Vehicle Expense Deduction for the Self-Employed in Canada

If you use a vehicle to earn business income, the deduction depends on who owns it, who pays the bills, and how much driving is for business. A sole proprietor claims eligible actual costs. An incorporated owner using a personal vehicle can receive an allowance or reimbursement from the corporation under different rules. Start with that distinction before choosing a calculation.

The first question: who owns the vehicle?

You are a sole proprietor and own or lease the vehicle: record the actual costs and apply the business-use percentage supported by your logbook. You cannot pay yourself an employee mileage allowance instead. Running costs go on T2125 line 9281; capital cost allowance (CCA) goes separately on line 9936. CRA motor vehicle expenses

You own the vehicle personally and work for your corporation: the corporation can pay a reasonable allowance based only on employment-related kilometres, or reimburse reasonable documented business costs. Those are alternative arrangements; do not claim the same costs twice. A shareholder payment must have a genuine employment or business basis, not simply move personal spending into the company. CRA allowances and reimbursements for an employee's own vehicle

The corporation owns or leases the vehicle: the company records its eligible vehicle costs, subject to passenger-vehicle limits. Personal availability and use can create an automobile benefit. For an employee this normally involves a standby charge and, when the employer pays personal operating costs, an operating expense benefit. A benefit received as a shareholder has separate reporting treatment. The employee-owned-car mileage allowance is not the method for this vehicle. CRA employer-provided automobiles

Keep a log and the expense records

For each business trip, record the date, destination, purpose and kilometres. Record the odometer at the start and end of the fiscal period, and when a vehicle is bought, sold or exchanged. Keep receipts for fuel, repairs, insurance and other costs alongside the log. A spreadsheet, notebook or mileage app can hold the records. CRA motor vehicle records

For example, 13,200 business kilometres out of 22,000 total kilometres gives a 60% business-use share. Calculate each vehicle separately. Driving between home and your regular workplace is generally personal; record the purpose and route when travelling between business locations or to a client.

When a three-month sample is enough

After a complete base-year log, CRA permits a representative three-month sample in a later year. The calculation is:

Later-year sample % ÷ corresponding base-year sample % × base-year annual %

The resulting annual estimate must stay within 10 percentage points of the base-year annual use, and that base year must remain representative. Comparing the sample directly with the entire base year skips part of the calculation. Keep the base log while relying on it. CRA simplified logbook rules

Actual costs and the passenger-vehicle limits

Eligible running costs can include fuel or charging, repairs, insurance, registration, loan interest and leasing costs. Apply the applicable passenger-vehicle limits before the business-use calculation. Business-trip parking is claimed separately rather than reduced again by the annual vehicle percentage. You cannot claim both a lease deduction and CCA for the same leased vehicle. CRA deductible vehicle costs

For 2026 acquisitions and new arrangements, the announced limits are:

Use the acquisition, lease or loan year that applies to the vehicle. The $30,000 passenger-vehicle ceiling applies to acquisitions before 2022, not a vehicle bought in 2026. The 2025 ceiling was $38,000. The lease deduction also has a list-price calculation, explained in Leasing Cost Limits. Finance Canada's 2026 automobile limits

An ordinary passenger vehicle at or below its acquisition-year ceiling generally enters Class 10. Above the ceiling it generally enters a separate Class 10.1, with its depreciable cost capped. Both have a 30% basic CCA rate, but first-year incentives, available-for-use dates and eligibility can change that year's claim. Do not automatically apply the half-year rule to every new purchase. Qualifying zero-emission vehicles have their own classes and conditions. CRA vehicle CCA classes

Worked example: a sole proprietor's leased sedan

A sole proprietor records 13,200 business kilometres and 22,000 total kilometres in 2026. The amounts below exclude recoverable GST/HST, and the $6,960 lease amount has already passed the passenger-vehicle leasing limit calculation.

The business share is $14,650 × 60% = $8,790, reported as motor vehicle expenses on T2125 line 9281. For an owned vehicle, remove the lease costs and calculate eligible interest and CCA separately; the business share of CCA goes on line 9936.

A mileage allowance for your personally owned vehicle

For employment-related driving in 2026, the prescribed allowance rates are 73 cents per kilometre for the first 5,000 kilometres and 67 cents thereafter in the provinces. The territories use 77 cents and 71 cents. The provincial 72-cent and 66-cent rates belong to 2025. CRA automobile allowance rates

For example, an owner-employee driving their own car 3,000 business kilometres in BC in 2026 can receive a $2,190 allowance at 73 cents per kilometre. The non-taxable treatment depends on a reasonable rate, business-kilometre records and the other CRA conditions. An arbitrarily low rate is not automatically reasonable. Paying an allowance and reimbursing the same vehicle costs can make the arrangement taxable; limited exceptions exist for supplementary business insurance, tolls and ferry charges when excluded from the allowance calculation. CRA allowance conditions

Errors to avoid

• Unsupported business kilometres. Missing records can lead to some or all of a claim being denied. There is no automatic rule that every incomplete log loses the entire deduction.
• Counting the commute or a personal detour as business travel. Separate those kilometres from client and supply trips.
• Using the wrong ownership method. Sole-proprietor actual expenses, employee-owned-car allowances and company-car benefits are different calculations.
• Missing company-car benefits. A reduced standby charge generally requires the employer to require the car for work, more than 50% business driving, and personal driving within the 1,667-kilometre limit per 30-day availability period. It does not require 90% business use. CRA standby-charge conditions
• Mixing income tax and GST/HST. An income-tax deduction does not automatically establish the same input tax credit. Capital vehicles and operating expenses can have different ITC rules; exclude recoverable tax from the expense claimed. CRA input tax credit calculations

What Ledg does for vehicle tracking

Ledg does not have a built-in mileage log. Record vehicle expenses, retain their receipts, and keep the trip log separately. In Settings, Tax Profile, enter the business and total kilometres used by the T2125 Preview. Review the ownership arrangement and any passenger-vehicle limits with the rest of your year-end records.

Ledg is free to keep your books, with no entry limit and no credit card. A category and a receipt help organize the expense; the mileage records and tax treatment establish the deduction.