Motor vehicle expenses

Business use of a motor vehicle

You can deduct expenses you incur to run a motor vehicle you use to earn business income.

To calculate the amount of motor vehicle expenses you can deduct, fill in "Chart A - Motor Vehicle Expenses" of form T2125, Statement of Business or Professional Activities, form T2042, Statement of Farming Activities, or form T2121, Statement of Fishing Activities.

If you are a partner in a business partnership and you incur motor vehicle expenses for the business through the use of your personal vehicle, you can claim those expenses related to the business on "Line 9943 - Other amounts deductible from your share of net partnership income (loss)" by filling in Part 6 of form T2125, T2042 or T2121.

Calculating motor vehicle expenses

If you use a motor vehicle for both business and personal use, you can deduct only the portion of the expenses that relates to earning business income. However, you can deduct the full amount of parking fees related to your business activities and supplementary business insurance for your motor vehicles.

To support the amount you deduct, keep a record of both the total kilometres you drove, and the kilometres you drove to earn income.

For farming business use includes trips to pick up parts or farm supplies, and to deliver grain. If you did not live on your farm, the travel between the farm and your home is not considered business travel.

For fishing business use includes trips to pick up parts or boat supplies, and to deliver fish to markets. It also includes driving to and from the fishing boat if your home is your main place of business.

Below is an example of how to calculate motor vehicle expenses incurred to earn business income.

Example

Murray’s business has a December 31 year‑end. He owns a truck that is not a passenger vehicle. He uses the truck to pick up supplies and equipment. Murray kept the following records for his 2017 fiscal period:

Kilometres driven to earn business income: 27,000 
Total kilometres driven: 30,000 

Expenses:
Gasoline and oil = $3,500 
Repairs and maintenance= $500
Insurance = $1,000 
Interest (on loan to buy truck) = $1,900
Licence and registration fees = $100

Total expenses for the truck = $7,000

Murray calculates the expenses he can deduct for his truck for the tax year as follows:

(27,000 business kilometres ÷ 30,000 total kilometres) x $7,000 = $6,300

If Murray has business or professional income, he can deduct that amount on line 9281 of form T2125.

If Murray has a farming business, he can deduct that amount on line 9819 of form T2042.

If Murray has a fishing business, he can deduct that amount on line 9281 of form T2121.

Note for farmers

If you received insurance proceeds to help pay for repairs, see "Line 9604 - Insurance proceeds" in guide T4002.

Note

You can deduct the full amount of parking fees related to your business activities and supplementary business insurance for your motor vehicle.

Vehicle expenses you can deduct

You can deduct expenses you incur to run a motor vehicle that you use to earn business income. However, several factors can affect your deduction.

The types of expenses you can claim on "Line 9281 - Motor vehicle expenses (not including CCA)" of form T2125 or form T2121, or line 9819 of form T2042 include:

  • licence and registration fees
  • fuel and oil costs
  • insurance
  • interest on money borrowed to buy a motor vehicle
  • maintenance and repairs
  • leasing costs

You can also claim Capital Cost Allowance (CCA), but this amount is to be entered on "Line 9936 - Capital cost allowance".

The type of vehicle that you own

The kind of vehicle you own can affect the expenses you deduct. For income tax purposes, there are two types of vehicles:

A Motor vehicle is an automotive vehicle designed or adapted for use on highways and streets. A motor vehicle does not include a trolley bus or a vehicle designed or adapted to be operated only on rails.

A Passenger vehicle is a motor vehicle designed or adapted primarily to carry people on highways and streets. It seats a driver and no more than eight passengers. Most cars, station wagons, vans, and some pick-up trucks are passenger vehicles.

A passenger vehicle does not include:

  • an ambulance
  • a clearly marked police or fire emergency-response vehicle
  • a motor vehicle you bought to use more than 50% as a taxi, a bus used in the business of transporting passengers, or a hearse in a funeral business
  • a motor vehicle you bought to sell, rent, or lease in a motor vehicle sales, rental, or leasing business
  • a motor vehicle (except a hearse) you bought to use in a funeral business to transport passengers
  • a van, pick-up truck, or similar vehicle that seats no more than the driver and two passengers which, in the tax year you bought or leased, was used more than 50% to transport goods and equipment to earn income
  • a van, pick-up truck, or similar vehicle that, in the tax year you bought or leased, was used 90% or more to transport goods, equipment, or passengers to earn income
  • a pick-up truck that, in the tax year you bought or leased, was used more than 50% to transport goods, equipment, or passengers while earning or producing income at a remote work location or at a special work site that is at least 30 kilometres from the nearest community having a population of at least 40,000 persons
  • a clearly marked emergency medical service vehicle used to carry paramedics and their emergency medical equipment

If you own or lease a passenger vehicle, there can be a limit on the amounts you can deduct for capital cost allowance (CCA), interest, and leasing costs.

