If you own a corporation in Canada, you already know that every dollar you save helps grow your business. For many corporations, vehicles are a necessary part of operations, whether it’s getting to client meetings, job sites, or industry events. The good news is that many of the costs tied to using a car for business can actually lead to tax savings.
Corporate vehicles come with real costs. Fuel, maintenance, insurance, and lease payments can add up quickly and cut into your profits. The Canada Revenue Agency calls this the overhead of using a vehicle, and they expect you to keep accurate records if you want to claim those expenses. Without good tracking, not only do you risk problems with the CRA, but you could also miss out on valuable deductions your business is entitled to.
This guide is here to help. If you’re looking to deduct car expenses for your corporation in 2025, we’ll walk you through the CRA rules, tax strategies that work, and the documentation you’ll need to keep your business on track.
Which Car Expenses Are Tax Deductible for Canadian Corporations
Not all types of vehicles or trips are eligible for CRA deductions. The CRA has clear rules for corporations with respect to allowable vehicles and eligible business use.
CRA Rules for Business Use of a Car:
The CRA allows corporations to deduct car expenses only for motor vehicles used to earn business income. You can either own or lease the car in your business and only deduct the percentage of its use by your business.
Qualifying business use includes:
- Driving to client meetings or vendor visits.
- Traveling to temporary work sites or offsite meetings.
- Attending industry conferences and trade shows.
- Delivering goods, equipment, or materials to job sites.
Note: Commuting from home to your corporation’s regular office is considered personal use and not deductible. However, if your registered office is your home (a principal place of business), travel from your home office directly to a client or supplier may qualify as deductible business mileage.
What Types of Vehicles Qualify for CRA Business Tax Deductions
You can claim car expenses for:
- Passenger cars, trucks, SUVs, or vans used primarily for business.
- Delivery vans, service vehicles, or other specialty-use vehicles (e.g., food trucks, construction equipment).
- Mixed-use vehicles, where only the business-use portion is deductible. You must keep meticulous records to differentiate between personal and business use.
How to Claim Car Expenses on a T2 Corporate Tax Return
For Canadian corporations, you will have to use the actual expense method for any business-use car expenses you are deducting. Unlike employees (who may sometimes use a simplified per-kilometre rate for personal vehicle reimbursement), corporations must track real, documented expenses and calculate the deductible portion based on business use.
CRA-Approved Deductible Car Expenses:
When using the actual expense method, a corporation can deduct its business-share of any of the eligible car expenses based on the amount of business use, including:
- Fuel and oil
- Maintenance and repairs (e.g., brakes, tires, routine servicing)
- Car insurance premiums
- License and registration fees
- Lease payments (subject to specific CRA thresholds for luxury vehicles, detailed below)
- Loan interest (if the car is financed, limited to $350 per month for new loans entered into on or after January 1, 2025)
- Capital Cost Allowance (CCA), which is the CRA’s method for deducting depreciation (detailed below)
- Business-related parking fees (fully deductible)
- Tolls incurred for business trips
Note: Be aware that if your corporation makes a vehicle available for an employee’s (including the owner’s) personal use, the corporation must calculate a taxable benefit for that employee. This is a complex calculation involving a ‘standby charge‘ and ‘operating expense benefit‘ and must be included on the employee’s T4 slip. Failing to report this taxable benefit can lead to penalties for the corporation and the individual.
How to Calculate Business Use Percentage for a Corporate Vehicle
The deductible portion of car expenses is based on how much the car is used for business vs. personal use. You are required to have a logbook recording the following:
- Date of each trip
- Purpose of each trip (client meeting, delivery, visit a supplier)
- Starting and ending odometer readings
- Total kilometers driven (clearly split between business and personal)
The calculation for your Business Use Percentage is straightforward:
Business Use % = (Business Kilometres ÷ Total Kilometres) × 100
For example: If a corporate vehicle was driven 12,000 km in the fiscal year and 8,400 km were for business, your business use percentage is 70% ((8,400÷12,000)×100=70%). You can then deduct 70% of all eligible car expenses.
What Documentation Do You Need for Corporate Car Expenses
Accurate and meticulous records are essential for CRA compliance. This is often the first area the CRA examines during an audit of corporate vehicle expenses. Here’s what you must keep:
- A detailed logbook: This is paramount. It must document every single business trip with its purpose, dates, starting/ending points, and odometer readings. This proves the business portion of use.
- Receipts and invoices: For all car-related expenses. This includes gas, oil, repairs, maintenance, tires, insurance premiums, car washes, tolls, and parking fees.
- Purchase or lease agreements: For the vehicle itself, detailing the cost or terms.
- Records of loan interest payments: If the car is financed.
- Year-end odometer readings: To verify total kilometers driven for the year.
The CRA expects you to maintain these records for a minimum of six years after the end of the tax year in case of an audit. There are many mileage tracker apps (like Zoombooks) and cloud-based accounting software can significantly simplify this process and improve audit readiness.
How Car Depreciation (CCA) Works for Canadian Corporations
If the car is owned by the corporation, then depreciation can be claimed under Capital Cost Allowance (CCA). This means that a corporation can deduct some percentage of the car’s total capital cost every year.
- Class 10: Most cars, depreciated at 30% per year.
- Class 10.1: Cars costing over $37,000 + taxes (indexed annually).
Additional CRA Depreciation Rules:
- Half-Year Depreciation Rule: In the year of acquisition, you can only claim 50% of the CCA amount.
- Accelerated Investment Incentive: Applies to cars acquired between Nov. 20, 2018 and 2028, allowing higher first-year depreciation.
- Zero-Emission Vehicles (ZEVs): Eligible for 100% write-off in year one under enhanced CRA incentives.
CRA Rules for Leasing a Car Under a Canadian Corporation
If your corporation leases a car instead of purchasing it, specific CRA rules apply to your deductions:
- Lease payments are deductible based on your verified business use percentage.
- Other associated expenses (insurance, maintenance, repairs, parking, tolls) are also deductible based on the same business-use ratio.
- The CRA limits deductible lease amounts for luxury vehicles for leases this means for new leases commencing January 1, 2025 (and onward) the monthly deductible lease amount is $1,100 per month (before tax). In 2024, this threshold was $1,050 per month. If the value of a vehicle is greater than its capital cost limit, your deductible lease costs will be prorated.
Benefits of leasing:
- Lower upfront costs
- Predictable monthly expenses
Drawbacks:
- No CCA (depreciation) claim available
- Long-term cost may be higher
What to Avoid When Claiming Car Expenses in Canada
Avoid these issues when filing your corporate return:
- Claiming commuting mileage (home to work office) as business use.
- Failing to keep a logbook or adequate receipts.
- Mixing personal and business costs in your accounting.
- Attempting to double-dip (e.g., reimbursing yourself and claiming the same expense).
2025 CRA Updates on Car Expense Deductions
For the 2025 tax year:
- Parking fees for business purposes are 100% deductible.
- Business-use car insurance premiums are eglible to be additional coverage.
- Car loan interest is deductible on the business-use percentage.
- Capital cost limits and lease deduction caps are indexed annually.
Check the CRA website each year for updated car cost thresholds and deduction rules.
Final Thoughts
If you’re operating a business vehicle through your corporation, taking full advantage of CRA-allowed car deductions can result in major corporate tax savings. Keep detailed records, calculate your business use percentage carefully, and stay current on CRA updates each year. A Canadian tax accountant or corporate tax specialist can provide tailored advice, help you interpret complex CRA rules, ensure you identify every legitimate deduction, correctly calculate taxable benefits, and help you navigate potential CRA audits.
