Vehicle Expenses and the CRA Mileage Log: What Actually Holds Up

There are two entirely separate ways to get vehicle costs out of a Canadian business, and mixing them up is the most common error in this area. A self-employed person deducts actual costs multiplied by a business-use percentage. A corporation pays its employee or owner-manager a per-kilometre allowance at the prescribed rate. Both routes stand or fall on the same thing: a logbook.

The 60-second version

Self-employed: you cannot simply claim a per-kilometre rate. You claim actual vehicle costs multiplied by business kilometres over total kilometres.[2]
Incorporated: your company can pay you a tax-free per-kilometre allowance. The prescribed rate is 72 cents for the first 5,000 business kilometres and 66 cents after that, plus 4 cents per kilometre driven in Yukon, the Northwest Territories or Nunavut.[3]
The logbook is the claim. Date, destination, purpose and kilometres for every business trip, plus odometer readings at the start and end of the fiscal period.[1]
The simplified logbook is real and generous: keep one full year, then a three-month sample each following year, as long as business use stays within 10 percentage points of the base year.[1]
Three hard ceilings on expensive vehicles: capital cost capped at $38,000 plus sales tax, interest at $350 per month, and lease payments at $1,100 per month plus tax.[4]

The two routes, and why it matters which one you are on

This is the distinction that causes the most trouble, because the per-kilometre rate is widely quoted without saying who it applies to.

If you are self-employed - a sole proprietor or partner - you deduct your actual vehicle expenses, apportioned by use. Fuel, insurance, licence and registration, maintenance and repairs, interest on a vehicle loan, lease costs, and capital cost allowance all go into a pool, and you deduct the business-use fraction of it.[2] There is no option to skip the receipts and claim 72 cents a kilometre instead. That rate is not available to you as a deduction method.

If you are incorporated and are an employee of your own company - which is the position most owner-managers are in - the company can pay you a per-kilometre allowance for business use of your personal vehicle. Where the allowance is reasonable, it is deductible to the company and not taxable to you. Regulation 7306 sets the amount that is deductible to the payer for these purposes.[3]

The practical consequence: an owner-manager driving a personal vehicle on company business is very often better off billing the company mileage than trying to put the vehicle inside the corporation, because a company-owned vehicle available for personal use brings a standby charge and an operating expense benefit into their personal income. That is a bigger conversation than this article, but the mileage route avoids it entirely.

The prescribed per-kilometre rate

Regulation 7306 of the Income Tax Regulations builds the rate out of three components: 66 cents multiplied by business kilometres, plus a further 6 cents on the lesser of 5,000 and those kilometres, plus 4 cents per kilometre driven in Yukon, the Northwest Territories or Nunavut.[3]

Read plainly, that is:

72 cents per kilometre for the first 5,000 business kilometres in the year
66 cents per kilometre for every business kilometre after that
plus 4 cents per kilometre for territorial driving

These figures are set in the regulation and are reviewed periodically - they have moved most years. The consolidation these were read from is current to 17 June 2026. Check the regulation itself rather than a secondary source before you set your rate for a new year, because a stale rate paid as an allowance is either a taxable benefit to the employee or an under-payment to them.

One further point that catches people: an allowance is only non-taxable if it is based solely on kilometres driven. A flat monthly car allowance, or a per-kilometre allowance topped up with a flat amount, is taxable in the recipient's hands. Mixing the two ruins the treatment of both.

The logbook: what CRA actually asks for

CRA is unusually explicit here. The best evidence to support the use of a vehicle is an accurate logbook of business travel maintained for the entire year, showing for each business trip the destination, the reason for the trip and the distance covered.[1]

For each business trip, record:

Date
Destination
Purpose
Number of kilometres driven

And separately, for the vehicle itself: record the odometer reading at the start and at the end of the fiscal period. If you change vehicles during the period, record the date of the change and the odometer reading when you buy, sell or trade.[1]

If you use more than one vehicle for the business, keep a separate record for each, showing total and business kilometres and the cost to run and maintain each one. Each vehicle's expenses are calculated separately.[1]

Note what is doing the work in that list. Total annual kilometres is not optional - the deduction is a fraction, and without the denominator there is no fraction. Odometer readings at both ends of the year are what establish it. A logbook that records only business trips proves the numerator and leaves the rest to argument.

