Motor Vehicle Expense Claims on Income Tax in Canada

Feb 1, 2024

Did you use a vehicle for your business last tax year? This article outlines the motor vehicle expenses you can claim on your income tax in Canada and details the necessary documentation to support your expense claims.

The examples provided here illustrate how to report automobile expenses to the Canada Revenue Agency (CRA) on the T1 individual tax return, which is used by sole proprietors and partnerships. These automobile expenses are part of the business expenses listed on Form T2125 – Statement of Business or Professional Activities.

For incorporated businesses, you would claim similar motor vehicle expenses on your T2 corporate income tax return.

 

There Are Two Categories of Motor Vehicle Expense Claims

To begin with, it is important to know that there are two main categories of motor vehicle expenses when dealing with income tax in Canada:

1. expenses related to the use of a vehicle, which you report on line 9281 as motor vehicle expenses,
2. expenses associated with purchasing a motor vehicle, which you claim under Capital Cost Allowance.

This article discusses the costs associated with using a motor vehicle for business purposes.

If you are a partner in a business partnership and you spend money on motor vehicle expenses by using your personal vehicle for business reasons, you can claim these expenses on line 9943 – Other amounts deductible from your share of net partnership income (loss) in Part 6 on page 2 of Form T2125.

 

Motor Vehicle Expenses You Can Claim Related to Use of a Motor Vehicle

When you use a vehicle to generate business income, you can claim:

  • license and registration fees
  • fuel and oil expenses
  • insurance
  • interest on money borrowed to buy the vehicle
  • maintenance and repairs
  • leasing costs
    However, there’s a catch. If you also use that vehicle for personal purposes, you can only deduct the portion of those expenses that are directly tied to earning income.

Therefore, to claim vehicle expenses, you need to track how many kilometers you drive for business and how many you drive for personal use.

Parking costs and additional business insurance are exceptions to this rule; you can claim 100% of these expenses.

 

You Need to Keep a Logbook

To do this, you need to maintain a Logbook documenting all your vehicle use over the tax year, as suggested by the Canada Revenue Agency (CRA).

After completing this once, you might switch to a simplified logbook system, recording detailed usage for three months and then estimating your business vehicle use for the remainder of the year.

     

    How to Calculate Your Motor Vehicle Expenses Related to Motor Vehicle Use

    Imagine you are a sole proprietor who owns a van used for both business and personal purposes. Throughout the fiscal year, you meticulously record all your vehicle expenses, culminating in the following breakdown:

    Expense Amount
    License and registration fees $175.00
    Gas and oil $2,100.00
    Insurance $980.00
    Interest $760.00
    Maintenance and repairs $650.00
    Parking fees $330.00
    Supplementary Insurance $500.00
    Total Expenses $5,495.00

    If your van is utilized for both business and personal use, you need to calculate the proportion of your automobile expenses that you can claim for business by using the kilometers driven for business purposes versus the total kilometers driven.

    For example, during the tax year in which the above vehicle expenses were incurred, assume you traveled:

    32,000 kilometers for business purposes
    44,000 total kilometers

    You need to divide the business kilometers by the total kilometers and then multiply that ratio by the total amount of the “partial-allowed” expenses to determine the claimable business expense:

    (Remember: 100% of parking fees and supplementary business insurance can be claimed, so exclude these from the total expense amount before calculating!)

    (32,000 business kilometers ÷ 44,000 total kilometers) x $4,665 = $3,392.73

    Since you can fully claim your parking and supplementary business insurance expenses, add these amounts to your calculated expenses:

    $3,392.73 + ($330 + $500) = $4,222.73

    Expense Amount
    License and registration fees $175.00
    Gas and oil $2,100.00
    Insurance $980.00
    Interest $760.00
    Maintenance and repairs $650.00
    Total Expenses $4,665.00
    Business Use (32,000km/44,000km * Total) $3,392.73
    Parking fees $330
    Supplementary Insurance $500
    Total Business Use Expenses $4,222.73

    Thus, your total motor vehicle expense claim amounts to $4,222.73. This amount is reported on line 9281, “Motor vehicle expenses (not including CCA)”, in Part 5 of Form T2125, Statement of Business or Professional Activities, on the T1 income tax return.

     

    Keep All Your Receipts!

    You must always have receipts to support your claims for business expenses. Although it can be tedious and easy to overlook, you need a receipt for every expense you wish to claim, whether you are NETFILING your income tax return or having it EFILED by a tax professional.

    Additionally, remember to keep all your tax-related receipts for six years, in case the Canada Revenue Agency wants to review them.

     

    Need more information? CBES is here to assist you; feel free to contact us for expert guidance. We will help at all stages and make the process of forming your company as fast and simple as possible.

    You can find Contracts and Documents for Business Owners in Canada here businessdocs.ca

    Launch Your Business in Canada

    Contact us right now and we will help You!

    Capital Cost Allowance (CCA)

    Capital cost allowance (CCA) is one of several methods to lower your business's taxable income in Canada. The Canada Revenue Agency (CRA) describes it as "a tax deduction that Canadian tax laws allow a business to claim for the loss in value of capital assets due to...

    Canada Pension Plan (CPP)

    The CPP, also known as the Canada Pension Plan, is a national program that aims to assist Canadians in securing income for their retirement or in the event of disability. It was instituted by Lester B. Pearson's Liberal government in 1965, except in Quebec where a...

    Independent Contractor vs Employee in Canada

    Understanding whether you are classified as an independent contractor or an employee is crucial for your Canadian income tax, especially if you believe you are a contractor but the Canada Revenue Agency (CRA) later decides otherwise after you have filed multiple tax...

    Red Flags That Will Get Your Small Business a CRA Audit

    Receiving a letter from the Canada Revenue Agency (CRA) announcing an audit is something every business or individual fears. Tax experts say about 35,000 such letters were issued in 2023. Business tax returns undergo intense scrutiny, and although there is no...

    How to Manage Business Expense Records in Canada

    Imagine if you were to create a comprehensive list of all the responsibilities necessary for running your business, and then arranged them according to your personal preference. Where would managing business expense records fall within that hierarchy? Would it be...

    The Rules for Entertainment and Meal Expenses on Canadian Income Tax

    It would be beneficial for individuals involved in business to have the ability to subtract the entirety of their business-related meal and entertainment costs from their tax payments. Regrettably, it is not often possible to claim a complete 100 percent deduction. In...