Vehicle expenses are one of the most powerful deductions available to Canadian business owners — but they’re also one of the most misunderstood.

The CRA loves reviewing vehicle claims because most people do them wrong.

This post gives you the exact method Castle uses to keep clients safe, maximize deductions, and eliminate audit headaches.

Two Ways to Deduct Vehicle Costs in Canada

There are only two CRA-approved methods:

1. Actual Vehicle Expenses (Most Common)

You track every real cost associated with your vehicle and deduct the business-use portion.

This includes:

• fuel
• insurance
• repairs & maintenance
• oil changes
• tires
• car washes
• lease payments OR depreciation (CCA)
• registration
• parking

You calculate your business-use percentage using a mileage log, then apply that percentage to all the above items.

Example:
If your vehicle is 72% business use → you deduct 72% of all allowable costs.

2. Per-Kilometre Allowance Method

Only available if you’re an employee receiving a mileage allowance from your employer (or paying an employee).

Not relevant for most sole proprietors or incorporated owners.
Castle clients almost always use the Actual Expense Method.

The Mileage Log — Your Most Important Evidence

Without a mileage log, the CRA can (and often will) deny the entire vehicle deduction.

Your log must track:

• date
• starting odometer
• ending odometer
• total KM driven
• destination
• business purpose

Example entry:
“July 4 — 316 1 Ave NE to 2231 3 Ave NW — 14 km — weekly lawn service for Richard.”

Digital logs (MileIQ, QuickBooks, Driversnote) are perfectly acceptable.

What Counts as Business Mileage?

Business KM includes:

• driving to client homes or job sites
• trips to pick up supplies
• driving to a bank for business deposits
• going to networking events
• travel between multiple work locations

NOT included:

• commuting from home to your primary workplace
• personal errands
• driving to lunch on your own
• leisure driving before/after a business stop

What Vehicle Expenses Are Actually Deductible?

Here is the complete list:

1. Fuel

Gas or electricity (EV charglng).

2. Repairs & Maintenance

Oil changes, brakes, batteries, tires, alignment, engine work.

3. Insurance

Your annual or monthly premium.

4. Lease Payments

Subject to CRA monthly caps (usually around $900/month including taxes).

5. Depreciation (CCA)

If you own the vehicle rather than lease it.

Most vehicles fall under Class 10 or Class 10.1.
Luxury vehicles may fall under Class 54.

Castle maps this automatically for your year-end.

6. Registration & Licensing Fees

7. Parking (100% deductible)

Only when parking for business purposes.
Parking at the mall? Not deductible.

8. Vehicle Loan Interest

Up to CRA’s annual cap.

What Is NOT Deductible?

• speeding tickets
• parking fines
• car washes done for personal reasons
• accessories unrelated to business (e.g., subwoofers)
• vehicle payments for commuting
• buying a second vehicle “just to write it off”

How to Calculate Your Vehicle Deduction (Castle-Style)

1. Add up all vehicle costs for the year.
2. Determine your business-use percentage (based on a mileage log).
3. Multiply your total costs by the business percentage.

Example:
Total vehicle costs for the year: $12,200
Business use: 72%
Deduction: $8,784

If you lease or own multiple vehicles for business, each is calculated separately.

What Happens in an Audit?

The CRA will ask for:

• mileage log
• fuel receipts
• repair invoices
• insurance documents
• proof of lease or purchase
• odometer reading from Jan 1
• odometer reading from Dec 31

If even one piece is missing, they can lower or remove your deduction.

Castle keeps everything organized for you so you’re never scrambling.

EVs, Hybrids & Pickups — Special Notes

EVs

Electricity is deductible just like fuel.
Charging at home must be prorated based on business use.

Hybrids

Same treatment as gas vehicles — calculate costs normally.

Pickup Trucks

If it is solely used for business (e.g., a work truck with no personal use), the deductibility rules can be more generous.
But you must be able to prove exclusive business use.

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