Quick answer
Buying a business vehicle in Canada runs through capital cost allowance: passenger vehicles are capped at $39,000 (2026 acquisitions) in Class 10.1 at 30% declining balance, zero-emission cars at $61,000 in Class 54. Leases are capped at $1,100 a month and loan interest at $350 a month. Everything then scales by the business-use percentage from the kilometre log, including the GST/HST input tax credits.
Is a vehicle tax deductible in Canada?
Yes, through a system of ceilings that exists to stop luxury metal being written off against tax. The purchase is capital, relieved through capital cost allowance (CCA) rather than expensed. The class matters: a passenger vehicle (most cars, and SUVs or pickups used substantially for personal driving) costing over the ceiling lands in Class 10.1 with its cost capped, $39,000 before tax for 2026 acquisitions, $38,000 for 2025 ones. Vehicles at or under the ceiling sit in Class 10, and zero-emission passenger vehicles get their own Class 54 with a $61,000 ceiling and, historically, enhanced first-year rates. Both main classes run at 30% declining balance, with the first-year half-rate convention where it applies.
Financing follows the same philosophy: lease payments deduct up to $1,100 a month before tax for leases from January 1, 2026, and loan interest up to $350 a month. Running costs (fuel, insurance, repairs, licence) have no ceilings, only the business-use percentage. That percentage, business kilometres over total kilometres from the log, multiplies through every figure on the page.
How much can you claim?
Worked example: a consultant buys a $54,000 gas SUV in March 2026, used 65% for business per her log. It is a passenger vehicle over the ceiling, so the Class 10.1 cap drops the CCA base to $39,000. Year-one CCA at 30% (half-rate in year one where applicable, 15%) is $5,850, and 65% of that, $3,803, is deductible. Had she bought a $54,000 electric car instead, the full cost would fit under the $61,000 Class 54 ceiling.
| 2026 limit | Amount (before tax) |
|---|---|
| Class 10.1 passenger vehicle CCA ceiling | $39,000 (acquisitions from Jan 1, 2026) |
| Class 54 zero-emission ceiling | $61,000 |
| Lease cost cap | $1,100/month (new leases from Jan 1, 2026) |
| Loan interest cap | $350/month |
The fuel and other running costs stack on top at the same business percentage.
GST/HST on vehicles
A registrant’s input tax credit on a passenger vehicle is capped alongside the CCA ceiling: tax embedded in cost above $39,000 is not recoverable, and the claim scales with business use. The provincial rate decides the dollars: 13% HST in Ontario, 15% in the Atlantic provinces, 5% GST in Alberta, GST plus QST in Quebec. Lease ITCs follow the capped lease amounts. Trucks and vans in Class 10 escape the vehicle caps and claim ITCs on the business share of full cost.
Record-keeping requirements
Keep the purchase or lease agreement, financing schedule, the kilometre log and odometer readings, and every running-cost receipt, for six years. The CCA schedule lives as long as the vehicle does, because Class 10.1 has its own disposal quirks: no terminal loss on sale, and a half-year of CCA allowed in the year of disposal. A vehicle switching between business and personal use mid-life also needs the change documented.
How to claim, step by step
- Classify the vehicle: passenger vehicle over the ceiling (Class 10.1, capped), under it (Class 10), zero-emission (Class 54), or a work truck or van (Class 10).
- Establish the business-use percentage with a full-year kilometre log.
- Compute CCA on the capped or actual cost at 30%, and apply the business percentage.
- Deduct lease or interest costs within the monthly caps, again at the business percentage.
- Claim ITCs on the business share, respecting the passenger-vehicle cap, at your province’s rate.
- Report it all on T2125 (self-employed) or the corporate return, and keep records six years.
Common mistakes
- Taking CCA on the full price of a car above the ceiling.
- Claiming lease payments above the monthly cap because the lease is “all business”.
- Treating a personal-use SUV as a Class 10 work vehicle.
- Claiming a terminal loss on a Class 10.1 disposal, which the class does not allow.
- Forgetting the business percentage on the interest and lease caps.
Software that helps
- MileIQ maintains the kilometre log that sets the percentage everything else multiplies by.
- ExpenseFlow captures the purchase documents and running costs, applies the provincial GST/HST treatment to the business share, flags vehicle spend for apportionment, and syncs approved transactions to Xero or QuickBooks.
- QuickBooks fixed-asset tracking carries the CCA schedule through to disposal.
FAQ
See the answered questions above for the 2026 ceilings, lease and interest caps, classes, ITCs, and business use.
From ExpenseFlow
GST/HST coding on autopilot
ExpenseFlow reads every receipt, assigns the right GST/HST treatment and account code, and syncs to Xero or QuickBooks Online once you approve.