April 19, 2021

Car expense tax deductions for the self-employed


In this article, we'll go through the rules surrounding how to deduct your business-related car expense from your tax as a self-employed person in Canada, and explain how to calculate and keep track of tax-deductible mileage and related car expenses.

If you're an employer wanting to know the rules for reimbursing your employees, or an employee looking for a how-to on mileage reimbursement, you can instead check out our respective guides for employees and employers. If you happen to be both self-employed and an employee, you must keep separate records for each activity. In that case, we suggest you read both guides.

As a self-employed business owner, you can deduct car expenses accrued while doing business. If you use a car solely for business, you can deduct all the expenses related to operating the car. However, if you use the car for both personal and business travel, you can only deduct the cost of the business use. We'll get to how you can keep track of that later.

Before we get into the details, there are a few things you should be aware of: 

  1. If you don't read the specifics, you risk losing out on deductions or possibly burdening yourself with tedious work you'd rather not do. 
  2. Keep in mind that we are not tax specialists or the CRA, so be sure to check out the sources provided. We're just trying to help by providing an overview of self-employed mileage deductions. 

How do I calculate my mileage deductions?

In Canada, the primary way to calculate your business-related car expenses for tax deduction purposes is known as the logbook method.

The logbook method

The logbook method allows you to calculate your work-related car expense deductions by keeping track of your mileage and total car expenses in a logbook, whether that is a paper book or an app.
To work out the amount you can claim with this method, you must:

  • Keep a logbook.
  • Work out your business-use percentage by dividing the distance travelled for business by the total distance travelled.
  • Add up your total car expenses for the income year.
  • Multiply your total car expenses by your business-use percentage.

What is the best way to track my expenses?

You will need to record your:

  • Total distance driven for the year
  • Breakdown of business vs personal use
  • Expenses for the vehicle

According to the CRA, you can only deduct motor vehicle expenses when they are reasonable, and when you have receipts to support them. Deductible expenses include:

  • Licence & registration costs
  • Fuel & oil
  • Electricity (for zero-emission vehicles)
  • Insurance
  • Maintenance & repairs
  • Leasing costs
  • Interest on money borrowed to buy the motor vehicle 

To give as accurate a result as possible, we recommend keeping “timely” records - in other words, records taken at (or as close as possible to) the time of the trip or expense. Weekly diaries, logs, trip sheets, account books, or similar records are generally considered “timely”.

In addition, you need to be able to show the business vs. personal use of your vehicle as a percentage. That means keeping a trip log and then calculating the share used for business. See how to do the calculation in the section below.

In today's digital world, you can take advantage of a mileage tracking app to save a lot of time. Driversnote and other similar apps not only log your miles for you but also store and generate adequate records whenever you need them.

How to calculate your deduction and business usage share

Knowing the portion of a car's business use will help you figure out how much you can claim for depreciation and other costs of operating that vehicle. Let's go through a quick example: 

You've driven ten “personal” trips, each of which was 20 km. That totals 200 personal km (10*20 = 200).

During the same period, you've also driven three business trips that totaled 200 business km. 

To figure out your business use, divide your business kilometres by the total number of kilometres driven. In our example, you've used your car for business 50% of the time (200/400 = 0.5). 

Calculating your total deduction from there is simple: Multiply your expenses by the share of business kilometres. For example, if you had $500 of expenses, multiplying that by the share of business kilometres (0.5) means that your deductible business part of your car expenses is $250.

Which types of business transportation qualify for a deduction?

Using the logbook or actual cost methods, there's no upper limit to how many km you can claim a deduction for, as long as you drive them for business. There are a few more things to consider though, and we've compiled a brief list. 

Types of transportation that are considered business:

  • Travelling between two different places of work
  • Meeting clients and going on customer visits
  • Running errands for business

Types of transportation that are NOT considered business:

  • Commuting from your home to your place of work
  • Carrying tools does not necessarily make a commute a business trip
  • Displaying advertising on a car does not make driving it a business trip

Which cars or vehicles can I use?

The CRA has different rules for what expenses you can deduct, depending on what kind of vehicle yours is defined at. There are four primary types of vehicle:

  • motor vehicles
  • passenger vehicles
  • zero-emission passenger vehicle (ZEPV)
  • zero-emission vehicle (ZEV)

The rules on how your vehicle is defined can be found here.

One last question - how long do I need to keep any records for?

That’s a great question! The CRA requires that you keep records for any deductions that you are claiming for six years from the date you submit your tax return. Basically, this is to ensure that if they ask you to provide evidence to back up your claims, you will have that information ready and available for them. 

That's it for our guide on the basics of deducting mileage for self-employed in Canada. We hope we've been of assistance :)

Happy tracking! 

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This material has been prepared for general informational purposes only, and should not be taken as professional advice from Driversnote. You should consider seeking independent legal, taxation, or financial advice from a professional to check how this information relates to your own circumstances. Relevant laws also change from time to time.