Vehicle Tax Deductions for Canadians 2025

Updated March 2025 • bremo.io

Vehicle expenses are among the most valuable deductions for self-employed Canadians and some employees. Whether you drive for client visits, deliveries, or business travel, a properly maintained logbook can translate into thousands of dollars in annual tax savings.

Who Can Claim Vehicle Expenses?

Self-Employed Individuals

If you use a vehicle for business purposes and are self-employed, you can deduct the business-use portion of all vehicle operating expenses and claim Capital Cost Allowance (CCA) on the vehicle itself.

Employees

Employees can claim vehicle expenses if:

• They were required to use their own vehicle for work (not commuting to a regular workplace)
• They did not receive a tax-exempt vehicle allowance from their employer (or received less than the CRA prescribed rate)
• Their employer completed and signed Form T2200

What Vehicle Expenses Can You Deduct?

2025 CCA Limits for Vehicles

The cost of a passenger vehicle you can write off is subject to a maximum:

Lease Payment Deduction Limits

For 2025, the monthly deductible limit for leasing a passenger vehicle is $1,050 + HST per month. This applies to the business-use portion of the lease payment. Luxury vehicles with higher payments are still limited to this amount.

Keeping a Logbook

Your logbook must record every business trip and include:

• Date of trip
• Destination (city or address)
• Business purpose
• Odometer reading at start and end
• Distance driven for the trip

Also record your total annual odometer readings (January 1 and December 31) to calculate the business-use percentage.

Business-use percentage = Total business km ÷ Total annual km

Simplified Logbook Method

Once you have maintained a full logbook for a complete base year, CRA allows a simplified approach in subsequent years: keep a logbook for a minimum representative 3-month period, then extrapolate if the usage pattern is similar. The base-year logbook must be kept on file.

CRA Mileage Rate (Allowance)

If your employer pays you a per-kilometre allowance instead of reimbursing actual expenses, the 2025 CRA prescribed rates are:

• $0.72/km for the first 5,000 km driven for employment purposes
• $0.66/km for each additional km
• Employees in the Northwest Territories, Yukon, and Nunavut receive an additional $0.04/km

Allowances paid at or below these rates are not taxable to the employee and not claimable as expenses. Allowances above these rates are taxable but the employee can then claim actual expenses.