Self-Employed Vehicle Expenses in Canada: How the CRA Method Works (2026)

Short answer: If you are self-employed in Canada, you do not deduct a flat per-kilometre amount for your car. You deduct your actual vehicle costs (fuel, insurance, repairs, licence, interest, capital cost allowance) multiplied by your business-use percentage — that is, business kilometres divided by total kilometres driven in the year. To do this legally, the Canada Revenue Agency (CRA) requires a logbook. The well-known “reasonable per-kilometre rates” (72¢ for the first 5,000 km in 2025, 73¢ in 2026) are for tax-free allowances paid to employees, not for a sole proprietor’s own deduction.

This is the most misunderstood rule for freelancers and sole proprietors in Canada. This guide explains the CRA method in plain language, with a worked example, a records checklist, and an FAQ.

Do self-employed Canadians deduct a per-kilometre rate for their vehicle?

No. This is the core distinction.

• Self-employed / sole proprietor (you): You deduct a share of your real, receipted costs, reported on Form T2125, Statement of Business or Professional Activities, at line 9281 (motor vehicle expenses). The share is your business-use percentage.
• Employee with a per-km allowance: An employer can pay an employee a tax-free allowance based on the CRA “reasonable per-kilometre rates” set under section 7306 of the Income Tax Regulations. That is a payroll concept for employees. It is not the method a self-employed person uses to compute their own deduction.

So if you have read “just claim 72 cents a kilometre,” that advice is describing the employee allowance and does not apply to your business return. The CRA confirms the actual-expense method for sole proprietors on canada.ca under “Motor vehicle expenses” and “Completing Form T2125.”

How does the CRA actual-expense method work?

The formula the CRA uses is a simple ratio:

Deductible vehicle expense = Total eligible vehicle costs × (Business kilometres ÷ Total kilometres driven in the fiscal period)

You add up all your eligible running costs for the year, then keep only the business-use portion. Everything hinges on two numbers from your logbook: business km and total km.

Which vehicle costs can I include?

Cost type	Typically deductible (business portion)	Notes
Fuel and oil	Yes	Keep receipts
Insurance	Yes	Business portion only
Licence and registration	Yes
Maintenance and repairs	Yes
Leasing costs	Yes	Ceilings apply; verify on canada.ca
Interest on a vehicle loan	Yes	Monthly limit applies; verify on canada.ca
Capital cost allowance (CCA / depreciation)	Yes	For a vehicle you own; a passenger-vehicle cost ceiling applies
Parking for business trips	Yes	Deducted in full as a business expense, not pro-rated
Parking fines / traffic tickets	No	Never deductible

Note: Parking directly related to earning business income and supplementary business insurance are generally claimed separately and in full, not reduced by the business-use ratio. Confirm the current leasing, interest, and CCA ceilings on canada.ca, as the dollar limits are updated most years.

What does a worked example look like?

Assume a freelance photographer drove 20,000 km total in the year, of which 12,000 km were to earn business income. That is a 60% business-use ratio (12,000 ÷ 20,000).

Expense	Amount paid (year)
Fuel	$3,200
Insurance	$1,800
Repairs and maintenance	$1,100
Licence and registration	$120
Loan interest (within CRA limit)	$900
Total eligible costs	$7,120

Deduction = $7,120 × 60% = $4,272 claimed at line 9281 on the T2125.

Capital cost allowance on the vehicle (also at 60% business use, within the passenger-vehicle ceiling) would be calculated and claimed separately. Business-trip parking receipts are added on top in full.

What logbook does the CRA require?

A logbook is not optional — it is how you prove the business-use ratio. The CRA states that for each business trip you should record the date, destination, purpose, and number of kilometres, and record the odometer reading at the start and end of the fiscal period.

Two logbook options the CRA accepts

1. Full-year logbook: Record every business trip for the entire fiscal year. Most reliable.
2. Base-year + three-month sample: Keep a full logbook for one complete “base” year, then in later years keep a representative three-month sample. You can use the sample to estimate the full-year business use, provided your usage stays within about 10% of the base-year result. This is the CRA’s paper-burden-reduction option and is described on canada.ca under “Motor vehicle records.”

Vehicle records checklist

• Odometer reading on the first and last day of the fiscal period
• Date of each business trip
• Destination and business purpose of each trip
• Kilometres for each business trip
• Running total of business km and total km for the year
• Receipts for fuel, insurance, repairs, licence, interest, leasing
• Records kept for six years from the end of the tax year they relate to

Is commuting a business kilometre?

Generally, no. Driving between your home and a regular place of business is usually personal (commuting) kilometres. Trips to meet clients, pick up supplies, or travel between work locations typically count as business kilometres. If you run your business from a qualifying home office, the calculus can change — check the specifics on canada.ca or with an accountant.

How can Keel help with the logbook?

The CRA wants a contemporaneous, trip-by-trip record — and that is exactly what a mileage log is for. Keel: Invoice Maker & Receipts (by Ilura Technology) lets you log business trips and capture your receipts on your iPhone, stored encrypted on the device with no bank connection, no cloud, and no account. Your fuel and repair receipts and your trip records stay private on your phone, ready to support the numbers on your T2125.

Two honest notes so you use Keel correctly:

• Keel is currently US-centric. Its built-in mileage rate is the US IRS per-mile rate, and Keel does not compute the Canadian actual-expense deduction or GST/HST for you.
• Use Keel as your private logbook and receipt vault — the raw records (kilometres, dates, purposes, receipts). Then apply the CRA business-use ratio to your actual costs at tax time, or hand the records to your accountant.

Try Keel free (3 invoices/month plus unlimited receipts; Pro is roughly $7.99/month or $59.99/year USD — see the App Store for local pricing): Keel: Invoice Maker & Receipts on the App Store.

Frequently asked questions

Can I claim mileage instead of actual expenses if I am self-employed in Canada? No. Unlike some other countries, Canada does not offer sole proprietors a simplified flat-rate-per-kilometre deduction. You must use actual expenses multiplied by your business-use percentage, supported by a logbook. (The exception you may have heard of — the per-km “reasonable allowance” — applies to employees, not to your own business deduction.)

What is the 2025/2026 per-kilometre rate then, and when does it matter to me? For 2025 the CRA reasonable allowance rate is 72¢ for the first 5,000 km and 66¢ after (73¢ / 67¢ for 2026, higher in the territories). It matters if you pay an employee a vehicle allowance, or if you receive one as an employee. It does not set your sole-proprietor deduction. Verify current rates on canada.ca.

Do I need receipts, or is the logbook enough? You need both. The logbook proves the business-use percentage; the receipts prove the dollar amount of your costs. The CRA can disallow expenses you cannot support with records.

How long do I keep vehicle records? Generally six years from the end of the last tax year they relate to, per the CRA. Keep the logbook, odometer readings, and receipts.

Where does this go on my tax return? Motor vehicle expenses (excluding CCA) go on line 9281 of Form T2125. Capital cost allowance for the vehicle is calculated in the CCA section of the T2125. See “Completing Form T2125” on canada.ca.

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This article is general information, not tax advice. Consult a qualified accountant or tax professional.