If you use your vehicle for business purposes — even part-time — you may be eligible to deduct car expenses on your tax return. But the CRA has strict rules, and many business owners either miss out on deductions or claim things they shouldn’t. Here’s how to get it right.
Who Can Deduct Vehicle Expenses?
- Self-employed individuals (sole proprietors, partnerships)
- Corporations, where the vehicle is used by an employee (including the shareholder)
- Anyone using a personal vehicle for business-related activities, such as client meetings, deliveries, or site visits
Commuting from home to your regular place of work is not considered business use.
What Can You Deduct?
If your vehicle is used partly for business and partly for personal use, you can deduct a portion of the following expenses:
- Fuel (gas, diesel, electricity)
- Insurance
- Maintenance and repairs
- Lease payments (subject to limits)
- Interest on a car loan
- Licensing and registration
- Depreciation (CCA) if you own the vehicle
You must prorate all expenses based on business use vs. personal use — and that’s where mileage tracking comes in.
Keep a Mileage Log (Yes, Really)
To claim vehicle expenses, you need to keep a contemporaneous logbook that tracks:
- Date
- Purpose of the trip
- Destination
- Starting and ending odometer readings
This is required by CRA and is the most common issue in an audit. There are apps that make this easier — but even a well-kept spreadsheet will do.
Should You Buy or Lease the Vehicle?
It depends. Leasing gives you flexibility and easier write-offs (though annual deductibility is capped). Buying may work better if you plan to keep the vehicle long-term and can claim capital cost allowance (CCA).
There are also implications if the corporation owns the vehicle vs. if it’s owned personally and reimbursed by the company. The right strategy depends on your situation — and yes, we help with this.
What About Reimbursements?
If you own your vehicle personally but use it for your corporation, the company can:
- Reimburse you a CRA-approved per-kilometre rate (tax-free to you, deductible to the business)
- Or pay actual expenses (but this may result in taxable benefits)
Using the per-kilometre method is clean and often the simplest for owner-managers.
Need Help Maximizing Vehicle Deductions?
Whether you’re self-employed or incorporated, we’ll help you choose the most tax-efficient way to handle vehicle expenses — and make sure you stay compliant with CRA.
Let’s talk about how to make your mileage matter.