The essential guide to vehicle expense claims in Canada

Vehicle expenses are one of the most reviewed deductions on a Canadian business return, and they are the deduction most often reduced when CRA looks. The rules are not complicated. The record-keeping is where claims fall apart.

The log is the claim

Your deduction is a percentage. Total vehicle costs multiplied by the share of kilometres driven to earn business income. Without a log, there is no percentage, and a reasonable-sounding estimate is not a substitute.

For each business trip, record the date, the destination, the reason for the trip and the kilometres driven. You also need the odometer reading at the start and end of the fiscal year so the total distance is established.

CRA accepts a simplified approach that saves a great deal of effort. Keep a full log for one complete year to establish a base year. In later years, a three-month sample log is enough, provided the business-use percentage in the sample stays within about ten percentage points of the same period in the base year. The full-year figure is then calculated from the sample. This only works if the base year log actually exists, so the first year of proper records is worth the trouble.

One trap in the definition of business use: driving between home and your regular place of business is personal, no matter who owns the vehicle. Trips between job sites, to suppliers, and to clients count. For trades and contractors running between sites all day, that distinction usually works in your favour, but the log still has to show it.

Phone apps that track trips by GPS and let you tag each one are fine. So is a notebook in the glove box. What does not work is reconstructing the year in April from a calendar.

What you can claim

Once you have the percentage, apply it to fuel, oil, insurance, licence and registration, repairs and maintenance, car washes, parking related to business travel, lease payments, loan interest and capital cost allowance.

Parking at a client's office and business-related tolls are fully deductible on their own, without applying the percentage, because they attach to a specific business trip. Parking at your own place of business is not deductible.

The passenger vehicle limits

This is where the money is, and where the numbers move.

A passenger vehicle as CRA defines it is subject to three separate ceilings:

• A cap on the capital cost you can depreciate, no matter what you paid. The excess is simply lost.
• A cap on the monthly lease payment you can deduct.
• A cap on deductible interest, expressed as a daily amount.

All three are indexed and have been raised several times in recent years. We are deliberately not quoting figures here, because a stale ceiling on a blog post is worse than no ceiling at all. Confirm the current amounts for the year the vehicle was acquired or leased before you build them into a purchase decision.

A vehicle over the capital cost ceiling goes into its own Class 10.1 rather than the general Class 10 pool. Each such vehicle sits in a separate class, and on disposal there is no recapture and no terminal loss.

The exception worth knowing about

Not every vehicle is a passenger vehicle, and the ones that are not fall outside all three ceilings. The full cost is depreciable, the full lease payment is deductible, and interest is not capped.

The tests turn on seating and on what the vehicle is actually doing:

• A van, pickup or similar vehicle that seats no more than the driver and two passengers, and is used more than 50% of its distance to transport goods or equipment in the course of earning income, is not a passenger vehicle.
• A pickup or van that seats more than three, and is used 90% or more of its distance to transport goods, equipment or passengers in the course of earning income, is not a passenger vehicle.
• An extended-cab pickup used mainly to carry workers or equipment to a special work site or remote work site at least 30 kilometres from a community of 40,000 people qualifies at a lower business-use threshold.

A cargo van or a work pickup meeting one of these tests can be written off on its full cost while an equivalently priced sedan is capped. The tests are mechanical and the burden is on you, so keep the log detailed enough to show what was being hauled and where.

If the corporation owns the vehicle

Personal use of a company vehicle creates a taxable benefit on the shareholder or employee, made up of a standby charge based on the cost or lease cost of the vehicle plus an operating cost benefit based on personal kilometres. The standby charge can be reduced where business use is high and personal driving stays under a set annual distance.

The benefit is calculated from the same log. Owner-managers are frequently better off keeping the vehicle personally and billing the corporation a per-kilometre allowance at a reasonable rate, which is deductible to the company and not taxable to the individual. Which structure wins depends on the cost of the vehicle and the business-use percentage, and it is worth running both before you sign anything. Our tax team does that calculation as part of year-end planning.

What reviewers ask for

• The log, for the period under review
• Receipts, not just the credit card statement
• The odometer readings at both ends of the year
• An explanation of trips that look like commuting

Claims are reduced far more often for missing support than for anything conceptually wrong.

All of our corporate and personal tax work

General information only, current at August 2026. Tax rules change and GST/HST status is fact-specific. Confirm your own position before relying on anything here.