Joint ownership

If you and another person own or lease a passenger vehicle together, the limits on capital cost allowance (CCA), interest, and leasing still apply. The total amount you (as a joint owner) or any other owners deduct cannot be more than the amount one person owning or leasing the vehicle could deduct.

How to record motor vehicle expenses

You can deduct motor vehicle expenses only when they are reasonable and you have receipts to support them. To get the full benefit of your claim for each vehicle, keep a record of the total kilometres you drive and the kilometres you drive to earn business income.

For each trip, list the date, destination, purpose, and number of kilometres you drive. Record the odometer reading of each vehicle at the start and end of the fiscal period.

If you change motor vehicles during the fiscal period, record the dates of the changes and the odometer readings when you buy, sell, or trade the vehicles.

Vehicle definition

The following chart will help you to determine if you have a motor vehicle or a passenger vehicle. The chart does not cover every situation, but it gives some of the main definitions for vehicles bought or leased and used to earn self‑employment income.

Vehicle definition chart

 
Type of vehicle Seating (includes driver) Business use in year bought or leased Vehicle definition
Coupe, sedan, station wagon, sports car, or luxury car 1 to 9 1% to 100% passenger
Pick-up truck used to transport goods or equipment 1 to 3 more than 50% motor
Pick-up truck (other than above) 1 1 to 3 1% to 100% passenger
Pick-up truck with extended cab used to transport goods, equipment, or passengers 4 to 9 90% or more motor
Pick-up truck with extended cab (other than above) 1 4 to 9 1% to 100% passenger
Sport utility used to transport goods, equipment, or passengers 4 to 9 90% or more motor
Sport utility (other than above) 4 to 9 1% to 100% passenger
Van or minivan used to transport goods or equipment 1 to 3 more than 50% motor
Van or minivan (other than above) 1 to 3 1% to 100% passenger
Van or minivan used to transport goods, equipment, or passengers 4 to 9 90% or more motor
Van or minivan (other than above) 4 to 9 1% to 100% passenger

1 - A vehicle in this category that is used more than 50% of the time to transport goods, equipment, or passengers while earning or producing income, at a remote work location, or at a special work site, that is at least 30 kilometres from the nearest community with a population of 40,000, is considered a motor vehicle.

Full logbook

The best evidence to support the use of a vehicle is an accurate logbook of business travel maintained for the entire year, showing for each business trip, the destination, the reason for the trip and the distance covered.

For each business trip, keep a log listing the following:

  • date
  • destination
  • purpose
  • number of kilometres you drive.

Record the odometer reading of each vehicle at the start and end of the fiscal period.

If you change motor vehicles during the fiscal period, record the dates of the changes and the odometer reading when you buy, sell, or trade the vehicle.

Simplified logbook

You can choose to maintain a full logbook for one complete year to establish a base year's business use of a vehicle.

After one complete year of keeping a logbook to establish the base year, you can use a three-month sample logbook to foresee business use for the entire year, as long as the usage is within the same range (within 10%) of the results of the base year. Businesses will have to show that the use of the vehicle in the base year remains representative of its normal use.

The business use of the vehicle in the subsequent year will be calculated by multiplying the business use as determined in the base year by the ratio of the sample period and base year period. The formula for this calculation is as follows:

(Sample year period % ÷ Base year period %) × Base year annual % = Calculated annual business use

Where the calculated annual business use in a later year goes up or down by more than 10%, the base year is not an appropriate indicator of annual usage in that later year. In such a case, the sample period logbook would only be reliable for the three-month period it had been maintained. For the remainder of the year, the business use of the vehicle would need to be determined based on an actual record of travel or alternative records, as discussed above. In these circumstances, the taxpayer should consider establishing a new base year by maintaining a logbook for a new 12-month period.

