From: canada.revenue.agency@hotmail.com   
      
   Income Tax Act Doesn't Require a Logbook :CRA SOTW    
      
   By Jim Maroney - Maple Ridge News   
      
   If you love your car, you can rest assured that the Canada Revenue Agency   
   loves your car, too.    
      
   In fact, if a CRA auditor pays you a visit it's a virtual certainty that an   
   interest will be expressed in your vehicle and, more specifically, the logbook   
   you are expected to maintain.   
      
   Interestingly enough, the Income Tax Act doesn't actually specify the   
   necessary documentary evidence required to record the usage of a vehicle.   
   Indeed, no mention is made of a logbook at all.    
      
   In a perfect world, CRA expects all taxpayers to keep a detailed logbook   
   documenting every kilometre they've ever driven for business or employment   
   purposes. In the real world, that rarely happens.   
      
   In tacit admission of this fact, late last month, CRA updated its   
   administrative position regarding documenting the use of a vehicle. This   
   update first appeared in the 2008 federal budget with a 2009 implementation   
   date, so this administrative change is    
   a bit late but certainly better than nothing.    
      
   The CRA still touts the benefits of a full logbook for each year, however, the   
   update states that "the CRA would be prepared to afford considerable weight to   
   a logbook maintained for a sample period as evidence of a full year's usage of   
   a vehicle if it    
   meets the following criteria:   
      
   * the taxpayer has previously filled out and retained a logbook covering a   
   full 12-month period that was typical for the business, as a "base year" (the   
   12-month period is not required to be a calendar year);    
   * a logbook for a sample period of at least one continuous three-month period   
   in each subsequent year has been maintained (the sample year period).;   
   * the distances travelled and the business use of the vehicle during the   
   three-month sample period is within 10 percentage points of the corresponding   
   figures for the same three-month period in the base year;   
   * the calculated annual business use of the vehicle in a subsequent year does   
   not go up or down by more than 10 percentage points in comparison to the base   
   year.   
      
   Expecting all taxpayers to be mathematicians, CRA provides a formula designed   
   to calculate the business use of a vehicle in any year subsequent to the base   
   year. The calculation takes the ratio of the sample period to the "base year   
   period" and    
   multiplies this amount by the base year.    
      
   Fortunately, an example is provided to make some sense of it all, at least   
   that's the intent.   
   An individual has completed a logbook for a full 12-month period, which showed   
   a business use percentage in each quarter of 52/46/39/67 and an annual   
   business use of the vehicle as 49 per cent. In a subsequent year, a logbook   
   was maintained for a three-   
   month sample period during April, May and June, which showed the business use   
   as 51 per cent. In the base year, the percentage of business use of the   
   vehicle for the months April, May and June was 46 per cent. The business use   
   of the vehicle would be    
   calculated as follows:   
   (51% ÷ 46%) × 49% = 54%   
      
   In this case, the CRA would accept 54 per cent business use of the vehicle "in   
   the absence of contradictory evidence." In other words, all of the taxpayer's   
   other support had better fit. This 54 per cent business use also falls within   
   the required 10 per    
   cent of the 49 per cent "base year" (i.e., it's not lower than 39 per cent or   
   higher than 59 per cent) satisfying the third criteria described above.   
      
   Finally, the CRA sees fit to remind taxpayers that even though records and   
   supporting documents are only required to be kept for a period of six years   
   from the end of the tax year to which they relate, the "base year" logbook   
   must be kept for six years    
   following the last year for which it is last used to establish business use.   
      
   So does this change really simplify the logbook requirement? Yes, to some   
   degree, but taxpayers will still be expected to maintain a logbook for at   
   least three months in any given year.    
      
   I don't anticipate this administrative change to cause any rush to compliance   
   as far as vehicle logbooks are concerned.    
      
   Jim Maroney is a chartered accountant with Meyers Norris Penny in Maple Ridge.   
      
      
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