log was ever kept. The CRA's page says the corporation, as employer, must be able to reasonably account for personal and business kilometres to use the reduced standby charge, so the missing log puts that reduction in question. The example assumes the van is provided as an employment benefit; if it is a shareholder benefit, the rules differ and the corporation cannot deduct that benefit. Dated odometer readings and job invoices can document a share, as in the plumber's case. If they cannot, the reduction may not be available, and the benefit may be worked out another way, such as the simplified calculation if its conditions are met.

Different for you?

• A CRA letter asks for a log that does not exist, or several years of car expenses were claimed without one: which years are in question, what evidence can honestly be assembled, how to answer the letter, and how to start a log that supports later years are the questions to sort out first. Get bookkeeping help with the records, year by year, and see CRA reviews and audits for the letter itself.
• A corporation owns the vehicle and no log was kept: the owner's taxable benefit and the evidence behind the corporation's vehicle costs rest on the same missing kilometres. Get bookkeeping help with the records; the benefit calculation is in buying a car through your business.
• You want the CRA's logbook rules in full, or you claim all driving as business: see the CRA vehicle logbook guide.
• Receipts are missing too: see expenses without receipts and CRA receipt requirements.
• You also claimed GST/HST input tax credits on vehicle costs: check them separately from the income-tax deduction, since the GST/HST rules differ; see filing GST/HST and input tax credits.
• The vehicle was bought with a loan, or a personal car moved into the business: see recording a vehicle purchase and loan and capital cost allowance.
• You want to know what drew the CRA's attention: see what triggers a CRA audit.
• The vehicle is claimed on a US return: see rebuilding a US mileage log.