Example

An individual has completed a logbook for a full 12-month period, which showed a business use percentage in each quarter of 52/46/39/67 and an annual business use of the vehicle as 49%. In a subsequent year, a logbook was maintained for a three-month sample period during April, May and June, which showed the business use as 51%. In the base year, the percentage of business use of the vehicle for the months April, May and June was 46%. The business use of the vehicle would be calculated as follows:

(51% ÷ 46%) × 49% = 54%

In this case, the CRA would accept, in the absence of contradictory evidence, the calculated annual business use of the vehicle for the subsequent year as 54%. (i.e., the calculated annual business use is within 10% of the annual business use in the base year - it is not lower than 39% or higher than 59%.)

Even though records and supporting documents are only required to be kept for a period of six years from the end of the tax year to which they relate, the logbook for the full 12-month period must be kept for a period of six years from the end of the tax year for which it is last used to establish business use.

If you use more than one motor vehicle for your business, keep a separate record for each vehicle that shows the total and business kilometres you drive, and the cost to run and maintain each vehicle. Calculate each vehicle's expenses separately.

Vehicle loans interest expenses

You can deduct interest on money you borrow to buy a motor vehicle or passenger vehicle you use to earn business income. Include this interest as an expense when you calculate your allowable motor vehicle expenses.

However, there is a limit on the amount of interest you can deduct for a passenger vehicle. In such a case, 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. (Use $8.33 for passenger vehicles bought between December 31, 1996, and January 1, 2001. In all other cases, use $10.00)

When you use a passenger vehicle to earn income, there is a limit on the interest you can deduct. To calculate the amount of interest you can deduct, complete “Part 18 – Available interest expense for passenger vehicles” on Form T2125.

Vehicle leasing expenses

You can deduct amounts you incur to lease a motor vehicle you use to earn income. Include these amounts on line 9281 - Motor vehicle expenses (not including CCA) of your form.

When you use a passenger vehicle to earn farming or fishing income, there is a limit on the amount of the leasing costs you can deduct. To calculate your eligible leasing costs, fill in "Chart C - Eligible leasing costs for passenger vehicles" of your form.

If the lease agreement for your passenger vehicle includes such items as insurance, maintenance, and taxes, include them as part of the lease charges on amount 19 of Chart C.

Note

Generally, leases include taxes (GST and PST, or HST), but not items such as insurance and maintenance. You have to pay these amounts separately. Include the taxes on amount 19 of Chart C, and list the items like insurance and maintenance on the appropriate lines of "Chart A - Motor vehicle expenses."

For your 2017 fiscal period, use the GST rate of 5% or the HST rate of your specific province to fill in Chart C. The following example shows how to calculate the eligible leasing costs. Use Chart C of your form to help you understand the following example. In this chart, we use prescribed amounts. Prescribed means it is written in the law.

Example

On July 1, 2017, Meadow started leasing a car that is a passenger vehicle. She used the car to earn business income. Her business has a December 31 fiscal year‑end. The PST rate for her province is 8% and GST is 5%. Meadow entered the following for 2017:

Monthly lease payment

$500
 

Lease payments for 2017

$3,000
 

Manufacturer's suggested list price

$33,000
 

Number of days in 2017 she leased the car

184

 

GST and PST on $30,000

$3,900
 

GST and PST on $35,294

$4,588
 

GST and PST on $800

$104
 

Meadow makes the following calculation:

Total lease charges incurred in Meadow's 2017 fiscal period for the vehicle

$3,000
1

Total lease payments deducted in fiscal periods before 2017 for the vehicle

$0
2

Total number of days the vehicle was leased in 2017 and previous fiscal periods

184

3

Manufacturer's list price

$33,000
4

The amount on line 4 ($33,000) or ($35,294 + $4,588), whichever is more, multiplied by 85%:

$33,900
5

[$800 + (5% GST + 8% PST) x line 3] ÷ 30

$5,545

6

[$30,000 + (5% GST + 8% PST) × line 1]  ÷ line 5

$3,000
7

Meadow's eligible leasing cost is either line 6 or 7, whichever amount is less. In this case, her allowable claim is $3,000.

Repayments and imputed interest

When you lease a passenger vehicle, you may have a repayment owing to you, or you may have imputed interest. If so, you will not be able to use the chart.

Imputed interest is interest that would be owing to you if interest were paid on the money you deposited to lease a passenger vehicle. Calculate imputed interest for leasing costs on a passenger vehicle only if all of the following apply:

  • one or more deposits were made for the leased passenger vehicle
  • one or more deposits are refundable
  • the total of the deposits is more than $1,000

For more information, see interpretation bulletin IT-521, Motor Vehicle Expenses Claimed by Self-Employed Individuals.

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