Mileage Logs- What you need to know:
I cannot recall a client who has ever had an acceptable mileage logbook.
There is no requirement in the ITA for a taxpayer to keep a mileage logbook.
The Audit Manual states as follows:
Where the taxpayer/registrant purchases supplies or uses the capital property to earn income as well as for personal use, only the portion of the expense or capital cost used for business purposes is deductible for income tax purposes.
The allocation must be reasonable under the circumstances. Where the expense/ITC claimed is for the business use of an automobile, a mileage log is required,
The case law consistently notes that there is no statutory requirement for a mileage logbook. However, the lack of such a requirement has not caused the courts to ignore a lack of evidence
Either the energy required to keep a proper logbook is out of proportion to the benefit gained or taxpayers are just willing to accept rough estimates of the business use their vehicles.
Since2010, a self-employed individual can use a motor vehicle mileage logbook that was maintained for a sample period representative of the motor vehicle's use. Perhaps this sampling system will not be as onerous and lead to the production of more mileage logs.
Advisors get caught in the middle in these disputes. A client who has been warned by his or her own advisor to keep mileage records is aghast when the audit proposal letter reduces the business claim from 90% to 20%.
If the lack of a mileage logbook has arisen as an issue in an audit the client has to undertake the task of reconstructing the log or finding some sort of alternative proof.
The following might be helpful in salvaging some of the claimed business use of the vehicle.
1. What is the nature of the business? Some businesses almost require the use of a vehicle.An outright denial of the claim is probably inappropriate in those cases.
2. What can the client provide after the fact? For example
a. Can a log be derived from an appointment schedule?
b. Is the client doing the same work today as in the audit period? If yes, prepare a log on a current basis.
This log is not perfect, but it is better than no documentary evidence at all.
Typically, the advisor is caught between a client who has claimed almost all of the vehicle use as business-related and an auditor who is of the opinion that the percentage is crazy, so the client gets nothing.
Making the client go back and reconstruct the log, or compile other evidence is a reasonable approach and allows for resolution of the dispute without the client incurring a lot of advisor fees,but only if the auditor accepts that the failure to keep a log is not fatal to a mileage claim.