CRA Vehicle Expenses: Here's What You Can Claim...

And if you’re the type who spends their work day behind the wheel you might not know that you can claim expenses on your vehicle when it comes to calculating tax deductions at tax time. 

The Canada Revenue Agency has provided all the information about motor vehicle expenses and the general rules for claiming costs relating to business expenses on their website, but navigating the page can be like driving through a foreign city at night – you might need some assistance. We have compiled all the important information about motor vehicles expenses and business travel right here.

Who can claim motor vehicle expenses? 

Self-employed individuals can deduct vehicle expenses if they require a vehicle to earn income. Even if you use your car for both business and personal use, you can claim expenses based on the percentage that your car is used for business. We’ll explain further below. Gig workers (Uber and Lyft drivers) are independent contractors, so they would fall into this category.

Salaried and commission-based employees may also qualify for vehicle expense deductions if they had to pay for their own vehicle expenses and are required to work in a different location (or locations) separate to their employer’s place of business, using your personal car for a business trip is one example. As a side note, commuting between your home and workplace does not count. Salaried employees can view full eligibility guidelines here. Commission-based employees can view full eligibility guidelines here.

The amount of vehicle expenses you can claim on your taxes will depend on multiple factors, such as what type of vehicle you use and how much you use the vehicle for work and business use. It will also depend on if you share the vehicle with another individual or business.

What does CRA allow for mileage expenses? 

Technically, there is no limitation to the kilometres driven you can submit on your annual taxes for the entire year, but they must be deemed “reasonable,” and you will need receipts to support your claims. It is recommended by the CRA that you record both kilometres accumulated for business and for personal use, as well as the odometer reading at the start and end of each fiscal year. It is recommended you keep a logbook and record these variables for each trip: date, destination, purpose, and number of kilometres you drive, allowing you to accurately track business expenses and personal vehicle expenses separately.

Pro Tip: If you switch vehicles during the year, make sure to record the dates of the change and odometer readings when you buy, sell, or trade the vehicle.

What vehicle expenses are tax deductible?

There are a variety of vehicle costs that are deductible expenses if you are using a passenger vehicle for business purposes:

• License and registration fees: the annual fees you pay each year to register your vehicle with the provincial government are deductible expenses.
• Fuel: the expenses incurred to refuel your vehicle.
• Insurance: the motor vehicle insurance you pay can be deducted as an expense.
• Supplementary business insurance: you can claim supplementary business insurance for your vehicle.
• Interest on money borrowed to buy a motor vehicle: you can deduct the interest you paid on your motor vehicle loan if you use the car to earn a business income.
• Maintenance and repairs: if you lease your vehicle, those costs can be a deduction if the vehicle was purchased for the purpose of earning a business income.
• Leasing costs: if you lease your vehicle, those costs can be a deduction if the vehicle was purchased for the purpose of earning a business income.
• Parking fees: you can also deduct expenses for parking fees related to your business travel/activities (ex: if you are self employed and drive to a customers business location and pay for hourly parking you can claim that expense). Note that parking fees at your company’s office if you commute, such as a monthly parking pass, cannot be claimed, and you cannot claim parking fines or traffic tickets.

How do I claim car expenses on my tax return?

Whether you are using tax software or printed CRA materials (not recommended), there are several forms and declarations you will need to fill out to claim motor vehicle expenses. This will help you calculate the amount eligible to deduct.

Most self-employed persons will fill out form T2125 Statement of Business or Professional Activities. Farming and fishing professionals require different forms.

Salaried and commission-based employees should submit form t777 Statement of Employment Expenses.

If you plan to submit your tax return digitally, head over to CRA My Account to download the form.

If you purchased your vehicle strictly for business purposes, there is also something called Capital Cost Allowance (CCA), which lets you deduct the cost of a depreciating asset for a business like a vehicle.

You should meticulously record the kilometres you accumulate, as well as the multiple expenses we listed above throughout the tax year, to accurately claim vehicle expense deductions on your taxes. 

Here is a scenario to help you get an idea of the calculation you will need to fill out on your taxes:

You have racked up a total of 25,000 kilometres in one fiscal year. About 20,000 of those kilometres were driven for the purpose of earning a business income.

How much can you claim for car expenses without receipts?

Receipts are crucial if you want to claim expenses for your motor vehicle. Unfortunately, mileage (kilometres) alone is not something you can claim as a deduction on your taxes. It is the expenses incurred while adding kilometres to your vehicles that can be expensed. As noted above, items like fuel, insurance, repairs, and other expenses are what can be deducted, all of which will require supporting receipts.

What kind of cars can I claim on my tax return? 

There are four different kinds of vehicles eligible for expense deductions. According to the CRA, the four types of vehicles for income tax purposes are: motor vehicle, passenger vehicle, zero emission vehicle, zero-emission passenger vehicle. Please see the CRA chart for a full vehicle definition chart. Most cars, new or previously owned, will fall under one of these categories.

Vehicles like vans or trucks qualify as a vehicle eligible for motor vehicle expenses to be claimed, but the expense calculation will depend on whether the van classifies as a motor vehicle or passenger vehicle. The definition will depend on seating capacity and how much the van was used for the purpose of earning a business income.

Can you claim a car purchase on your taxes?

The purchase price of a new car itself is not something that can be claimed as an expense, unless you are claiming a Capital Cost Allowance (CCA) as a depreciating asset for your business. The interest you pay on a loan for the new vehicle may be eligible. All four vehicle types mentioned above are eligible, though there is a limit on the amount of interest you can deduct on a passenger vehicle or zero-emission passenger vehicle.

In the following instance, the amount of interest you can deduct is limited to the lesser of the following two amounts:

• Total interest payable for the year
• $10 × the number of days for which interest was payable in the year