MOTOR VEHICLE EXPENSES

A sole proprietor who uses a vehicle for the business can deduct the business share of the cost of owning and running it. The deduction rests on the proportion of kilometres driven for business, supported by a logbook, and is subject to annual limits for passenger vehicles on interest and lease payments. Operating costs are entered on line 9281 of Form T2125, using the motor vehicle chart in the T4002 guide; capital cost allowance on the vehicle is covered on the Capital Cost Allowance page. Figures are for 2026.

WHAT COUNTS AS BUSINESS DRIVING

• Business trips: driving to meet clients, visit suppliers, deliver goods, travel to job sites, attend business meetings or run business errands.

• Commuting is personal: travel between home and a regular place of business, such as a shop or rented office, is personal and not deductible.

• Home as the principal place of business: if the home qualifies as the principal place of business, trips from home to clients and suppliers are business trips.

• Mixed trips: only the kilometres attributable to the business purpose count; a personal detour on a business trip is personal.

THE LOGBOOK

• What to record: for each business trip, the date, destination, purpose and kilometres driven, together with the odometer reading at the start and end of the year.

• Full-year log: the standard approach is to keep the log for the whole year.

• Simplified method: after one complete 12-month base-year log, a sample log for a continuous three-month period can be used in later years. If business use in the sample period is within 10% of the base-year result, the base-year proportion can be applied to the later year.

• No log, no deduction: without a log, the CRA can reduce or deny the claim. Estimates and reconstructed logs carry little weight in an audit.

EXPENSES THAT ARE PRORATED

The following are added up for the year and multiplied by the business-use percentage.

• Operating costs: fuel and oil, maintenance and repairs, licence and registration fees, and regular vehicle insurance.

• Interest: interest on money borrowed to buy the vehicle, subject to the limit below.

• Lease payments: monthly lease costs, subject to the limits below.

• Capital cost allowance: the CCA claim for the vehicle's class, also multiplied by the business-use percentage.

EXPENSES DEDUCTED IN FULL

• Business parking: parking fees paid while on business are deductible in full and are not prorated. Parking at a regular place of business is personal.

• Supplementary business insurance: extra coverage needed only because the vehicle is used for the business is deductible in full.

• Tolls and ferries on business trips: deductible as travel costs for the trip.

2026 LIMITS FOR PASSENGER VEHICLES

• Interest: the deduction for interest on a loan to buy a passenger vehicle is limited to $350 for each 30-day period, regardless of the actual interest paid.

• Leasing: deductible lease costs are limited to $1,100 per month before sales taxes, for leases entered into in 2026. A second limit, based on the vehicle's manufacturer's list price, further reduces the deduction for expensive vehicles; the lower of the two applies.

• Capital cost: the depreciable cost of a passenger vehicle is capped at $39,000 before tax, or $61,000 for a zero-emission vehicle.

• Which vehicles: the limits apply to passenger vehicles, generally cars, SUVs and minivans designed to carry up to nine people. Pickup trucks, vans and similar vehicles used more than 50% to transport goods, equipment or passengers in earning income are usually motor vehicles that are not subject to the limits.

WORKED EXAMPLE

A sole proprietor drives 25,000 km in 2026, of which 15,000 km are business trips (60%). The vehicle was bought with a loan, and interest paid in the year was $5,000.

• Operating costs: fuel $4,000, insurance $2,400, maintenance $1,200 and registration $150, totalling $7,750. Business part: 60% × $7,750 = $4,650.

• Interest: limited to $350 × 12 = $4,200 before prorating. Business part: 60% × $4,200 = $2,520.

• Business parking: $300, deducted in full.

• Total on line 9281: $4,650 + $2,520 + $300 = $7,470. CCA on the vehicle is calculated separately and also prorated at 60%.

MORE THAN ONE VEHICLE

Each vehicle is calculated separately, with its own logbook, business-use percentage, and CCA class or lease limit. Costs cannot be pooled across vehicles.

PER-KILOMETRE RATES

• Not available to the self-employed: the CRA's per-kilometre rates (73 cents for the first 5,000 km and 67 cents after that in 2026) apply to allowances an employer pays to employees. A sole proprietor cannot use them to calculate their own deduction and must claim actual costs.

• Employees of the business: a sole proprietor who pays an employee a per-kilometre allowance at or below these rates can deduct the allowance, and it is not taxable to the employee.

KEY POINTS

• Logbook first: the business-use percentage drives every number, and it has to be supported by a log.

• Commuting is personal: unless the home is the principal place of business.

• 2026 caps: $350 per month for interest and $1,100 per month for leases on passenger vehicles.

• Actual costs only: the per-kilometre rates are for employee allowances, not for the owner's own claim.

SOURCES

• Canada Revenue Agency: Guide T4002, Line 9281, Motor vehicle expenses.

• Canada Revenue Agency: Automobile and motor vehicle allowances; logbook requirements.

• Department of Finance Canada: 2026 automobile deduction limits and expense benefit rates, January 14, 2026.