Self-employed Canadians generally claim motor vehicle expenses using actual costs multiplied by the vehicle’s business-use percentage. The CRA’s automobile allowance rates are not a general simplified deduction method for sole proprietors filing Form T2125.
Calculate your business-use percentage
Keep a log of the kilometres you drive to earn business income and the vehicle’s total kilometres for the year. Your business-use percentage is:
Business kilometres / total kilometres x 100
If you drove 12,000 kilometres for business and 20,000 kilometres in total, your business-use percentage is 60%.
The CRA expects a record of each business trip’s date, destination, purpose, and distance. Record the odometer at the beginning and end of the fiscal period as well. Read the CRA motor vehicle expense guidance before filing.
Add your eligible vehicle expenses
Depending on your circumstances, eligible costs can include:
- Fuel and electricity
- Insurance
- Repairs and maintenance
- Licence and registration fees
- Eligible interest on money borrowed to buy the vehicle
- Eligible leasing costs
- Capital cost allowance for an owned vehicle
Keep receipts and statements. Limits can apply to interest, leasing costs, and the capital cost of passenger vehicles.
Parking fees and supplementary business insurance for a business trip may be deductible separately rather than being reduced by the general business-use percentage. Confirm the treatment that applies to your records.
Apply the percentage
Assume your eligible shared vehicle costs total $9,000 and your business-use percentage is 60%:
$9,000 x 60% = $5,400
The example is deliberately simple. Capital cost allowance, interest, leasing costs, parking, and reimbursements can require separate calculations.
Do not use the employer allowance rate as your deduction
The federal government publishes annual per-kilometre rates for reasonable automobile allowances paid by employers. Those rates do not replace the actual-expense calculation for a sole proprietor’s vehicle on Form T2125.
The same warning applies to per-kilometre rates used for medical and moving expense claims. A rate published by the CRA does not automatically make it available for self-employment vehicle expenses.
Keep the log even if you have every receipt
Receipts prove what the vehicle cost. Your mileage log establishes how much of those costs relates to earning business income. You generally need both.
Accountly can record trips, classify them as business or personal, and calculate your business-use percentage. Keep the supporting vehicle-expense records you will use with that percentage when preparing Form T2125.
Frequently asked questions
Is there a simplified mileage deduction for Canadian sole proprietors?
The CRA does not provide a general flat-rate mileage deduction that replaces actual vehicle expenses for sole proprietors. Use actual eligible expenses and the business-use percentage unless a qualified professional confirms that a different rule applies to your situation.
Can I use the CRA automobile allowance rate for DoorDash or Uber kilometres?
Not as a general T2125 deduction method. The published automobile allowance rates concern allowances paid by employers. Self-employed drivers generally calculate actual vehicle expenses using their business-use percentage.
What belongs in a mileage log?
Record the date, destination, business purpose, and distance of each business trip. Also retain the vehicle’s odometer readings at the beginning and end of the fiscal period.
Can I claim all my fuel costs?
Only the business portion is generally deductible when the same vehicle is used personally. Apply the business-use percentage to shared eligible costs and keep the supporting receipts.
Does Accountly calculate my final vehicle deduction?
Accountly tracks trips and reports your business-use percentage. Your final deduction also depends on eligible expenses, supporting records, vehicle type, ownership or lease terms, and applicable tax limits.
The information in this guide is for general informational purposes only and is not intended as accounting, tax, business, or legal advice. Accountly does not provide professional services or act as your accountant, tax advisor, or lawyer. No client relationship is created by your use of this material. Always seek advice from qualified professionals who understand your particular circumstances before acting on any information contained herein.