If you use a vehicle to earn income in Canada, four numbers cap what you can claim in 2026: $39,000 of a passenger vehicle's cost can be depreciated, $350 a month of loan interest, $1,100 a month of lease cost, and 73 cents per kilometre is the most an employer can reimburse tax-free for the first 5,000 km. They apply per vehicle, before sales tax, and only to the share of driving that is actually for work.
The 2026 vehicle limits at a glance
The Department of Finance sets these every January. Two changed for 2026, two did not.
| What it limits | 2026 figure | Applies to |
|---|---|---|
| Cost you can depreciate — passenger vehicle | $39,000 before tax (up from $38,000) | Vehicles bought on or after 1 January 2026 |
| Cost you can depreciate — zero-emission passenger vehicle | $61,000 before tax (unchanged) | Vehicles bought on or after 1 January 2026 |
| Loan interest | $350 per month (unchanged) | Loans entered into on or after 1 January 2026 |
| Lease cost | $1,100 per month before tax (unchanged) | Leases entered into on or after 1 January 2026 |
| Tax-free allowance an employer can pay | 73¢/km for the first 5,000 km, then 67¢ (77¢ and 71¢ in the territories) | 2026 calendar year |
| Taxable benefit when the employer's vehicle is driven personally | 34¢/km (31¢ for people who sell or lease vehicles) | 2026 calendar year |
All of these come from the 2026 automobile deduction limits announced on 14 January 2026.
Who the limits apply to
They follow the vehicle, not the taxpayer, so the same ceilings apply whether you are self-employed, filing through a corporation, or an employee claiming vehicle costs.
- Self-employed: you claim actual costs on form T2125, multiplied by your business-use share of the kilometres driven.
- Corporations: the corporation claims the costs, within the same ceilings, and personal use of a company car creates a taxable benefit for the driver.
- Employees: only if your employment contract requires you to pay your own vehicle costs and your employer signs form T2200. Most employees cannot claim vehicle expenses at all — see the CRA's line 22900 guidance.
In every case the deduction is the business share. Drive 20,000 km in a year and 15,000 of them for work, and three quarters of the eligible costs are claimable — which is why the logbook matters more than any of the ceilings.
Buying: the $39,000 depreciation ceiling
A passenger vehicle is depreciated through capital cost allowance, and the cost you may enter is capped at $39,000 before GST/HST for a vehicle bought in 2026. Buy a $70,000 SUV for the business and the tax system treats it as a $39,000 vehicle: the rest is simply not deductible, ever, in any year.
Two things decide how much you actually write off each year — which class the vehicle falls into, and the rate that class carries. A vehicle used in a daily rental business, for example, usually sits in a different class at a higher rate than the one most owners assume. Our guide to CCA vehicle classes in Canada walks through Class 10, 10.1, 16 and 54 and shows which one applies.
Borrowing: $350 a month of interest
Interest on a loan taken out to buy a vehicle used for business is deductible, but for a passenger vehicle the CRA caps it. The limit is the lesser of the interest you actually paid and $350 ÷ 30 × the number of days in the fiscal period the loan was outstanding. A full calendar year works out to $4,258.
The cap is applied before the business-use share, not after, and it is per vehicle. The CRA sets out the calculation, with a worked example, on its motor vehicle interest page. If you are wondering whether loan interest is deductible at all in your situation, our article on when loan interest is tax deductible in Canada covers the purpose test that decides it.
Leasing: $1,100 a month
Lease payments on a passenger vehicle are capped at $1,100 a month before tax for a lease signed on or after 1 January 2026. For a more expensive vehicle the deductible amount can be lower still: the CRA's Chart C compares the lease payments against a second calculation based on the vehicle's list price, and you claim the lower figure. The leasing costs page has the chart.
Insurance and maintenance are usually billed separately from the lease and are claimed as ordinary vehicle expenses, not as part of the capped lease charge.
Mileage: what 73 cents actually is
This is the most misread number of the six. The 73 cents per kilometre is the most an employer can pay an employee tax-free for business driving in their own vehicle — it is not a rate a self-employed person can multiply by their kilometres and deduct.
- If you are self-employed, you deduct real costs — fuel, insurance, repairs, licence, interest or lease within the caps above, plus depreciation — times your business-use share. There is no per-kilometre shortcut.
- If you are an employee paid an allowance at or below the prescribed rate, the allowance is not taxable and you claim nothing further.
- If the allowance is unreasonably low, it can be included in your income so that actual expenses may be claimed instead, provided the T2200 conditions are met.
What the CRA expects you to keep
Every one of these deductions rests on the business-use percentage, and that number has to be supported. Keep the odometer reading at the start and end of the fiscal period, and a log of each business trip with the date, destination, reason and distance. Receipts for fuel, repairs, insurance and the loan or lease statements belong with it. The six-year record keeping rule applies to all of it.
Frequently Asked Questions
What is the maximum vehicle cost you can depreciate in Canada in 2026?
$39,000 before GST/HST for a passenger vehicle bought on or after 1 January 2026, up from $38,000 in 2025. For a zero-emission passenger vehicle the ceiling is $61,000. Anything paid above the ceiling is not deductible in any year.
Can you claim car loan interest on your taxes in Canada?
Only for the business use of the vehicle, and only up to a ceiling: the lesser of the interest actually paid and $350 ÷ 30 × the days the loan was outstanding, which is $4,258 for a full year. Interest on a car used for personal driving is not deductible. Employees need a signed T2200 and a contract requiring them to pay their own vehicle costs.
What is the 2026 mileage rate in Canada?
73 cents per kilometre for the first 5,000 kilometres and 67 cents after that, or 77 cents and 71 cents in the territories. That is the limit on what an employer can reimburse tax-free, not a deduction rate for the self-employed, who claim actual costs instead.
Is it better to lease or buy a vehicle for tax purposes?
Neither is automatically better. Leasing gives a monthly deduction capped at $1,100 before tax; buying gives depreciation on a cost capped at $39,000 plus interest capped at $350 a month. Which produces the larger deduction depends on the price of the vehicle, how long you keep it, and how much of the driving is for business — it is worth running both before signing.
Do these limits apply to a work truck or van?
Not always. The ceilings apply to what the Income Tax Act calls a passenger vehicle, and certain pickups and vans used almost entirely to transport goods, equipment or passengers in the course of the business fall outside that definition — in which case the cap does not bite. It is worth checking the vehicle's classification before assuming either way.
Vehicle claims are one of the first things a CRA reviewer asks about, and most of the risk is in the logbook rather than the ceilings. If you run vehicles in the business — a fleet, a rental operation or a single car used for client visits — our car rental and fleet accounting service keeps the mileage, the classes and the caps straight through the year, or you can book a free consultation to talk it through.