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Last updated: April 2026 \u2014 figures reflect current CRA limits for the 2026 tax year.<\/em><\/strong><\/p>\n Access to a car can be crucial to running a small business effectively.\u00a0 Costs of ownership, however, can be high relative to your revenues, especially in the early stages when your business is not hugely profitable.\u00a0 Luckily, Revenue Canada (CRA) and Revenue Quebec (RQ) allow both unincorporated\/self employed individuals and owners\/employees of corporations, who use their cars to generate income, to deduct the relevant expenses. Both CRA and RQ provide detailed guidance and have specific rules relating to the write off of car expenses.\u00a0 I discuss some of the main provisions that impact small business owners in this article and provide guidance on the differences between unincorporated (self employed\/small business) owners and corporations.<\/p>\n If you purchase your car, the maximum amount eligible for capital cost allowance (CCA) is $39,000 + sales taxes<\/strong> for vehicles acquired on or after January 1, 2026. This ceiling was $38,000 for 2025, $37,000 for 2024, and $36,000 for 2023. CRA has been increasing this limit annually .<\/p>\n While you may not write off the full amount of the car purchase price as an expense in the year that you buy it, you are allowed to claim the capital cost allowance <\/a>on an annual basis. Capital cost allowance is essentially the term that CRA uses for depreciation rates. The CCA rate for passenger vehicles is 30%, applied annually to the declining balance. A car costing $39,000 or less (before tax) in 2026 falls into Class 10<\/strong>, while a car costing more than $39,000 falls into Class 10.1<\/strong>. In the first year of purchase, the half-year rule applies, meaning you can only claim 50% of the normal CCA amount.For subsequent years the deduction is 30% of the remaining balance after deducting CCA already taken and is referred to as the undepreciated capital cost or UCC.<\/p>\n Example of Car Purchase Tax Deduction (2026 figures):<\/strong><\/p>\n If you purchase a car for $35,000 (which falls under the $39,000 ceiling):<\/p>\n Year 1:<\/strong> $35,000 \u00d7 30% \u00d7 50% (half-year rule) = $5,250<\/strong><\/p>\n UCC at end of Year 1:<\/strong> $35,000 \u2212 $5,250 = $29,750<\/strong><\/p>\n Year 2:<\/strong> $29,750 \u00d7 30% = $8,925<\/strong><\/p>\n UCC at end of Year 2:<\/strong> $29,750 \u2212 $8,925 = $20,825<\/strong><\/p>\n Note that Year 2 CCA is higher than Year 1 since the half-year rule no longer applies.<\/p>\n See also my article on how to do the accounting for car expenses and reflect personal use<\/a>.<\/p>\n If you purchased your car after November 20, 2018 and it is available for use before 2028, it may qualify as Accelerated Investment Incentive Property (AIIP). This applies to both sole proprietors (reported on Form T2125) and corporations.<\/p>\n For cars purchased in 2026, AIIP suspends the half-year rule, meaning you can claim the full 30% CCA rate in Year 1 rather than the usual 15% (30% \u00d7 50%). Using the example above, a $35,000 car purchased in 2026 would have a Year 1 CCA of $10,500 ($35,000 \u00d7 30%) rather than $5,250 \u2014 doubling the first-year deduction.<\/p>\n Note that AIIP is in a phase-out period and will no longer be available for property acquired after 2027. The calculation method has also changed since 2023, so confirm the current rules with your accountant before filing.<\/p>\n Lease costs are generally deductible up to a maximum of $1,100 per month + sales taxes<\/strong> for new leases entered into on or after January 1, 2025 and 2026. This was $1,050\/month for leases entered into in 2024, $950 for 2023, and $900 for 2022. Note that the limit that applies is based on the year the lease was entered into<\/em>, not the year payments are made so if you signed your lease in 2024, your deduction limit is still $1,050\/month even in 2026. CRA’s full calculation method can be found here<\/a>.<\/p>\n There are a variety of f<\/a>actors to consider when deciding whether to lease or buy a car<\/a> that you should review. Significantly, a lease generally lasts for a shorter period and the car does not belong to you at the end of the lease period (although there is often a purchase clause) whereas with a purchased car (with or without financing), you usually own the car at the end of the financing period or outright if you pay for it upfront. The choice you make is often a lifestyle one and dependent on whether you prefer to replace your car regularly or are happy with the same car for a longer period. Also, the value of the car at the end of the financing term might contribute to your decision. <\/p>\n Cost relating your car that can be written off as expenses include:<\/p>\n The business owner should keep an automobile log of kilometres driven for business that includes:<\/p>\n name of customer, supplier or other business purpose, For example, if you drive to meet your accountant it would be considered to be deductible. <\/p>\n<\/li>\n odometer readings at the begining of the year and<\/u> at the end of the year<\/p>\n<\/li>\n # of kms driven for each trip relating to business, <\/p>\n<\/li>\n date of travel. <\/p>\n<\/li>\n<\/ul>\n It should be noted that when computing kilometres used for business purposes, travel from the home to your regular place of employment is not considered to be deductible. <\/u> If a business owner works out of their home office then any travel from the home office would be included in the number of kms driven and counted as business travel. If, as a business owner, you have a separate office that is not your home, then the same restriction applies regarding travel from your home to your business office not being deductible travel. <\/p>\n If you are considering purchasing an electric vehicle (EV) or plug-in hybrid with a battery capacity of at least 7 kWh for your business, these fall into CCA Class 54<\/strong> with a higher ceiling of $61,000<\/strong> (before tax) for 2026 \u2014 significantly more generous than the $39,000 cap for regular passenger vehicles.<\/p>\n Additionally, the federal Electric Vehicle Affordability Program (EVAP)<\/strong>, launched February 2026, replaced the previous iZEV incentive and provides purchase incentives for eligible zero-emission vehicles. If you are purchasing a vehicle in 2026, it is worth checking the current EVAP criteria at canada.ca<\/a> before making your decision.<\/p>\n Note: proposed legislation may allow 100% immediate expensing<\/strong> for zero-emission vehicles acquired between 2025 and 2029 \u2014 confirm the status of this with your accountant before filing, as it had not yet been fully enacted at the time of writing.<\/p>\n<\/div>\nGeneral Rules for Deductibility of Car Expenses (Both Incorporated and Unincorporated Businesses)<\/strong><\/h2>\n
What is the Maximum Cost Of Car That is Eligible for Tax Deduction<\/h3>\n
What is the Portion of The Car That You Can Expense (Capital Cost Allowance)<\/h3>\n
Example of Car Purchase tax Deduction (calculation of CCA):<\/h4>\n
Accelerated Investment Incentive Property (AIIP) \u2014 Note for 2026<\/strong><\/h4>\n
What is the Maximum Deductible Lease Cost <\/h3>\n
Should You Lease or Buy your Car<\/h3>\n
What Types of Costs Relating to your Car are Deductible<\/h3>\n
What is An Automobile Log and What Should Be Included<\/h3>\n
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Electric and Zero-Emission Vehicles (2026)<\/h3>\n