You’re staring at Part 5 of your T2125 and the CRA is giving you two ways to deduct vehicle expenses. One of them could put thousands more back in your pocket. Pick wrong and you leave money on the table.
This is how to figure out which method wins for your situation.
The two methods
Every self-employed driver in Canada, whether you’re doing deliveries for DoorDash, driving for Uber, or running a mobile dog grooming business, gets the same choice on their T2125:
- Simplified method (flat rate per km): Multiply your business kilometres by the CRA’s prescribed rate. No receipts for gas or insurance needed.
- Actual expense method: Add up every real vehicle cost you paid, then multiply the total by your business-use percentage.
You pick one method per tax year. You can’t blend them.
Simplified method: how the math works
The CRA’s 2026 prescribed rates are $0.73/km for the first 5,000 business kilometres and $0.67/km for every kilometre after that.
Say you drove 28,000 km for business last year:
| Kilometres | Rate | Subtotal |
|---|---|---|
| First 5,000 km | $0.73/km | $3,650 |
| Remaining 23,000 km | $0.67/km | $15,410 |
| Total deduction | $19,060 |
That’s it. One calculation. You still need a mileage log to prove the 28,000 km, but you don’t need gas receipts, insurance statements, or maintenance invoices.
Actual expense method: how the math works
With the actual method, you gather every vehicle-related receipt from the year and total them up. Then you multiply by your business-use percentage, the share of your total driving that was for work.
A realistic example for a delivery driver with a 2022 sedan:
| Expense | Annual cost |
|---|---|
| Gas | $5,800 |
| Insurance | $1,800 |
| Maintenance and repairs | $2,200 |
| CCA (depreciation, Class 10 at 30%) | $2,250 |
| Parking (while working) | $500 |
| Total vehicle costs | $12,550 |
Now apply your business-use percentage. If you drove 28,000 km for business out of 35,000 km total, that’s 80% business use:
$12,550 x 80% = $10,040
Same driver, same year: the simplified method gives $19,060 and the actual method gives $10,040. That’s a $9,020 difference.
When each method wins
The simplified method doesn’t always come out ahead. It depends on how many kilometres you drive and how expensive your car is to operate.
| Scenario | Simplified wins? | Actual wins? |
|---|---|---|
| High mileage (25,000+ km), cheap-to-run car | Yes | |
| High mileage, expensive car (luxury, truck, EV lease) | Maybe | Maybe |
| Lower mileage (under 15,000 km), expensive car | Yes | |
| Lower mileage, cheap car | Toss-up | Toss-up |
| New or financed vehicle with large CCA/interest | Yes |
The pattern: if you rack up serious kilometres in a car that’s cheap to fuel and maintain, the flat rate per kilometre usually beats your actual costs. But if you drive fewer kilometres in a vehicle with high insurance, lease payments, or a big CCA claim, actual expenses often win.
A quick decision checklist
Not sure which method to use? Run through these:
- Do you drive more than 20,000 business km per year? The simplified rate stacks up fast at high mileage.
- Is your car paid off and cheap to run? Simplified probably wins, since your actual costs are low, but the per-km rate doesn’t care.
- Are you leasing, financing, or driving a newer vehicle? Actual expenses might win because you can claim CCA (depreciation) or lease costs, which the simplified method ignores entirely.
- Do you have all your receipts? If you lost track of gas and maintenance receipts, the simplified method is your fallback. It only needs the mileage log.
You need a mileage log either way
This is the part people miss. The CRA requires a mileage log regardless of which method you choose. Even the simplified method (which doesn’t need receipts) still needs you to prove how many kilometres you actually drove for business.
Your log should record the date, destination, purpose, and kilometres for every business trip. The CRA can (and does) deny vehicle deductions entirely when there’s no log.
For more on what the CRA expects from your logbook, see our vehicle expenses guide.
Can you switch methods year to year?
Yes. You’re not locked in. You can use the simplified method this year and switch to actual expenses next year if your situation changes.
One catch: if you’ve been claiming CCA (capital cost allowance) under the actual method, you need to keep tracking your vehicle’s undepreciated capital cost (UCC) even in years you use the simplified method. CCA has continuity rules, and the remaining balance carries forward and affects future claims if you switch back.
If you’ve never claimed CCA before and you’re using the simplified method, this doesn’t apply to you.
How this connects to your T2125
Part 5 of the T2125 is where you report motor vehicle expenses. You’ll see a section for calculating business-use percentage and listing individual expense categories (fuel, insurance, repairs, etc.). If you’re using the simplified method, you skip most of that and just report the flat-rate calculation.
If you’re filing for the first time, our freelance taxes guide walks through the full T2125 line by line. And if you’re a gig driver specifically, the ride-share and delivery tax guide covers the platform-specific details.
Let Accountly do the comparison for you
You shouldn’t have to run both calculations by hand and guess. Accountly tracks your mileage and receipts throughout the year and calculates both methods side-by-side automatically. When tax time comes, you see exactly which method saves you more, and you pick the winner with one tap.
Frequently asked questions
What is the CRA simplified mileage rate for 2026?
The CRA’s prescribed rate for 2026 is $0.73 per kilometre for the first 5,000 business kilometres and $0.67 per kilometre for every kilometre after that. These rates are meant to cover all vehicle operating costs including gas, insurance, and depreciation.
Can I use the simplified mileage rate if I’m a delivery driver or Uber driver in Canada?
Yes. Any self-employed individual who uses a vehicle for business, including gig workers, delivery drivers, and ride-share drivers, can choose either the simplified rate or the actual expense method on their T2125.
Do I need to keep a mileage log if I use the simplified rate?
Yes. The CRA requires a mileage log for both methods. The simplified rate eliminates the need for gas and maintenance receipts, but you still need to record the date, destination, purpose, and distance of every business trip.
What is CCA and how does it affect my vehicle deduction?
CCA (Capital Cost Allowance) is how you claim depreciation on your vehicle. Most passenger vehicles fall under Class 10 with a 30% declining-balance rate. CCA is only available under the actual expense method. The simplified rate already accounts for depreciation in the per-kilometre amount.
Which method is better for high-mileage gig workers?
For most high-mileage drivers using a paid-off or inexpensive car, the simplified method tends to produce a larger deduction. The flat rate per kilometre adds up quickly when you’re driving 25,000+ km per year, and it often exceeds your actual out-of-pocket vehicle costs.
Can I switch between the simplified rate and actual expenses from year to year?
Yes, you can switch methods each tax year. However, if you’ve claimed CCA under the actual method, you need to track your vehicle’s undepreciated capital cost (UCC) continuously, even during years you use the simplified method. This ensures CCA calculations stay accurate if you switch back.
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