Claiming Vehicle Expenses When You’re Self-Employed in Canada (2026)

The short answer

When you use your car to earn business income, you deduct the business-use share of your real vehicle costs — not a flat mileage rate. The share is simple: business kilometres ÷ total kilometres driven in the year. Drive 12,000 of your 20,000 km for the business, and 60% of your eligible car costs become deductible on Form T2125.

The two things that trip people up are (1) believing there’s a per-kilometre write-off for the self-employed (there isn’t), and (2) missing the federal caps on loan interest and lease payments. Let’s clear both up, then walk a full example.

Business use is kilometres, and kilometres mean a logbook

Your business-use percentage is the single most important number, because it scales everything else. The CRA wants it backed by a logbook: for each business trip, the date, destination, reason, and distance. A full-year log is the gold standard. Commuting from home to a regular place of business generally doesn’t count as business travel — trips between client sites, to suppliers, to the bank for the business, and to pick up inventory do.

Our free business vehicle expense calculator takes your business and total kilometres and does the proration for you, including the caps below.

What you can actually deduct

Prorated by your business-use percentage:

• Fuel (gas, diesel, or charging)
• Maintenance and repairs
• Insurance
• Licence and registration fees
• Interest on a loan to buy the vehicle — if you own it (capped, see below)
• Leasing costs — if you lease it (capped, see below)
• Capital cost allowance (depreciation) — if you own it

Two costs are fully deductible without proration: business parking, and supplementary business insurance on the vehicle. Everything else follows the business-use share.

The 2026 caps that limit two of those costs

The Department of Finance sets automobile limits each year. For 2026:

• Loan interest is capped at $350/month — a maximum of $4,200 for a full year of ownership — for loans entered into on or after January 1, 2026. You then deduct only the business-use share of the capped figure.
• Lease costs are capped at $1,100/month (before tax) for leases entered into on or after January 1, 2026. (A separate manufacturer’s-list-price formula can reduce a high-end lease further.)
• The Class 10.1 ceiling is $39,000 (before tax) — the most of a pricey passenger vehicle’s cost you can depreciate. See the section on CCA below.

The myth of the per-kilometre write-off

You’ll see “73¢ per km” everywhere, and it’s real — but it’s the reasonable allowance an employer can pay an employee tax-free (73¢ for the first 5,000 km, 67¢ after, for 2026). It is not a deduction a sole proprietor can claim. As a self-employed person you report actual costs. The per-km number is still handy as a gut-check: if your actual-cost claim per business kilometre is wildly higher than the allowance rate, it’s worth a second look before you file.

Own or lease? A worked example (estimate, not advice)

Say you own your car and drove 12,000 business km out of 20,000 total — 60% business use. Your annual costs: $3,000 fuel, $1,200 maintenance, $1,800 insurance, $120 licence, and $2,000 of loan interest (under the $4,200 cap).

Item	Amount
Operating costs (fuel + maintenance + insurance + licence)	$6,120
Loan interest (within the $350/month cap)	$2,000
Total vehicle costs	$8,120
× business use (60%)	= $4,872 deductible

So you deduct $4,872 on line 9281 — plus any capital cost allowance you choose to claim on top. Had you leased instead and paid $6,000 in lease costs (within the $1,100/month cap) with the same operating costs and business use, your deductible would be 60% × ($6,120 + $6,000) = $7,272 — but you’d claim no CCA. These figures illustrate the mechanics; they’re not tax advice for your situation.

Depreciation: capital cost allowance on a vehicle you own

If you own the vehicle, you don’t deduct the purchase price all at once — you depreciate it through capital cost allowance (CCA). A regular car or work vehicle under the price ceiling is Class 10 (30% declining balance); a passenger vehicle costing more than $39,000 is Class 10.1, with the cost capped at that ceiling. Then you still apply your business-use percentage to the CCA. Work the depreciation out with our capital cost allowance calculator, then drop the figure into the vehicle calculator. (Leased vehicle? You claim the lease costs instead — no CCA.)

Where it goes on your return

Operating costs, capped interest, and lease payments go on line 9281 — Motor vehicle expenses (not including CCA) of Form T2125. Capital cost allowance is calculated in Area A of the same form. Net business income then flows to line 13500 of your T1. For the full walk-through of T2125, see our CRA tax filing guide for the self-employed.

Don’t stop at the car

Your vehicle is one deduction. If you work from home, add the home office deduction. Then size the tax to set aside on what’s left with the tax set-aside calculator, and start from the complete guide to self-employed taxes in Canada for the whole map.

VRITTI is a Canadian self-employed money app that keeps a running tally of your vehicle and business costs as they happen — so this deduction is ready at tax time instead of reconstructed from a glovebox of receipts. It’s coming soon for Canadian freelancers and sole proprietors; if that sounds calmer than your current April, you can join the waitlist — no pressure, no download yet.

This article explains CRA rules in plain language and offers estimates to frame a decision — it is not tax advice for your specific situation. Rates and limits were verified against the Canada Revenue Agency and Department of Finance pages below on 31 July 2026.

Sources

• CRA — Calculating motor vehicle expenses (Form T2125) — the business-km ÷ total-km method, the logbook requirement, and Chart A.
• CRA — Motor vehicle expenses (not including CCA), line 9281 — the eligible operating costs and where they’re reported.
• Department of Finance — 2026 Automobile Deduction Limits — the $350/month interest cap, $1,100/month lease cap, 73¢/67¢ per-km rates, and the $39,000 Class 10.1 ceiling.
• CRA — Guide T4002, Chapter 3: Expenses — the full self-employed expenses guide behind Form T2125.