Charities and Their Employees Can Benefit From Motor Vehicle Deductions
Despite not being for-profit enterprises, charities that employ people do so in much the same capacity as any business. Employees of charities are entitled to the same tax benefits as anyone else. This includes the deduction of motor vehicle expenses under certain circumstances. Many charities are engaged in activities that occasionally (or regularly) require their employees and volunteers to drive from place to place – think of making house calls on elderly or ill people, or shuttling basic necessities to and from distribution centres. Charities can alleviate some of the transport cost that falls on the organization by making sure that arrangements are in place with employees that meet all the criteria to allow the employee to deduct allowable motor vehicle expenses.
If an employee of a charity uses their own vehicle, they may be eligible to claim a tax deduction for the following related expenses: gas, maintenance, repairs, insurance, and license and registration, as well as interest on a loan used to buy the car or certain leasing costs, and the percentage of the car’s cost referred to as its capital cost allowance. As you can see, this is a fairly comprehensive list and can end up being well worth claiming.
In order for a charity’s employees to be eligible to deduct these automotive expenses, the following four conditions must be met:
- The employee is normally required to work away from the employer’s place of business or in different places;
- Under their contract of employment, the employee has to pay their own motor vehicle expenses (without being offered reimbursement from the employer);
- The employee does not receive a non-taxable allowance for motor vehicle expenses from the employer (this generally refers to allowances that are solely based on a reasonable per-kilometre rate); and
- The employer completes and signs a From T2200, Declaration of Conditions of Employment, and the employee keeps a copy of this on hand.
(Note: There is an exception to requirement 3 where such allowances are acceptable if the employee can prove their job-related motor vehicle expenses are in excess of the allowance, and voluntarily include the amount of the allowance in their income.)
For most charities, any employees using their car on the job will also be using that same car for personal use. This is fine, but only the percentage of expenses related to earning income can be deducted.
By making sure that all the criteria are met to allow their employees to deduct motor vehicle expenses, charities can help their employees recoup the cost of using their personal car to further the charity’s activities without having to expend any of the charity’s own money. This way the employee wins, the charity wins, and the beneficiaries of the charity’s good works win too.