Can I write off my car for business in Canada?

The business-use percentage

Vehicle deductions are proportional. You total your business kilometres for the year, divide by total kilometres driven, and apply that percentage to your eligible vehicle costs. Drive 30,000 km with 18,000 for business, and 60% of your vehicle costs are deductible.

What counts as business driving: travelling between clients, to suppliers, to the bank, or to a temporary work site. What does not count: driving between your home and a regular place of business, which the CRA treats as personal commuting even if you work while you are there.

What costs you can include

Eligible operating costs, multiplied by your business-use percentage, include:

• Fuel and oil
• Insurance and licensing
• Maintenance and repairs
• Lease payments, subject to a monthly ceiling set by the CRA
• Interest on a loan to buy the vehicle, subject to a monthly cap
• Capital cost allowance if you own the vehicle, subject to a cost ceiling

Both lease costs and the capital cost of a purchased passenger vehicle are capped. Above the ceiling, the excess is simply not deductible, which is a deliberate limit on writing off luxury vehicles.

The logbook that survives a review

The logbook is the single most important document behind a vehicle claim. The CRA accepts a full-year log, or a representative three-month sample supported by a full base-year log, provided your usage pattern stays consistent.

Each business trip should record the date, destination, purpose and kilometres. Apps that log trips automatically are fine. Without a log, the CRA can reduce your claim to whatever it considers reasonable, which is invariably far less than an honest full claim would have been.

Owning through a corporation versus personally

If your corporation owns the vehicle and you use it personally, you face a taxable benefit: a standby charge for having the car available plus an operating benefit for personal-use costs the company pays. These can be significant and are added to your personal income.

For many owners with meaningful personal use, it is more efficient to own the vehicle personally and have the corporation reimburse business kilometres at a reasonable per-kilometre rate, which is tax-free to you and deductible to the company. We model both, because the right answer depends on your business-use percentage and the vehicle's cost.

The tax-free allowance alternative

Instead of tracking actual costs, a corporation can pay an employee or owner a reasonable per-kilometre allowance for business driving. If the rate is reasonable, the allowance is tax-free to the recipient and deductible to the company, and no benefit arises.

The CRA publishes prescribed rates each year as a guide to what counts as reasonable. This method removes the need to track every operating cost, though you still need the kilometre log to support the amount paid.