Canada’s tax rules may allow you to claim vehicle expenses when you use a vehicle to earn business income. However, the rules are specific, and the amount you can deduct depends on how much the vehicle is used for business versus personal purposes.
For many business owners, a vehicle is used for both work and personal driving. In that case, you generally cannot deduct 100% of the costs. You can only deduct the business-use portion, and you must keep proper records to support your claim.
Here are the Canadian business expense rules for using a vehicle in your business.
Can You Claim Vehicle Expenses for Business Use?
Yes. If you use a motor vehicle to earn business income, you may be able to deduct eligible vehicle expenses. CRA says you can deduct expenses you incur to run a motor vehicle that you use to earn business income. However, if the vehicle is used for both business and personal purposes, only the business-use portion is deductible.
For example, if you drove 30,000 kilometres in the year and 18,000 kilometres were for business, your business-use percentage would be 60%. You would generally apply that percentage to eligible vehicle expenses, except for certain costs, such as business parking and supplementary business insurance, which may be fully deductible if they relate directly to business use.
What Vehicle Expenses Can You Deduct?
Eligible vehicle expenses may include:
- fuel and oil;
- electricity costs for zero-emission vehicles;
- licence and registration fees;
- insurance;
- maintenance and repairs;
- leasing costs;
- interest on money borrowed to buy the vehicle; and
- capital cost allowance, also known as CCA, if you own the vehicle.
CRA lists these types of vehicle expenses as potentially deductible when the vehicle is used to earn business income. CCA is claimed separately from regular operating expenses.
Business Use vs. Personal Use
One of the most important rules is that personal driving is not deductible.
Personal use generally includes errands, family activities, personal appointments, and driving that is not connected to earning business income. For employees, CRA states that driving between home and work is personal use. For self-employed business owners, travel between home and a business location may also be personal unless your home is your main place of business and the trip is directly connected to earning business income.
If you have a vehicle used only for business, tracking may be simpler. However, you still need records to prove that the vehicle was used for business. If the vehicle is used partly for personal purposes, you must calculate and claim only the business-use portion.
You Need a Mileage Log
A mileage log is one of the most important records for supporting vehicle expense claims.
CRA says the best evidence to support the use of a vehicle is an accurate logbook of business travel maintained for the entire year. For each business trip, your logbook should include:
- the date;
- the destination;
- the purpose of the trip; and
- the number of kilometres driven.
You should also record the odometer reading for each vehicle at the beginning and end of the fiscal period. If you buy, sell, or trade a vehicle during the year, record the date and odometer reading at the time of the change.
Can You Use a Simplified Logbook?
Yes, in some cases.
CRA allows a simplified logbook method after you have kept a full logbook for one complete year to establish a base year. After that, you may be able to use a three-month sample logbook to estimate business use for the full year, as long as the business use is within the same range, generally within 10% of the base-year result.
If the business use changes significantly, the sample period may not be reliable, and you may need to keep a full-year logbook again.
What If You Buy a Vehicle for Business?
If you buy a vehicle for business, you usually cannot deduct the full purchase price in the year you buy it. Instead, you may claim capital cost allowance over time.
The type of vehicle matters. CRA distinguishes between motor vehicles, passenger vehicles, zero-emission passenger vehicles, and zero-emission vehicles. Passenger vehicles and zero-emission passenger vehicles are subject to limits on CCA, interest, and leasing deductions.
For 2026, the federal government announced that the CCA ceiling for Class 10.1 passenger vehicles increased to $39,000 before tax for vehicles acquired on or after January 1, 2026. The CCA ceiling for Class 54 zero-emission passenger vehicles remains $61,000 before tax for 2026.
Because the CCA class and deduction limits depend on the vehicle type, cost, and use, it is important to confirm the correct treatment before buying or claiming a vehicle.
What If You Finance the Vehicle?
If you borrow money to buy a vehicle used to earn business income, you may be able to deduct the business-use portion of the interest.
However, there is a limit on deductible interest for passenger vehicles and zero-emission passenger vehicles. For automobile loans entered into on or after January 1, 2026, the maximum allowable interest deduction remains $350 per month. If the vehicle is used partly for personal purposes, the business-use percentage must also be applied.
