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Deducting Motor Vehicle Expenses Incurred for Servicing Rental Properties

In Canada Revenue Agency Document no. 2006-0191571I7 dated August 10, 2006, the CRA deals with the issue involving a taxpayer residing in City A and owning two adjacent rental properties in City B located 100 kilometres from City A.  According to the Technical Interpretation that was issued, the CRA was asked if the two properties should be considered one or two properties for the purpose of interpreting the administrative policy outlined under Line 9281 of Guide T4036 “Rental Income–Includes Form T776”.  Based on the summary provided, the policy essentially gives authorization to “taxpayers owning at least two rental properties to deduct reasonable motor vehicle expenses incurred to collect rents, supervise repairs, or manage the properties”.  The CRA takes the position that only taxpayers that own more than one rental property can benefit from this policy.  This is because it is the CRAs view that a taxpayer owning only one rental property does not carry on a business.  Therefore, if a taxpayer is not carrying on a business they cannot claim the motor vehicle expenses as a deduction pursuant to paragraph 18(1)(h) of the Act, which provides:

          In computing the income of a taxpayer from a business
          or property no deduction shall be made in respect of …
          personal or living expenses of the taxpayer, other than
          travel expenses incurred by the taxpayer while away from
          home in the course of carrying on the taxpayer’s business.

Accordingly, any motor vehicle expenses incurred in circumstances other than to carry on a business would be considered personal and not deductible. In the CRAs opinion, the rental properties must be located in at least two different sites away from the taxpayer's principal residence, even if they are close to each other.  The CRA takes this position because practically speaking “the collection of rents, the supervision of repairs and the general administration of the properties may require separate punctual traveling for each property”.

© TaxQuarry

Do You Know Where Your Tax Dollars Go?

According to the Department of Finance report entitled, “Where your tax Dollar Goes”, Canada’s federal government collected $198.4 billion in taxes and other revenues for fiscal 2004 - 2005.  This is equivalent to approximately 15 per cent Canada’s $1.3-trillion economy.  The following is a summary of the places where Canada’s government has used its money.

Interest Payments: The largest single federal spending item in 2004 - 2005 was interest payments on Canada’s public debt.  Public debt is money borrowed by the central government over the years, which has not yet been repaid to the lenders.  According to the report, these payments, which includes payments to institutions and people who hold federal bonds, treasury bills and other forms of the debt, cost the government $34.1 billion. That is approximately 17 cents of every tax dollar. 

Transfer Payments: Cash payments that go directly to individuals, to provincial and territorial governments, and to other organizations are called “transfers.”  There are three major categories of transfers: (1) Transfers to people, which includes items such as Old Age Security Payments, Guaranteed Income Supplements and employment insurance; (2) Transfers to provinces for funding of health care, post-secondary education and other social services; (3) Other Grants and Contributions intended to further a specific policy objective such as transfers to First Nations and Aboriginal Peoples, assistance provided to farmers and other food producers and support of research and development.  Combined, these payments accounted for more than half of all federal spending.  In dollar figures this translates into a little over 55 cents of each tax dollar, which is equal to about $109.6 billion of the total expenditures.

Government Operating Costs: The next largest expenditure after transfer payments is operating costs of government itself.  With more than 130 departments, agencies, Crown corporations and other federal bodies that provide programs and services for Canadians, it is not surprising that this accounts for a substantial amount of the government’s expenses.  In 2004 - 2005, these operating costs such as salaries and benefits, facilities and equipment, and supplies and travel accounted for under 27 cents of each tax dollar, which is equivalent to $53.1 billion of the total expenditures.

Debt Reduction: The remaining expenditures are attributed to the budgetary surplus.  This amount is based on how much money is left after paying for all federal programs, operations and interest on the debt.  For fiscal 2004 – 2005 this value was approximately $1.6 billion.  Money paid for debt reduction was not money available for future spending.  According to the Report, Government accounting principles mean that any surplus at year-end automatically goes to help reduce the federal debt.  Together with other surpluses recorded in recent years, this has helped cut the federal debt by $63 billion. And lower debt translates into tangible savings for the Government and taxpayers by reducing annual interest costs on debt.

To view the report, go to http://www.fin.gc.ca/taxdollar/text/fanfold/pamphlete.pdf