Motor vehicle – Interest

You can deduct interest on the money you borrow to buy a motor vehicle, zero-emission vehicle, passenger vehicle, or a zero-emission passenger vehicle you use to earn business, professional, farming or fishing income. Include the interest as an expense when you calculate your allowable motor vehicle expenses.

When you use a passenger vehicle or a zero-emission passenger vehicle to earn income, there is a limit on the amount of interest you can deduct. To calculate the interest you can deduct, fill in "Chart B – Available interest expense for passenger vehicles and zero-emission passenger vehicles" of your form.

Example

Heather's business has a December 31 year-end. On January 1, 2020, she bought a new passenger vehicle that she uses for both personal and business use. She borrowed money to buy the vehicle, and the interest she paid in her 2020 fiscal period was $2,200. Since the car that Heather bought is a passenger vehicle, there is a limit on the interest she can deduct.

Heather's available interest is the lesser of the following amounts:

  • $2,200 (the total interest she paid in her 2020 fiscal period)
  • $3,650 ($10 × 365 days)

Heather's records for her 2020 fiscal period:

Business kilometres
20,000 km
Total kilometres
25,000 km

Expenses:

Gasoline and oil
$2,000
Repairs and maintenance
$1,000
Insurance
$1,900
Interest (on loan to buy vehicle)
$2,200
Licence and registration
$60
Total vehicle expenses
$7,160

Heather determines the motor vehicle expenses she can deduct in her 2020 fiscal period:

20,000 (business kilometres) ÷ 25,000 (total kilometres) × $7,160 = $5,728

Heather can deduct $5,728 as motor vehicle expenses for her 2020 fiscal period.

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