What If You Lease the Vehicle?
If you lease a vehicle used to earn business income, you may be able to deduct eligible leasing costs. However, leasing costs for passenger vehicles are subject to limits.
For new leases entered into on or after January 1, 2026, the deductible leasing cost limit remains $1,100 per month before tax. If the vehicle is used partly for personal purposes, only the business-use portion of the eligible leasing cost can be deducted.
If your lease includes items such as insurance, maintenance, or taxes, those amounts may need to be included in the lease-cost calculation. Lease rules can be technical, so it is worth getting advice before assuming the full lease payment is deductible.
Can You Claim Vehicle Advertising Costs?
Yes, reasonable advertising costs may generally be deductible if they are incurred to earn business income. For example, vehicle decals, magnets, or wraps that promote your business may be deductible as advertising expenses.
However, putting your business name or logo on a vehicle does not make all driving business-related. If you use the vehicle to pick up groceries, attend personal appointments, or drive your children to activities, that is still personal use. The advertising may promote your business, but it does not convert personal kilometres into business kilometres.
Should You Buy a Separate Business Vehicle?
Some business owners choose to use one vehicle primarily or exclusively for business and another for personal use. This can make record-keeping easier, but it does not remove your obligation to maintain proper records.
If a vehicle is claimed as 100% business use, you should be able to support that position with records. CRA may ask for a logbook, odometer readings, invoices, receipts, insurance records, and other documents to confirm that the vehicle was not used personally.
What About Renting a Vehicle for Business Travel?
If you rent a vehicle for a business trip, the rental cost may be deductible if the expense is reasonable and incurred to earn business income. You should keep the rental agreement, receipt, trip details, and business purpose.
Renting can be useful when travelling long distances for business because it may reduce wear and tear on your own vehicle. However, as with any expense, the business purpose must be clear and properly documented.
What About Employees and Corporate-Owned Vehicles?
The rules can be different when a corporation owns or leases a vehicle that is made available to an employee or shareholder-employee.
If an employee or shareholder uses a company vehicle personally, taxable benefits may apply, such as a standby charge or operating cost benefit. If an employee uses their own vehicle for work, an employer may provide a reasonable per-kilometre allowance.
For 2026, CRA’s prescribed reasonable per-kilometre allowance rates are 73 cents per kilometre for the first 5,000 kilometres driven in the provinces and 67 cents per kilometre after that. In the territories, the rates are 77 cents per kilometre for the first 5,000 kilometres and 71 cents per kilometre after that.
Flat-rate vehicle allowances that are not based on kilometres driven are generally taxable to the employee.
GST/HST and Vehicle Expenses
If your business is registered for GST/HST, you may be able to claim input tax credits on the business-use portion of eligible vehicle expenses, subject to the normal GST/HST rules and documentation requirements.
For mixed-use vehicles, GST/HST treatment can become more complex, especially for passenger vehicles, leases, corporate vehicles, and shareholder use. Keep receipts and speak with an accountant to make sure input tax credits are claimed correctly.
Common Mistakes to Avoid
Common vehicle-expense mistakes include:
- claiming 100% of expenses for a mixed-use vehicle;
- not keeping a mileage log;
- estimating business use without support;
- treating commuting or personal errands as business driving;
- assuming a logo or vehicle wrap makes all driving deductible;
- claiming the full vehicle purchase price instead of using CCA;
- ignoring CCA, interest, or lease limits for passenger vehicles;
- forgetting to apply the business-use percentage;
- missing taxable-benefit issues for corporate vehicles; and
- not keeping receipts.
Speak with a Professional
Vehicle expense claims can be valuable, but they are also easy to get wrong. The CRA expects reasonable claims, proper receipts, and records showing both total kilometres driven and business kilometres driven.
If you use a vehicle for business, keep a detailed mileage log, save your receipts, separate personal and business use, and review the rules before claiming the expense.
E&E Professional Accountants has years of experience in assisting businesses with their accounting needs. We are founded and managed by an experienced corporate auditor and a former CRA tax auditor. Feel free to contact us for assistance with all your accounting and bookkeeping needs.