Vehicle Expense Deduction for Canadian Self-Employed (Mileage Log + CCA + 2026 Limits)

If you use a vehicle for business, you can deduct the business-use portion of fuel, maintenance, insurance, lease or finance interest, and capital cost allowance (CCA). The rules are strict, the math is simple, and the audit trap that costs people the entire deduction is the missing mileage log. This guide walks the actual mechanics for both sole proprietors (Form T2125) and incorporated owners.

The first question: who owns the vehicle?

Two structures, very different tax treatment.

You own the vehicle personally (most common for sole proprietors and many 1-person corps):

• Track total km and business km for the year.
• Compute business-use percentage = business km / total km.
• Deduct that percentage of every running cost.
• For a corp, you bill the corp for the business portion at the prescribed per-km rate (see CRA's prescribed rates) OR pay yourself a tax-free reimbursement for actual business mileage.

The corporation owns the vehicle:

• Corp deducts 100% of running costs.
• BUT, you have to report a standby charge and operating cost benefit on your T4 for the personal use of the corporate vehicle. These can be substantial; many owners undervalue this and get caught at audit.
• Generally only worth it if the vehicle is used 90%+ for business.

For most solo operators, personal ownership + mileage log + per-km reimbursement is the cleanest approach.

What CRA actually wants to see

A contemporaneous mileage log for every business trip. "Contemporaneous" means you wrote it down at the time, not reconstructed it in March from your calendar.

The minimum data per trip:

• Date
• Destination (client name + city, or address)
• Business purpose (one line: "Q3 review with Acme Co", "Pickup of supplies from XYZ")
• Kilometres driven

You also need an odometer reading on January 1 and December 31 of each year so total km can be verified.

Acceptable formats: a paper notebook in the glove box, a spreadsheet, an app like MileIQ or Hurdlr, or any system you'll actually use. The CRA doesn't mandate the medium; they mandate the data.

The simplified record-keeping rule

If you've kept a complete log for one full base year, you can use a 3-month sample log in subsequent years. The sample's business-use percentage gets compared against the base year; if it's within 10 percentage points, the sample is acceptable for the full year. Most solo operators don't bother with this; full-year logging is easier than the sampling math.

What's deductible (the running cost list)

For the business-use portion:

• Fuel + oil
• Maintenance + repairs (oil changes, tires, brakes, etc.)
• Insurance (the business portion of your personal policy, OR commercial insurance if you carry it)
• Licence + registration (annual provincial fees)
• Lease costs OR interest on a vehicle loan (whichever applies)
• CCA on the vehicle (depreciation, computed in Area A of T2125)
• Parking for business trips (100% deductible if for business; the daily commute parking at your home office isn't a deduction because the home office isn't a business trip)

Multiply each by your business-use percentage and put on Line 9281 Motor vehicle expenses of T2125.

The CCA classes that matter

Vehicles get one of two classes depending on cost:

• Class 10 — passenger vehicles costing $30,000 or less (before tax). Pooled with other Class 10 assets. CCA rate 30% per year, half-year rule in year of purchase.
• Class 10.1 — passenger vehicles costing more than $30,000. Each Class 10.1 vehicle is its own pool. CCA cost is capped at $30,000 + GST/HST regardless of what you actually paid. Same 30% rate, half-year rule.

The $30,000 cap on Class 10.1 is the rule that bites people. If you bought a $65,000 SUV for business, your CCA pool starts at $30,000, not $65,000. The other $35,000 is just lost for tax purposes. Lease costs face a similar prescribed maximum (currently $1,050/month for new leases entered into in 2024 and later; CRA updates annually).

For zero-emission vehicles (Class 54 and 55), separate enhanced CCA rules apply (much higher first-year deduction, bigger cost cap). Worth a separate look if you're buying an EV.

