Vehicle Expenses for Canadian Businesses
Deduct vehicle expenses correctly — mileage logs, CCA, personal vs. business use, and what CRA requires.
Vehicle expenses are one of the most commonly claimed deductions for Canadian business owners — and one of the most frequently audited. Understanding the rules around mileage logs, capital cost allowance, and personal-use calculations can save you thousands and keep the CRA satisfied.
Mileage Log Requirements
The CRA expects you to maintain a detailed mileage log that records each trip's date, destination, purpose, and kilometres driven. A simple odometer reading at year-end is not sufficient.
A logbook covering a full 12-month period establishes your business-use percentage. The CRA accepts a representative three-month sample if circumstances are consistent, but a full-year log provides the strongest protection if audited.
Record every trip — business and personal — with date, starting odometer, ending odometer, destination, and business purpose. Apps like MileIQ or TripLog are CRA-acceptable if they capture these fields.
Capital Cost Allowance (CCA) on Vehicles
- Class 10 (30% declining balance) applies to most passenger vehicles. Class 10.1 (same rate) is for more expensive vehicles with a cap on the depreciable cost.
- The CRA limits the capital cost you can claim CCA on to $36,000 (HST-inclusive) for passenger vehicles purchased after 2023 — any excess is not depreciable.
- Zero-emission vehicles (Class 54) get an accelerated rate of 30% on a higher cost cap of $61,000, plus enhanced first-year CCA under the immediate expensing rules.
Operating Costs vs. Ownership Costs
Operating costs — gas, oil, tires, maintenance, insurance, and licences — are deducted in full based on your business-use percentage. If you use the vehicle 60% for business, you deduct 60% of these expenses.
Ownership costs — CCA, interest on financing, and leasing costs — follow the same prorated approach but are subject to CRA limits. Lease payments are capped at $1,050 per month (before HST) for vehicles leased after 2023.
Interest on a vehicle loan is also capped: you can deduct the lesser of $350 per month or the actual interest, prorated for business use.
Personal-Use Percentage and the Impact on Deductions
- Your business-use percentage directly determines how much of each vehicle expense you can deduct. For example, 70% business use means you deduct 70% of gas, CCA, insurance, and maintenance.
- Personal use of a vehicle owned by your corporation is a taxable benefit that must be reported on a T4 slip. The standby charge is calculated at 2% of the original cost per month of personal use.
- An operating-cost benefit (28¢ per kilometre of personal driving in 2025) may also apply unless the employee reimburses the corporation for personal operating costs.
Leasing vs. Buying: Tax Considerations
Leasing offers predictable monthly payments and lets you deduct the business-use portion of each payment (subject to the $1,050/month cap). You do not claim CCA on a leased vehicle because you do not own it.
Buying gives you CCA deductions and frees you from the monthly cap, but ties up capital and exposes you to depreciation risk. For high-mileage drivers, buying usually yields larger deductions over the vehicle's life.
We run a buy-versus-lease analysis for each client based on projected kilometres, holding period, and marginal tax rate — the right answer depends on your specific numbers.
Key Takeaways
- 1Maintain a full 12-month mileage log with date, destination, purpose, and distance for each trip.
- 2CCA on passenger vehicles is capped at $36,000; lease payments at $1,050/month; interest at $350/month.
- 3Operating costs (gas, maintenance, insurance) are prorated by business-use percentage with no separate cap.
- 4Personal use of a corporate vehicle triggers a taxable benefit — report it correctly to avoid reassessment.
Need help applying this to your situation?
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