If you use your car for business purposes, claiming a vehicle tax write-off is a smart way to keep your hard-earned money in your pocket. For business owners and solopreneurs, writing off car expenses may significantly lower your tax bill. However, navigating the rules set by the Canada Revenue Agency (CRA) may come with roadblocks. 

In this article, we’ll explain what a vehicle tax write-off is, how to claim it, and what you need to know to stay compliant.

• What is a vehicle tax write-off?
• How to write off your car as a business expense in Canada
• Owned vs. leased vehicle write-offs
• Common mistakes to avoid
• Maximize your vehicle deductions
• FAQ

What is a vehicle tax write-off?

A vehicle tax write-off is a deduction that reduces your taxable income. It includes the costs of using your car to operate your business. The CRA allows you to claim certain vehicle-related expenses if your car is essential for running your business.

Types of vehicles eligible for business expenses

These are the main categories of vehicles that can be used for write-offs: 

• Passenger vehicles such as cars, vans, and pickup trucks
• Motor vehicles such as a van or minivan to transport goods or equipment
• Zero-emission vehicles
• Zero-emission passenger vehicles

For example, if you own a catering company and use a van to deliver customers’ orders, you can write off a portion of your van’s operating costs. Keep in mind that you can only claim expenses related to the portion of the car’s use that’s strictly for business. When you pick up groceries or visit your doctor, that’s considered personal use and isn’t deductible.

How to write off your car as a business expense in Canada

To write off your car as a business expense in Canada, you’ll need to follow these simple steps to ensure your claims are accurate.

Step 1: Track your mileage

First, keep a detailed log of your business and personal kilometres driven. This will help you calculate the percentage of vehicle use that qualifies as a business expense.

In your logbook, include the following details:

• Date
• Destination
• Purpose of the trip
• Number of kilometres you drove
• Starting and ending odometer readings

If you drive to meet with clients or deliver your products, record those trips in your mileage log. Apps and spreadsheets can make tracking effortless.

Pro Tip: QuickBooks gives customers the ability to quickly sort their business trips and personal trips, making it easy to categorize them within the app.

Step 2: Determine eligible car expenses

There are many vehicle-related costs you can deduct, including:

• Fuel and oil
• Interest on a car loan
• Auto insurance premiums
• Licensing and registration fees
• Maintenance and repairs
• Car lease payments 
• Electricity for zero-emission vehicles
• Depreciation (also known as capital cost allowance, if you own the vehicle)
• Parking fees

For instance, if your annual fuel costs are $5,000 and your business-use percentage is 50%, you can deduct $2,500 ($5,000 x 50% = $2,500).

Step 3: Calculate the business-use portion

You can use your mileage log to determine the business use percentage. 

To illustrate, if 60% of your total kilometres driven are for work purposes, you can claim 60% of eligible car expenses. 

If your total car expenses are $10,000 for the year and 60% of your mileage was for business, you can deduct $6,000 ($10,000 x 60% = $6,000).

Step 4: File your claim accurately

When filing your taxes, use Form T2125, Statement of Business or Professional Activities for sole proprietors or self-employed individuals.

Based on your scenario, these are the sections you may need to fill out: 

• Chart A - Motor vehicle expenses
• Chart B - Available interest expense for (zero-emission) passenger vehicles
• Chart C - Eligible leasing cost for passenger vehicles 

Keep your receipts and mileage logs to support your claim. For instance, if you’re a freelance photographer visiting clients or attending industry events, those trips can be included in your deductions if they’re appropriately documented.

Owned vs. leased vehicle write-offs

Here are some key considerations if you’re debating whether to lease or buy a vehicle to run your business in Canada. 

Leasing a car 

If you lease a car, you can deduct a portion of your monthly lease payments based on the business-use percentage. For example, if your lease payment each month is $500 and your business use is 80%, you can deduct $400 per month ($500 x 80% = $400). 

Remember that the CRA caps annual deductible lease costs, so be sure to check the annual limits. For 2025, the maximum amount you can deduct is $1,100 per month, pre-tax, for new leases after January 1, 2025.

Owning a car

If you own your car, you can claim:

• The interest on your car loan, up to a specified limit. For 2025, the maximum you can deduct is $350 per month.
• Depreciation under capital cost allowance (CCA). This allows you to deduct a portion of the car’s purchase price annually. For instance, if your car cost $30,000 and the annual CCA rate is 30%, you could deduct up to $9,000 ($30,000 x 30% = $9,000) in the first year.

Common mistakes to avoid

Small and medium-sized businesses can prevent these common pitfalls when it comes to writing off a car as a business expense:

1. Failing to keep accurate records: Proper logbooks and receipts are critical to support your claims. Remember, for each trip, include the date, destination, reason, and number of kilometres you drove. Also, record your vehicle's odometer reading at the beginning and end of each fiscal period. 
2. Claiming 100% of expenses: This may trigger an audit unless your vehicle is exclusively for business. 
3. Overestimating business use: Use realistic calculations based on mileage logs. For instance, if you use your car for both personal and business purposes but claim 90% as business use without proper documentation, the CRA may reject your claim. 

Maximize your vehicle deductions 

Writing off vehicle expenses can save you significant money when you file your taxes. Understanding CRA regulations and maintaining detailed records can help you optimize your deductions while staying compliant. That’s why business owners and self-employed workers who accurately track their car expenses and mileage could save thousands of dollars each year.

Need help navigating the rules for claiming vehicle expenses for your business? QuickBooks Online simplifies this process with mileage tracking, helping you manage your expenses effortlessly and maximize your claims.