The simplified logbook

Keeping a full logbook forever is the part people quietly give up on, and CRA's answer to that is genuinely useful.[1]

Maintain a full logbook for one complete year to establish a base year's business use. After that, you can use a three-month sample logbook to project business use for the whole year, provided usage stays within the same range - within 10 percentage points - of the base year result. You have to be able to show that the base year remains representative of normal use.

The projection formula is:

(Sample year period % / Base year period %) x Base year annual % = Calculated annual business use

CRA's own example is worth reproducing exactly. An individual keeps a full 12-month logbook showing quarterly business use of 52/46/39/67 and annual business use of 49%. In a later year they keep a three-month sample for April, May and June showing 51%. In the base year, business use for those same three months was 46%. The calculation is (51% / 46%) x 49% = 54%. CRA would accept 54% as the annual business use for that year, absent contradictory evidence, because it falls within 10 points of the 49% base year - that is, it is not lower than 39% or higher than 59%.[1]

If the calculated figure falls outside that band, the base year is no longer an appropriate indicator. The sample logbook is then only reliable for the three months it covers, the rest of the year has to be supported by actual records, and you should consider establishing a new base year with a fresh 12-month logbook.[1]

One retention trap. Records generally have to be kept six years from the end of the tax year they relate to. But the full 12-month base-year logbook must be kept for six years from the end of the tax year for which it was last used to establish business use.[1] A base year established in 2020 and relied on through 2026 has to survive until the end of 2032, not 2026.

The three ceilings on expensive vehicles

A passenger vehicle above a certain cost is capped in three different ways, and the caps are set in Regulation 7307.[4] Figures below are from the consolidation current to 17 June 2026.

Capital cost. For an automobile acquired after 2024, the prescribed amount is $38,000, plus the federal and provincial sales taxes that would have been payable on a vehicle costing that much. Spend $70,000 on a car and your capital cost allowance is still computed on roughly $38,000 plus tax. The excess is simply never deductible.

Interest. Section 67.2 limits the interest deductible on money borrowed to buy a passenger vehicle, and the prescribed amount for an automobile acquired after 2023 is $350 per month.[5][4]

Lease payments. Section 67.3 caps deductible lease costs, and for a lease entered into after 2024 the prescribed amount is $1,100 per month, plus the sales taxes that would apply to a payment of that size.[6][4]

Each of those limits is keyed to when the vehicle was acquired or the lease was entered into, not to the current year. A vehicle bought in 2023 keeps the ceiling that applied then. This is why the regulation lists a decade of historical figures rather than a single number, and why quoting "the" limit without a date is usually wrong.

A related structural point: a passenger vehicle costing more than the prescribed limit goes into Class 10.1 rather than Class 10, and each such vehicle sits in its own separate class. That has real consequences on disposal - no recapture and no terminal loss on a Class 10.1 vehicle - which is a genuinely different outcome from an ordinary Class 10 asset.

Where this goes wrong

Claiming a per-kilometre rate while self-employed. The prescribed rate governs allowances, not deductions. A sole proprietor claiming 72 cents a kilometre with no expense records has claimed on a basis the Act does not provide.

Logging business kilometres but not total kilometres. The business-use percentage needs both. Odometer readings at the start and end of the fiscal period are the whole ballgame.

Treating the commute as business travel. Driving between home and your regular place of business is personal, however early you left. Trips from a place of business to a client, or between work locations, are business.

Using the three-month sample without ever having kept a base year. The simplified method is a shortcut that only exists on top of one complete year of full records. There is no shortcut to the shortcut.

Discarding the base-year logbook after six years. It runs six years from the last year it was used, not six years from the year it covers.

Paying a flat car allowance and calling it non-taxable. Only an allowance based solely on kilometres qualifies. A flat monthly amount is employment income.

Assuming this year's vehicle limits apply to an older vehicle. The caps attach to the year of acquisition or lease.

The bottom line

Vehicle expenses are one of the most commonly reviewed deductions in a small business return, and almost never because the amounts are wrong. They are reviewed because the supporting records do not establish the business-use fraction, and the fraction is the entire claim.

The cheapest possible insurance is one complete year of a real logbook. Do it properly once, establish a defensible base year, and the following years cost you three months of attention each. Skip it and you are negotiating a percentage with someone who has no reason to accept yours.

