Vehicle Expenses for Small Business Owners: Getting It Right

Vehicle expenses are a significant cost for many small business owners — fuel, insurance, maintenance, and the vehicle itself represent real money spent in the course of earning business income. The deduction available for these costs is genuinely valuable, but it depends on something many business owners do not maintain consistently: a record of business versus personal use.

What Counts as "Business Use"

Driving from home to a regular place of business is generally considered personal use (commuting), not business use — this is true even for self-employed individuals. Business use includes travel between job sites or client locations, travel to meet with clients or suppliers, trips to purchase business supplies, and similar activities directly connected to earning business income. For someone whose home is their principal place of business, travel from home directly to a client’s location may be considered business use from the outset of the trip — this is one of the reasons the home office deduction (discussed in our companion article) and vehicle expense deduction can interact.

The Logbook

A logbook records, for each trip (or at minimum, in a way that allows the total to be reconstructed): the date, destination, purpose, and kilometres driven. At year-end, the total business kilometres divided by total kilometres driven for the year gives the business-use percentage, which is then applied to total vehicle expenses for the year.

The CRA has, in the past, also accepted a simplified approach for some taxpayers: maintaining a full logbook for one complete year to establish a "base year" usage pattern, then maintaining a simplified log in subsequent years (typically a sample period, such as one month per quarter) to demonstrate that the usage pattern remains consistent with the base year. This can reduce the ongoing administrative burden, but still requires the initial full-year logbook and ongoing simplified tracking — it does not eliminate record-keeping altogether.

Eligible Vehicle Expenses

Expense	Treatment
Fuel and oil	Deductible at the business-use percentage
Insurance	Deductible at the business-use percentage
Maintenance and repairs	Deductible at the business-use percentage
License and registration fees	Deductible at the business-use percentage
Loan interest (if vehicle financed) or lease payments	Deductible at the business-use percentage, subject to certain monthly limits for higher-cost vehicles
Capital cost allowance (if vehicle purchased, not leased)	Depreciation claimed over time at the business-use percentage, subject to vehicle cost limits for certain vehicle classes

Capital Cost Allowance and Vehicle Cost Limits

For purchased vehicles, the cost is not deducted all at once but depreciated over time through capital cost allowance (CCA), at prescribed rates depending on the vehicle class. For passenger vehicles above certain cost thresholds, there are limits on the amount that can be used as the basis for CCA calculations — meaning that for higher-cost vehicles, the full purchase price may not be fully deductible even over time. These thresholds are adjusted periodically, and the specific limit applicable depends on the vehicle type and the year of purchase.

Should You Buy the Vehicle Personally or Through the Business?

For incorporated business owners, a common question is whether a vehicle should be purchased and owned by the corporation, or owned personally with business-use expenses claimed (or reimbursed by the corporation based on a per-kilometre rate). Each approach has different implications:

• Corporate ownership: The corporation claims CCA and operating expenses (subject to the business-use percentage if there is also personal use), but personal use of a corporate vehicle by a shareholder-employee can create a taxable benefit that needs to be calculated and reported — this taxable benefit calculation has its own specific rules and can be more complex than it initially appears.
• Personal ownership with per-kilometre reimbursement: The individual owns the vehicle personally, and the corporation reimburses business-use kilometres at the CRA’s prescribed rate (updated periodically) — this reimbursement is generally not taxable to the individual and is deductible to the corporation, and avoids the taxable benefit calculation associated with corporate ownership, but means the corporation does not directly own or depreciate the vehicle.

Which approach is preferable depends on factors including the vehicle’s cost, the proportion of business versus personal use, and how long the vehicle will be used — this is a calculation worth running through for a specific situation rather than assuming one approach is universally better.

Common Mistakes

Claiming a Round Percentage Without Support

Claiming "80% business use" or a similar round figure, without a logbook or other record supporting that specific percentage, is one of the most common issues if a vehicle expense claim is reviewed. The percentage needs to come from somewhere — an actual calculation based on recorded kilometres — not an estimate.

Treating Commuting as Business Use

As noted above, travel from home to a fixed regular workplace is generally personal use. For business owners whose home is not their principal place of business (they have a separate office or shop, for example), the drive from home to that location each day is commuting, not business travel — even though the destination is "the business."

Not Tracking From Day One

Logbooks are most useful, and most credible, when maintained contemporaneously — recorded at or near the time of each trip, rather than reconstructed at tax time from memory or calendar entries months later. A simple notebook kept in the vehicle, or a phone app designed for this purpose, makes contemporaneous tracking considerably easier than after-the-fact reconstruction.