Understanding Business Travel Expenses: What’s Tax-Deductible

Business expenses are vital for the successful operation of any business. In Canada, specific rules govern what qualifies as tax-deductible expenses, and the CRA carefully reviews travel-related expenses to ensure compliance.

If you run a business or are self-employed in Canada, you’re likely familiar with the need to travel for work. Business travel can involve significant expenses, but the good news is that many of these costs are tax-deductible. The Canada Revenue Agency (CRA) and the Canadian Income Tax Act provide clear guidelines for claiming business travel expenses on your taxes, helping you lower your overall tax burden.

This article will explain the common types of travel expenses, how to claim them and what records to keep. We’ll also go over how to distinguish between personal and business travel and how to claim expenses like vehicle costs and GST/HST on business travel expenses in your T2 Corporation Income Tax Return or T1 Personal Tax Return in case of self-employment or sole proprietorship.

What Counts as Business Travel Expenses?

To claim a travel expense for business, it must be necessary and reasonable to earn business income.

Source CRA: Travel Expenses

Generally, deductible business travel expenses include the following:

Transportation Costs: This can generally include expenses like airfare, train tickets, bus fares, taxis, and car rentals for business purposes. If you use your personal vehicle, you may be able to claim certain related expenses (more details on this are provided later).
Accommodation: These expenses are deductible if you need to stay in a hotel or other lodging while on a business trip.
Meals and Entertainment: You can typically claim 50% of your meal and beverage costs for business purposes, including travel, but specific conditions apply. Alternatively, you may use the flat-rate method, allowing a claim of $23 per meal (up to $69 per day) for business-related travel expenses, provided the CRA’s requirements for eligibility are met. Although you do not need to keep detailed receipts for actual expenses, CRA may still ask you to provide some documentation to support your claim.
Other Travel Costs: Additional expenses like parking fees, internet charges, and reasonable tips or gratuities while on a business trip can also be claimed.

Source CRA Guide : T4002 Self-employed Business, Professional, Commission, Farming, and Fishing Income

Personal vs. Business Travel

It is important to separate personal travel from business travel, as personal expenses are not tax-deductible in your Corporation Income Tax Return. If you’re combining business and personal trips, only the business portion of your travel costs can be claimed.

For example, suppose you attend a business conference in another city but stay an extra few days for vacation. In that case, you can only deduct the costs related to the business portion of your trip. Transportation to and from the destination may be fully deductible, but expenses like additional hotel nights or meals during your personal stay are not since they are not directly related to your business.

How to Claim Vehicle and Fuel Costs

The following vehicle expenses can be claimed for tax purposes, whether the car is owned by a corporation or used personally for business travel. If you use your own vehicle for business purposes, you can only claim a portion of these expenses depending on the percentage of usage. The following are the most common vehicle-related expenses:

Fuel and oil
Insurance
Maintenance and repairs
Vehicle registration fees
Lease payments (for leased vehicles)
Capital Cost Allowance (depreciation) for owned vehicles

To claim these expenses, you’ll need to track kilometres driven for business with starting/ending mileage, date, and reason for each trip to determine the percentage of time your vehicle is used for business purposes versus personal use. Additionally, there is a limit/cap on certain expenses like lease, interest and CCA. Please refer to this article for further information.

Source: News Release : Department of Finance, Canada

Simplified (Flat-Rate) Method for Vehicle Costs

Tracking every vehicle expense may be overwhelming at times. To tackle this issue, CRA offers a simplified flat-rate method. Under this method, you can deduct a flat rate of 70 cents per kilometer for the first 5,000 kilometers driven for business, and 64 cents for each additional kilometer. This rate covers fuel, insurance, maintenance, and other vehicle-related expenses. However, a logbook is still needed to verify the total KMs driven for business.

GST/HST on Travel Expenses

You may incur GST (Goods and Services Tax) or HST (Harmonized Sales Tax) when you pay for goods and services during your business travel. Generally, if you’re registered for GST/HST, you can recover these amounts through your business’s GST/HST return.

To claim GST/HST on travel expenses, retain all receipts that specify the GST/HST paid. Summarize the total GST/HST paid on your business expenses and include this amount on your GST/HST return. Only GST/HST paid on expenses within Canada is eligible for a claim.

Tax Deductions and Tips

What to Keep?

Receipts and Invoices: Save receipts for transportation, accommodation, meals, and other travel costs. Ensure they show the date, amount, and purpose of the expense.
Travel Records: Record trip details, including dates, locations, purposes, and individuals involved. Be sure to include supporting documents such as invitations, meeting minutes, emails, and other communication records. These serve as a backup to clearly distinguish between personal and business travel.

Tips to Maximize Deductions:

Stay organized and keep detailed records.
Use a mileage log for vehicle expenses.
Separate personal and business travel clearly.
Claim GST/HST paid on business travel to recover costs.

By following these steps, you can simplify tax filing and claim all eligible deductions in your T2 Corporation Income Tax Return or T1 Personal Tax Return in case of self-employment or sole proprietorship.

Final Thoughts

While there are no specific upper limits on the amount you can claim for business travel expenses, it is crucial that your claims are directly related to your business activities, reasonable and well-documented. The CRA reviews business expense claims seriously and has the authority to audit any deductions. For example, if you claim a luxury cruise but cannot demonstrate that it was essential for business purposes, your entire claim could be flagged as excessive or frivolous. The CRA is diligent in pursuing improper deductions, and failing to provide adequate documentation may result in an audit, along with interest, penalties, and potential risks to your business.

If you’re unsure about your claims or need expert guidance, Source Accounting Professional Corporation, CPA, will help to ensure compliance and protect your business. Contact now, call 647-930-8130!

Source Accounting Professional Corporation (CPA) is a trusted accounting firm in Mississauga, serving businesses across Toronto and the GTA. We offer corporate tax filing, bookkeeping, payroll solutions, and more. If you’re a business owner or professional—pharmacist, physician, realtor, or consultant—we can help with corporate tax planning and filing. Call us at 647-930-8130 to book a consultation!

Disclaimer: The above contents are provided for general guidance only, based on information believed to be accurate and complete, but we cannot guarantee its accuracy or completeness. It does not provide legal advice, nor can it or should it be relied upon. Please contact/consult a qualified tax professional specific to your case.