Navigating Auto Expense Deductions at Year-End: What You Need to Know

K Liu Accounting Services Inc.
4 days ago
2 min read

If you’re a small business owner, employee, or an entrepreneur, understanding how to handle vehicle expenses for tax time is key. With the end of the year approaching, it’s a good moment to review how auto expense deductions work — and how to make sure you’re claiming them correctly.

If you use a vehicle for work or business, you may be able to deduct some of those costs — but the allowable deductions depend on how you earn your income. The rules for salaried employees differ from those for self-employed individuals or incorporated businesses.

Employees: Tighter rules apply

If you’re an employee and you want to claim vehicle expenses, you must meet very specific criteria including, but not limited to:

· You must regularly work away from your employer’s place of business

· You have not received a non-taxable vehicle allowance

· You need proper documentation, including a signed Form T2200 (Declaration of Conditions of Employment) from your employer

You’ll also need to complete Form T777 (Statement of Employment Expenses) when you file your return. Keeping a detailed logbook is critical as CRA often reviews vehicle claims closely during audits.

Business owners / self-employed: More flexibility, more responsibility

If you’re self-employed or incorporated, you generally have more freedom to deduct vehicle costs — but you also carry more responsibility for keeping accurate records.

Deductible expenses can include:

· Fuel and maintenance

· Insurance and licensing

· Parking and tolls

· Lease payments or loan interest

· Capital Cost Allowance (CCA) — the tax deduction for vehicle depreciation

Keep in mind: there are maximums. For example, in 2025, a zero-emission vehicle has a cost limit of $61,000 + tax when calculating CCA. There are also caps on how much interest or lease costs you can deduct.

Logbooks and documentation: Your audit defence

The CRA expects you to keep a detailed logbook that records both business/work and personal use of the vehicle. The percentage of business/work-related use is then applied to total costs to determine your deductible portion. Without a logbook, your claim can easily be reduced during an audit.

Timing and planning: Don’t wait until December

Review your vehicle-use situation before year-end. This gives you time to update your logbook, decide whether to buy or lease, and ensure your documentation supports your deductions — helping you achieve the best possible tax outcome.

At K Liu Accounting Services Inc., we provide clear, professional support in tax preparation services, accounting and tax services, and small business bookkeeping. If you’re looking for a trusted tax accountant or business accountant near you, reach out through our LINK-IN-BIO for more information and services.