Vehicle Expense
Motor vehicle costs are deductible on the business-use share established by a logbook, with passenger vehicle ceilings on capital cost, interest, and lease payments.
Definition
Vehicle expense covers the cost of operating a car, van, or truck used to earn business income: fuel, insurance, licence, repairs, maintenance, lease payments, and CCA on owned vehicles. Only the business-use proportion is deductible. For passenger vehicles (those intended mainly for carrying people, nine seats or fewer), the Act imposes hard caps on capital cost, interest, and lease payments regardless of the price actually paid.
Key rules
- Logbook: the deduction is business kilometres divided by total kilometres. A complete logbook (date, destination, purpose, kilometres) is the evidence. CRA accepts a representative three-month sample after a full-year base period.
- CCA classes: Class 10 for most motor vehicles (30% declining balance). Class 10.1 for passenger vehicles with a cost exceeding the prescribed ceiling; each 10.1 vehicle sits in its own class and is not subject to recapture or terminal loss.
- Capital cost ceiling (Reg 7307): for passenger vehicles acquired in 2026, the maximum capital cost eligible for CCA is $38,000 plus applicable GST/HST/PST (verify current year). Zero-emission passenger vehicles (Class 54) carry a higher ceiling of $61,000 plus sales tax.
- Interest cap (s.67.2): interest on money borrowed to buy a passenger vehicle is capped at $350 per 30-day period for 2026.
- Lease cap (s.67.3): see for the formula; the 2026 base monthly cap is $1,050 before applicable sales tax.
- Personal use by employees: employer-provided vehicles trigger a standby charge and operating benefit under s.6(1)(e) and s.6(1)(k), reported on the T4.
- Commuting: travel from home to the regular place of work is personal, not business.
| 2026 passenger vehicle limit | Amount | Source |
|---|---|---|
| Capital cost ceiling (Class 10.1) | $38,000 + sales tax | Reg 7307(1)(b) |
| Zero-emission (Class 54) ceiling | $61,000 + sales tax | Reg 7307(1)(b.3) |
| Interest deduction | $350 / 30 days | s.67.2 |
| Monthly lease cap (base) | $1,050 + sales tax | s.67.3 |
Example
Coast Mountain Inc. buys a 2026 SUV for $55,000 + $6,600 GST + $3,850 BC PST on April 1, 2026. Business use is 70% based on a full-year logbook showing 21,000 of 30,000 total kilometres.
Because the cost exceeds the $38,000 ceiling, the vehicle is a Class 10.1 capital cost capped at $38,000 + GST/PST on that $38,000. CCA is 30% on a declining-balance basis, with the half-year rule applied in year of acquisition. Running costs for 2026 (fuel, insurance, maintenance) total $8,400; the deductible share is $8,400 × 70% = $5,880.
Common mistakes
- Writing off 100% of vehicle costs without a logbook.
- Ignoring the capital cost ceiling and claiming CCA on the full purchase price of a luxury vehicle.
- Treating an employer-provided vehicle's personal use as if it had no tax consequence. The standby charge is a taxable T4 benefit.
- Deducting parking tickets and traffic fines. Statutory fines are denied by s.67.6.
- Forgetting that Class 10.1 has no recapture or terminal loss on disposition.
Related concepts
Authority
- Income Tax Act s.13(7)(g)
- Income Tax Act s.67.2
- Income Tax Act s.67.3
- Income Tax Regulations 7307
See also
Related entries
Leasing Cost Limits
ITA s.67.3 caps the monthly deduction for leasing a passenger vehicle through two formulas that reference the prescribed monthly cap and the manufacturer's list price ceiling.
CCA Class 10. Passenger Vehicles
Class 10 is the 30% declining-balance pool for motor vehicles, including most business passenger vehicles costing at or below the annual threshold (confirm 2026 limit in Regulation 7307).
Business Expense Principle (ITA 18)
An outlay is deductible only if it is incurred for the purpose of gaining or producing income from a business or property and is not a personal or capital expense.
Travel Expense
Business travel costs (transportation, lodging, incidentals) are fully deductible, while meals on travel remain subject to the 50% limit and conventions are capped at two per year.
This entry is for general reference. It does not constitute professional tax advice. Consult a qualified Canadian accountant for your specific situation.