Mileage Made Simple

As a business owner in Canada, you likely use your personal vehicle for business purposes. Whether you’re meeting clients, making deliveries, or running business errands, these activities can add up to significant mileage and vehicle expenses. Claiming these expenses on your taxes can provide valuable deductions, but it’s important to understand how to manage this effectively. Here’s a guide to help you navigate the process.

Claiming Vehicle Expenses for Sole Proprietorships

Percentage Allocation:

As a sole proprietor, you can claim the business portion of your vehicle expenses directly on your income tax return. Here’s how it works:

• Track Total Kilometers: Keep a detailed log of your total kilometers driven for both business and personal use.

• Calculate Business Percentage: Determine the percentage of kilometers driven for business purposes compared to the total kilometers driven in the year.

• Track the expenses: keep the receipts for all the following expenses.

  • Fuel

  • Maintenance and repairs

  • Insurance

  • Registration

  • Lease Interest

• Apply to Expenses: Apply this percentage to your total vehicle expenses to calculate the amount you can deduct. For example, if 60% of your total kilometers were for business, you can deduct 60% of your vehicle expenses.

Claiming Vehicle Expenses for Corporations

Employee Reimbursement Method:

If you are an employee of your corporation, you can be reimbursed for business-related trips using your personal vehicle. The corporation can then deduct these reimbursements as business expenses. Here’s how to manage this method:

• Track Business Mileage: Maintain a detailed log of your business trips, similar to the method for sole proprietors.

• Submit Mileage Reports: Regularly submit mileage reports to your corporation for reimbursement.

• Use CRA Prescribed Rates: The CRA provides prescribed rates for mileage reimbursement. For 2026, these rates are 73 cents per kilometer for the first 5,000 kilometers driven and 67 cents per kilometer thereafter.

Taxable Benefit Method:

Alternatively, the corporation can provide you with a vehicle, and you will be taxed on the personal use portion as a taxable benefit. The corporation will:

• Claim Full Vehicle Expenses: The corporation claims the full vehicle expenses as business expenses.

• Report Personal Use: Report the personal use portion as a taxable benefit on your T4 slip.

This is generally a bad idea for most small corporations and is only viable under very specific circumstances. Tread carefully here!

Best Practices for Managing Vehicle Expenses

We highly recommend using a digital mileage tracker. There are several options on the market that work well, but we find that MileIQ works best for our clients. It's a simple phone app that runs in the background, and it tracks whenever your phone exceeds a certain speed to predict when you're travelling in a vehicle. It then stores all those trips for you to review at a later date, along with maps showing exactly where you went. All you have to do is review the trips and swipe left for personal trips and swipe right for business trips. The app will even automatically apply the CRA-prescribed mileage rates to ensure you get the maximum benefit if you are using the reimbursement method.

Claiming the business use of your personal vehicle can lead to substantial tax savings, but it requires diligent record-keeping and an understanding of CRA guidelines. By following these tips and keeping detailed records, you can confidently navigate the process and make the most of your deductions.

For personalized advice tailored to your specific situation, feel free to contact our team of experts. We’re here to help you manage your finances efficiently and maximize your tax benefits.