Worked example: $50,000/year sole prop, mid-tier sedan

The setup:

• Sole proprietor, total km in 2025 = 22,000.
• Of that, 13,200 km were business trips (logged contemporaneously).
• Business-use percentage = 13,200 / 22,000 = 60%.

Annual running costs:

• Fuel: $4,200
• Maintenance: $1,400
• Insurance: $2,000
• Licence: $90
• Lease: $580/month × 12 = $6,960
• Total: $14,650

Business deduction (60%):

• $14,650 × 60% = $8,790 on Line 9281

If the vehicle is owned (not leased), instead of the lease line you'd compute Class 10 or 10.1 CCA in Area A of T2125 and add that into the per-km math. Same 60% applied to whichever CCA you claim that year.

Tax-free reimbursement option (corp owners)

If your corporation owns the vehicle, you can pay yourself a per-km tax-free reimbursement for business travel using the CRA's prescribed rate. For 2025-2026 the rate is approximately $0.72 / km for the first 5,000 km and $0.66 / km thereafter (provinces vary slightly; YT/NT/NU are higher). Exact rate is on CRA's page on automobile rates.

The rate is meant to cover both running costs AND CCA. You don't deduct anything else on top of the per-km reimbursement (the per-km rate replaces individual line item deductions). The corp deducts the reimbursement amount; you receive it tax-free.

Audit traps

1. No contemporaneous log. Auditors deny the entire vehicle deduction for the year, not just reduce it. The single most expensive mistake.
2. Reconstructed log from calendar. Looks too neat, gets challenged. CRA's heuristic: if every trip is exactly 24 km and rounded, you reconstructed it.
3. Commute to your usual workplace counted as business. The drive from home to your normal office is personal, not business. The drive from your home office to a client meeting IS business. Get the categorization right.
4. Personal trips inside a "business day". The grocery stop on the way back from a client meeting isn't business; the actual client trip is. Log them separately.
5. Standby charge undervalued (corp-owned vehicle). If the corp owns a vehicle and you use it personally at all, you owe a standby charge on your T4. The default formula is 2% of vehicle cost per month of availability. Reductions only kick in if business use is 90%+ of total km AND personal use is under 1,667 km/month. Most owners try to hand-wave this and get caught.
6. Forgetting GST/HST input tax credits. If you're GST-registered, you can claim ITCs on the business-use portion of fuel, maintenance, lease, and the deemed input tax credit on the CCA. Track the GST separately so the ITC doesn't get lost in the per-km math.

What ledg does for vehicle tracking

ledg doesn't yet have a built-in mileage log (it's on the v2 sole-prop-footgun list along with home office and CPP estimator). For now:

• Categorize all vehicle-related expenses as "Vehicle Expenses" on the Stage. ledg surfaces a quarterly running total in the Statements page so you can see what your annual line 9281 will look like.
• Attach receipts for fuel and maintenance. ledg stores them in your own Google Drive, named with the entry code prefix so the audit trail is clean.
• Separate vehicle-related GST. ledg's per-line GST tracking captures the ITC component automatically.
• Keep your mileage log elsewhere (notebook, spreadsheet, or app) until ledg ships the integrated tracker. When filing, the business-use percentage gets applied against the vehicle expense category total.

Try ledg free — 100 entries, no credit card.

TL;DR

• Vehicle deduction = (running costs + CCA) × business-use percentage.
• Business-use percentage = business km / total km, from a contemporaneous log.
• Class 10 if vehicle cost is $30,000 or less; Class 10.1 (cost capped at $30K) if more.
• Lease cost cap: ~$1,050/month for 2024+ leases.
• Per-km tax-free reimbursement (corp-owned): ~$0.72 / km first 5,000 km, $0.66 thereafter.
• Audit trap #1: no contemporaneous mileage log → entire deduction denied.
• Commute to your usual office is personal, not business.
• If you're GST-registered, claim ITCs on the business-use portion.

The math isn't hard. The discipline is keeping the log every week, every trip, every year.