Wednesday, July 6, 2011

Profiting from Mileage Claims

My employer reimburses me $0.45 per kilometer (km) when I use my car for company business. This turns out not to be a good deal for me with my expensive car, but it raises the possibility of augmenting your income by using your car for business. (Side note: It’s interesting that the word “mileage” has survived in a country that measures driving distances in km.)

I did a rough calculation of my car costs taking into account initial purchase price, insurance, repairs, gas, and inflation. It turns out that my average cost has been about $0.50 per km (in today’s dollars) to drive my car. So, I lose a nickel per km on business trips. I’m not overly concerned about this small loss because I don’t use my car for business much, but it could make a big difference for people who drive for work frequently.

For a trip to a city 500 km away, the round trip of 1000 km would leave me out of pocket about $50, but someone with a cheaper and more efficient car that costs only $0.25 per km would pocket $200 after costs. This may not seem like much compensation for all that driving, but if you have to drive that much for your job anyway, you might as well pocket some extra tax-free cash.

I’d be interested to hear whether any readers use this strategy to augment their incomes. Have you done any detailed calculations to see how much extra money you’re pulling in with mileage claims?

15 comments:

  1. At my old job in the hospitality industry I would do this for trips under 500km until they instituted car rental policy to save money.

    Another trick is to make company purchases on your personal credit card to claim the rewards (if there is no company p-card to use). I can get away with this for some purchases that don't require PO's.

    Hey, a $2,000 purchase gets me $20 in PC Points. Beats putting wear and tear on your vehicle.

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  2. I "earn" about 10-15 cents per km driving my car for work (and most of that is for wear-and-tear that in the short term isn't really a cash cost, so compared to just gas I make about 35 cents/km in cashflow), so I'm always volunteering to drive whenever needed (which is only once every year or two).

    @Echo: someone is rumoured to have recently bought $20k worth of equipment on their personal credit card. We're now not allowed to put anything on our credit cards, and even when we have work meals we can't pay for more than ourselves. Sucks.

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  3. Surely it isn't valid to factor purchase price into the calculation?

    Deciding not to drive on a trip because you would 'lose' 5c\km doesn't make sense if you have already bought the car.

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  4. I have a feeling your employer is stiffing you. CRA's mileage allowance is 55 cents per km. While this may offer a way of gaming the system, I doubt it will amount to much. I doubt 25 cents is achievable even with fuel-efficient vehicles.

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  5. As an aside on your aside - in western Canada where the land was surveyed in miles and the roads built in nice neat one-mile squares, kilometers have no relationship to the real world.

    Anecdotally, just last week a man working in the oil patch mentioned that since he drives constantly for work, he had claimed in the neighbourhood of $250,000 in mileage on his last truck. Guess that truck was paid for, and then some.

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  6. Unless you bought the car FOR work, factoring the purchase price doesn't make much sense. Nor does insurance unless, again, it is a work-only car. These are costs you're paying regardless of work.

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  7. @Echo: I've used the credit card trick myself.

    @Potato: I don't do much work-related driving either, but at least in your case it is profitable.

    @Anonymous and @Astin: I disagree with you on not accounting for the cost of the car. Using the car for work wears it out faster and brings the day when you'll have to buy a new one closer. The insurance part is more complex. Insurance costs are only mildly connected to how much you drive in a year. However, by driving for work you're taking added risk of an accident and having your insurance rates increased. So, there should be some accounting for the marginal increase in insurance costs, but it's not obvious how much to charge.

    @CC: I wonder what reimbursement amount is used by other employers. On the question of how low one can drive the per-km cost, I think it would be challenging to get to 25 cents per km, but possible if you drive enough km per year.

    @Andy R: $250,000! That's got to be close to a record.

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  8. My employer reimburses me @$0.50/km. I typically use this allowance for driving car to and from airport for business trips a few times per year. I don't make much, maybe a loonie or two, from this allowance on my business expense claims.

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  9. Hence wear and tear being factored in. Maintenance costs make sense, but not purchase cost.

    At the most, you should be factoring in a percentage of the purchase price (say, the % of time/mileage you're reimbursed for), not the whole purchase price.

    So $40k car, and over the life of the car 10% of the time it's being driven for work in a reimbursable way = $4k in your numbers. Not the full $40k, because the other 90% is driving you'd already be doing.

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  10. @Astin: This is how I did it. I amortized the cost of the car (and the other costs) over the total of all distance driven (personal + business). This is what worked out to $0.50 per km.

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  11. A comment from R.K.:

    An interesting topic.
    If one considers that the 1000K would pay $450 from your employer it is definitely interesting to investigate renting a car from a location that offers unlimited kilometers in the contract. Usually this is available at major airports but not smaller ones.
    So renting a car for three days (maybe two if you can get the business done early) you would incur approx $125 - $175 in costs, plus gas, depending on what size car you want. Naturally you would have a credit card that offers collision insurance as part of its benefits. So you would collect points on it as well and maybe even double dip with another card such as air miles.
    Added benefits – no wear and tear on your own vehicle (tires, oil, maintenance and mileage depreciation).
    So you should be able to come out ahead by at least $200 with no utilization of your own car.
    What do you think?

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  12. @R.K.: That's a devious idea. I like it. In my case if I followed the rules, I'd have to claim the cost of the rental car instead of the mileage.

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  13. Arguing to strongly for statistical possibilities like "driving the car to work increases the likelihood of an accident, so the insurance will be more costly down the line anyway" is just not feasible in a practical sense. You might as well stay away from family vacations as well, since you may want them, but you don't need them....

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  14. @Christina: I think you're misunderstanding my comment. I'm not living in fear of accidents; I'm simply trying to properly account for the cost of operating a car. A good first estimate is taking all the money spent on a car and dividing by the number of kilometers driven.

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  15. If you get a T2200 showing that you use your car for business, you can either take the $/km tax free as a reimbursement for costs, or declare it as part of your income, and deduct the costs. If your costs really are greater, you should consider the latter. I'm not sure how you calculated for the cost of the car, but you would properly declare capitical cost allowance (CCA).

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