You’re staring at Part 5 of your T2125 and trying to figure out how to deduct your vehicle expenses. The method you choose can make a real difference to your deduction, so it’s worth understanding the options.
This is how to think through which approach may fit your situation. Vehicle deduction rules are nuanced and change, so treat the examples below as illustrative and verify the current CRA rules — or check with a tax professional — before you file.
The two methods
DoorDash deliveries, Uber, a mobile dog grooming run — when you use a vehicle for self-employment, there are broadly two ways people think about deducting the cost:
- A per-kilometre approach (flat rate per km): Multiply your business kilometres by a prescribed per-km rate.
- Actual expense method: Add up every real vehicle cost you paid, then multiply the total by your business-use percentage.
Important caveat: for self-employed business vehicle use, the CRA generally expects you to deduct actual expenses (prorated by business-use percentage) on the T2125. The CRA’s flat per-kilometre rates are primarily intended for other situations — for example, medical and moving expense claims, and reimbursing employees through a tax-free allowance — not as a general substitute for tracking actual self-employed vehicle costs. Do not assume a simplified per-km method applies to your self-employment income. Verify the current CRA rules and confirm with a tax professional which method you’re actually entitled to use before you file. The per-km figures below are shown for illustration only and should not be treated as a confirmed option for self-employed business deductions.
The per-kilometre approach: how the math works
Note: the prescribed per-km rates below are the CRA’s published figures used in contexts such as employee allowances and medical/moving claims. They are shown here for illustration. They are not confirmed as a method self-employed people can use for business vehicle deductions on the T2125 — verify the current CRA rules or check with a tax professional before relying on this.
For illustration, the CRA’s published per-km rates have recently been around $0.73/km for the first 5,000 kilometres and $0.67/km for every kilometre after that. Confirm the current-year rates with the CRA.
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
Either way, you need a mileage log. The CRA requires it 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 per-kilometre rate?
The CRA publishes per-kilometre rates (recently around $0.73 per kilometre for the first 5,000 kilometres and $0.67 per kilometre after that) that are used in contexts such as employee allowances and medical/moving claims. These figures change yearly — verify the current rate with the CRA. Note that these rates are not a confirmed method for deducting self-employed business vehicle costs on the T2125.
Can I use a per-kilometre rate if I’m a delivery driver or Uber driver in Canada?
Not necessarily. For self-employed business vehicle use, the CRA generally expects you to deduct actual expenses prorated by business-use percentage on the T2125, rather than a flat per-km rate. Don’t assume the per-km method applies to your self-employment income — verify the current CRA rules and confirm with a tax professional which method you’re entitled to use.
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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