A vehicle you drive for the business costs money all year, and part of that cost comes off your business income. On Form T2125, it goes on line 9281, Motor vehicle expenses (not including CCA).
If you use a motor vehicle or passenger vehicle for business and personal use, you can deduct only the part of the expenses that you paid to earn income. That is what makes this line different from the others: you enter what the vehicle cost, and Chart A on the form works out the business part.
What belongs here
The operating costs of a motor vehicle you use to earn business income:
- fuel
- insurance
- licence and registration
- maintenance and repairs
- lease payments, which are capped for a passenger vehicle
- interest on a loan to buy the vehicle, which is also capped
Two costs are deductible in full, outside the business-use ratio: parking fees related to your business activities, and supplementary business insurance for your motor vehicle or passenger vehicle.
What does not belong here
Capital cost allowance on the vehicle. The vehicle itself is depreciable property, and its cost comes off over several years through capital cost allowance (CCA) on line 9936 — never inside this line, which is why the CRA titles it "not including CCA".
A fare you paid to be driven. A taxi, a bus, a train, a ride-hailing trip: those are public transportation fares and belong with travel expenses on line 9200. This line is about a vehicle you run yourself.
Vehicle costs of a partner's personal vehicle. If you are a member of a business partnership and you incur motor vehicle expenses for the business through the use of your personal vehicle, you claim them on the partnership line for other amounts deductible from your share of the net partnership income or loss, not here.
The ratio, and the alternative
To support the amount you can deduct, keep a record of the total kilometres you drive and the kilometres you drive to earn income. Those two numbers give the business share that Chart A applies to the year's costs.
If you use the vehicle only occasionally for business, you can claim on a per-trip basis instead. A daycare taking the children on an excursion, paying for fuel and parking that day, is the CRA's own example.
Two caps sit inside the calculation and are keyed to dates rather than to anything on your receipts. Interest on a loan to buy a passenger vehicle is capped at a daily amount that depends on when the vehicle was bought (Chart B). Leasing costs for a passenger vehicle are capped by monthly limits that depend on when you entered into the lease, with a proration based on the manufacturer's list price (Chart C). Both are worked out when you file, from the loan or lease agreement.
What to keep
The kilometre log is the record this line stands on. Keep it through the year: the total kilometres driven, and the kilometres driven to earn income. The CRA's page on motor vehicle records sets out what the log has to show.
Alongside it, keep the receipts and statements for everything the vehicle cost — fuel, servicing, insurance, licence and registration, parking, and the loan or lease agreement.
Don't send them in with your return. Keep them in case the Canada Revenue Agency (CRA) asks to see them. Business records follow the same six-year retention rule as your personal documents.
Official CRA sources
Source: Canada Revenue Agency (canada.ca). Not tax advice.