Vehicle Expense

Definition

Vehicle expense covers the costs of using a car, van or truck to earn business income. A sole proprietor generally deducts the logbook-supported business share of eligible actual costs. Passenger vehicles also have ceilings on depreciable cost, borrowing interest and lease deductions. An employee's personally owned car and a corporation-provided car require different treatment.

Key rules

• Records: retain expense receipts, business-trip details and opening and closing odometer readings. Calculate business kilometres divided by total kilometres for each vehicle. A three-month sample is allowed only after a representative full base-year log and the prescribed comparison. CRA vehicle records
• CCA classes: an ordinary passenger vehicle at or below its acquisition-year ceiling generally belongs in Class 10; one above it generally belongs in a separate Class 10.1. The basic rate is 30%, but first-year incentives and available-for-use rules affect the actual claim. See CCA Class 10. Passenger Vehicles.
• 2026 amounts: Finance Canada announced the following ceilings. Apply the correct year for the acquisition, loan or lease, and deal separately with recoverable GST/HST. Finance Canada's 2026 limits

The lease limit is one part of the calculation, not an automatic $1,100 monthly deduction. Leasing Cost Limits explains the second limit based on list price and the adjustments for lease duration. Actual interest and lease costs must also be incurred to earn income.

For sole proprietors, eligible running costs go on T2125 line 9281, while CCA goes on line 9936. Business-trip parking is a separate direct expense. Ordinary commuting is personal. CRA motor vehicle expenses

Example: a sole proprietor's purchased vehicle

An Alberta sole proprietor who is not registered for GST buys an ordinary passenger SUV in 2026 for $55,000 plus $2,750 GST. The logbook records 21,000 business kilometres out of 30,000 total kilometres, a 70% business share. This example assumes the vehicle qualifies for Class 10.1 rather than a zero-emission class.

The depreciable cost is limited to $39,000 plus $1,950 GST on that capped amount, or $40,950, rather than the $57,750 purchase total. The applicable CCA rules determine the annual allowance on that base; only the 70% business share is claimed. Running costs of $8,400 produce a separate $5,880 business expense. The vehicle purchase itself is not added to running costs.

If a GST/HST registrant bought the same vehicle, the input tax credit treatment could change the tax included in its capital cost. Keep the purchase invoice and GST/HST calculation with the CCA schedule. CRA CCA classes and vehicle cost limits

Corporation and employee vehicles

When an employee uses their own vehicle for work, a corporation may pay a reasonable allowance based on employment kilometres or reimburse documented business costs. In the provinces the 2026 prescribed allowance rates are 73 cents for the first 5,000 kilometres and 67 cents thereafter; the territories use 77 cents and 71 cents. This is not an alternative method for a sole proprietor to reimburse themselves. CRA automobile allowance rates

For a corporation-provided automobile, record the company's eligible costs and assess any employee or shareholder benefit separately. Do not apply a sole proprietor's expense calculation and assume that settles the owner's personal use. An employee automobile benefit can include a standby charge and an operating expense benefit. CRA employer-provided automobile rules

Common mistakes

• Claiming the purchase price as a running expense or using the vehicle's full cost above its CCA ceiling.
• Automatically applying a first-year half-year rule without checking applicable incentives.
• Claiming an employee mileage allowance and the same actual vehicle costs twice.
• Treating an owner-employee's private use of the company car as having no benefit consequences.
• Counting personal journeys as business kilometres or including statutory parking and traffic fines as deductible costs.

Related concepts

• Leasing Cost Limits
• CCA Class 10. Passenger Vehicles
• Business Expense Principle (ITA 18)
• Travel Expense