Frequently asked questions

What is the CRA mileage rate?

Under section 7306 of the Income Tax Regulations, the prescribed per-kilometre amount is 72 cents for the first 5,000 business kilometres in the year and 66 cents for each kilometre after that, with an additional 4 cents per kilometre driven in Yukon, the Northwest Territories or Nunavut. These figures are from the consolidation current to 17 June 2026 and are revised periodically, so check the regulation before setting a rate for a new year.

Can a self-employed person claim a per-kilometre rate instead of actual expenses?

No. The prescribed per-kilometre rate governs allowances paid by an employer, not deductions claimed by a self-employed person. A sole proprietor or partner deducts actual vehicle costs - fuel, insurance, licence and registration, maintenance, interest, lease costs and capital cost allowance - multiplied by business kilometres over total kilometres.

What does a CRA-acceptable vehicle logbook have to contain?

For each business trip: the date, the destination, the purpose of the trip, and the number of kilometres driven. Separately, record the odometer reading at the start and end of the fiscal period, and record the date and odometer reading whenever you buy, sell or trade a vehicle. If you use more than one vehicle for the business, keep a separate record for each.

How does the simplified logbook work?

Keep a full logbook for one complete year to establish a base year. In later years you may keep a three-month sample logbook and project it across the year, provided business use stays within 10 percentage points of the base year. The formula is (sample period % divided by base year same-period %) multiplied by base year annual %. If the result falls outside the 10-point band, the base year is no longer representative and you should establish a new one.

How long do I have to keep a vehicle logbook?

Records are generally kept six years from the end of the tax year they relate to. A full 12-month base-year logbook is different: it must be kept for six years from the end of the tax year for which it was last used to establish business use. A base year relied on for several subsequent years therefore has to be retained well beyond its own year.

How much of an expensive car can a business actually deduct?

Three separate ceilings apply, keyed to when the vehicle was acquired or the lease was entered into. For an automobile acquired after 2024 the capital cost is capped at $38,000 plus applicable sales taxes. Interest on money borrowed to buy a passenger vehicle acquired after 2023 is capped at $350 per month. Lease payments under a lease entered into after 2024 are capped at $1,100 per month plus applicable sales taxes.

Sources cited in this article

CRA - Motor vehicle records
Primary source for the full logbook requirements, the simplified three-month sample logbook, the 10-point tolerance, the projection formula, CRA's worked example, and the base-year retention rule.
https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/business-expenses/motor-vehicle-expenses/motor-vehicle-records.html
CRA - Motor vehicle expenses
Which vehicle costs are deductible and how business use is apportioned for a self-employed person.
https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/business-expenses/motor-vehicle-expenses.html
Income Tax Regulations, section 7306
The prescribed per-kilometre amounts: 66 cents, plus 6 cents on the first 5,000 kilometres, plus 4 cents for territorial driving.
https://laws-lois.justice.gc.ca/eng/regulations/C.R.C.,_c._945/section-7306.html
Income Tax Regulations, section 7307
The prescribed capital cost, interest and lease ceilings for passenger vehicles, listed by year of acquisition or lease.
https://laws-lois.justice.gc.ca/eng/regulations/C.R.C.,_c._945/section-7307.html
Income Tax Act, section 67.2 - Interest on money borrowed for passenger vehicle
The statutory limit on deductible interest for a passenger vehicle.
https://laws-lois.justice.gc.ca/eng/acts/i-3.3/section-67.2.html
Income Tax Act, section 67.3 - Limitation re cost of leasing passenger vehicle
The statutory limit on deductible lease costs for a passenger vehicle.
https://laws-lois.justice.gc.ca/eng/acts/i-3.3/section-67.3.html
Income Tax Act, section 230 - Records and books
The general obligation to keep records adequate to determine tax obligations, and the six-year retention period.
https://laws-lois.justice.gc.ca/eng/acts/i-3.3/section-230.html
CRA - T4002, Self-employed Business, Professional, Commission, Farming and Fishing Income
CRA's guide for unincorporated businesses, covering vehicle expense claims and capital cost allowance classes.
https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4002.html

All sources verified 2026-08-12. Spotted a link that has moved? Email support@mapleexpense.com and we will correct it.