Can You Claim Vehicle Expenses for Your Business?

Short answer: Yes if you use your vehicle to earn business income, you can usually deduct a portion of your vehicle costs on your tax return.

In this post, I’ll walk you through steps on how to get organized so you’re “audit-ready” under CRA rules for Canadian small businesses.

What Counts as Business-Related Driving?

Some common examples of business-use of a vehicle include:

• Driving to client or customer meetings

• Business errands (e.g., buying supplies, going to the bank for business deposits)

• Driving to a networking event, conference, or other business meeting

Step 1: Create a Logbook

Your logbook is your mileage “journal.” Its main job is to show how many kilometres you drove for business during your fiscal year, compared to your total kilometres.

Here’s what you should record:

• Odometer reading at the start and end of your fiscal period

• For each business trip:

  • Date

  • Destination

  • Purpose of the trip

  • Kilometres driven

You can keep this on paper, in a spreadsheet, or with a mileage-tracking app.  CRA doesn’t care about the format, only the details.

Step 2: Keep Receipts and Invoices to “Audit-Proof” Your Claim

Your logbook supports the kilometres. Your receipts support the dollars.

Examples of helpful supporting documents:

• Gas, maintenance, insurance, registration, and repair receipts

• Invoices or receipts from client meetings (e.g., coffee meeting with a client)

• Receipts for supplies you drove to pick up

If you’re audited, CRA can deny expenses that aren’t supported by receipts, even if the driving was legitimate.

Pro tip:
Create a simple process to capture receipts digitally (photo + cloud folder, or an app connected to your bookkeeping software). Losing receipts means you may lose the deduction, despite all the work you put into your logbook.

Step 3: Track All Vehicle-Related Expenses

Once you know your business kilometres, you’ll need the total vehicle costs for the year.

Here are some categories CRA allows you to claim a portion of when they relate to business use:

• Fuel and oil

• Interest on money borrowed to buy the vehicle used for business

• Insurance

• License and registration

• Maintenance and repairs

• Leasing costs

• Electricity for zero-emission vehicles

Keep these expenses organized in your bookkeeping system so it’s easy to total them at year-end.

Step 4: Calculate Your Business-Use Percentage

This is the key step that ties everything together.

Here’s the formula:

Business-use % = Business kilometres ÷ Total kilometres driven

Then:

Deductible vehicle expenses = Business-use % x Total vehicle expenses

Example:

• 10,000 km business ÷ 25,000 km total = 40% business use

• $8,000 total vehicle expenses x 40% = $3,200 deductible as business motor vehicle expenses

Tax tip:
Even if you have mixed business/personal use, you can normally deduct 100% of:

• Parking fees related to your business activities, and

• Supplementary business insurance on your vehicle.

FAQs

1. My vehicle is jointly owned. Does that affect my deduction?

Joint ownership by itself doesn’t prevent you from claiming vehicle expenses. You can still claim the business portion based on your business-use percentage.

However:

• If the other owner uses the vehicle a lot for personal reasons, your business-use percentage will naturally be lower, which means a smaller deduction.

2. How long do I need to keep my mileage records?

Generally, CRA requires you to keep tax records (including logbooks and receipts) for 6 years from the end of the tax year they relate to.

3. Do I need proof of every odometer reading?

CRA requires you to record your odometer at the beginning and end of each fiscal period, and to track kilometres for each business trip.

You’re not required to have a photo every time, but I recommend:

• Taking a photo of your odometer at the start and end of each fiscal year

• Saving those photos with the date

It’s a simple way to add another layer of proof if CRA ever reviews your claim.

Final Thoughts

Claiming vehicle expenses can be a great way to reduce your taxable income, as long as your records are clean and consistent.

If you’re not sure how “audit-ready” your vehicle records are, I’m happy to help you get organized so tax time feels a lot less stressful.