How to Pay GST/HST Your Alberta Small Business Owes

Vehicle expenses are one of the most commonly claimed, and most commonly disputed, deductions in Canada. Whether you drive to client meetings, job sites, supplier locations, or other business destinations, the costs of operating your vehicle are legitimately deductible against your business income. But the CRA has strict rules about what qualifies, and the cornerstone of any vehicle expense claim is a proper mileage log.

Get it right and you could be deducting thousands of dollars per year. Get it wrong, or fail to have documentation at all, and you’ll lose the deduction entirely in an audit and potentially face penalties.

This guide explains exactly what CRA requires, how to maintain a compliant mileage log, and how to maximize your vehicle expense deduction legally.

Why a Mileage Log Matters

The CRA allows you to deduct vehicle expenses in proportion to how much you use the vehicle for business versus personal purposes. Without a log, you have no way to prove that proportion, and CRA will disallow the claim.

Example: You drive 30,000 km in a year. 18,000 km is for business. That’s 60% business use. You can deduct 60% of your eligible vehicle expenses.

If you can’t prove the 60%, CRA will either disallow the deduction entirely or estimate a much lower business use percentage. Either way, you lose money.

What CRA Requires in a Mileage Log

CRA’s requirements are specific. A valid mileage log must record, for each business trip:

1. Date of the trip
2. Destination (where you drove to)
3. Purpose of the trip (what business activity it relates to)
4. Odometer reading at the start of the trip
5. Odometer reading at the end of the trip
6. Total kilometers driven for that trip

You also need to record:

• Opening odometer reading at the start of the year (January 1 or start of fiscal year)
• Closing odometer reading at the end of the year

These two numbers let you calculate total annual kilometers, from which you determine your business use percentage.

What Counts as a Business Trip?

Not all driving qualifies. Here’s what does and doesn’t:

✅ Business driving (deductible):

• Driving to meet clients or customers
• Traveling to a job site or work location
• Driving to a supplier or vendor
• Going to a bank for business transactions
• Attending business meetings, conferences, or training
• Driving to pick up business supplies or equipment

❌ Personal driving (not deductible):

• Commuting from home to your regular office (this is personal, even if you work for yourself)
• Personal errands
• Vacations or personal travel
• Driving to a location you chose as your home office (the home office deduction is separate)

The commuting rule is the biggest trap. If you have a fixed business location that you drive to every day, that drive is personal, not business. This surprises many small business owners who incorporate and continue driving to the same office.

Exception: If you travel from a home office (which qualifies as your regular place of business) to a client location, that IS business travel.

The Simplified Logbook Method

For most taxpayers, tracking every single trip is the required method. However, CRA does allow a simplified logbook method for established businesses:

How it works:

1. Keep a full logbook for a 3-month base period that is representative of your typical driving patterns
2. Use this base period to establish your business use percentage
3. In subsequent years, if your driving patterns haven’t changed significantly (within ±10%), you can use the base year percentage without keeping a complete annual log

Conditions for using the simplified method:

• The vehicle must have been used for business for at least 2 years
• The business use in the later year must be within 10% of the base year percentage
• You must still record total annual kilometers

Even with the simplified method, you should keep some records to demonstrate your patterns haven’t changed.

Format: Paper vs. Digital Mileage Logs

CRA accepts both paper and electronic logs. What matters is that the required information is present and the record is contemporaneous (recorded at the time of travel, not reconstructed weeks later).

Paper logbook:
A simple notebook kept in your vehicle. Record each trip as you go. This is low-tech but perfectly acceptable to CRA.

Spreadsheet:
An Excel or Google Sheets template can work well if updated regularly. The risk is forgetting to update it.

Smartphone apps (recommended):
Mileage tracking apps are by far the most convenient option. Many integrate with accounting software.

Top apps for CRA-compliant mileage tracking:

• MileIQ, Auto-detects trips via GPS, swipe to classify as business/personal
• Driversnote, Automatic tracking, report export, CRA-compliant format
• TripLog, Advanced features for fleet tracking
• QuickBooks Self-Employed, Built-in mileage tracking if you use QuickBooks
• Everlance, Simple interface, automatic GPS tracking

Key advantage of apps: They track trips automatically in the background. You classify each trip as business or personal after the fact. No forgetting, no guessing, no reconstruction issues.

What Vehicle Expenses Can You Deduct?

Once you have your business use percentage, you can apply it to the following expenses:

Fuel and oil: All fuel costs, gas, diesel, or electric charging costs, multiplied by your business use percentage.

Insurance: Your annual vehicle insurance premium × business use %

Licensing and registration: Annual vehicle registration fees × business use %

Repairs and maintenance: Oil changes, tire replacements, brake jobs, etc. × business use %

Car washes: Reasonable cleaning costs × business use %

Interest on a vehicle loan: If you financed the vehicle, interest on the loan is deductible, up to $10 per day (2025 limit, indexed annually) × business use %

Capital Cost Allowance (CCA): Depreciation on the vehicle itself, Class 10 (30%) for most passenger vehicles or Class 10.1 for vehicles exceeding the prescribed cost limit ($36,000 + taxes in 2025)

Leasing costs: If you lease your vehicle, the monthly lease payment is deductible (subject to a maximum, currently $950/month + taxes before business use %) × business use %

The Prescribed Cost Limits

CRA caps certain deductions for “passenger vehicles”, defined as automobiles used for transportation (not trucks, vans, or SUVs primarily used for business).

2025 limits:

• CCA cost limit (Class 10.1): $36,000 (+ applicable taxes), vehicles exceeding this cost are placed in Class 10.1
• Monthly lease deduction limit: $950/month (+ taxes)
• Interest deduction limit: $10/day

These limits don’t apply to vehicles used more than 50% for earning business income in a motor vehicle business (e.g., a taxi, delivery vehicle, or contractor’s truck).

Employee vs. Self-Employed Vehicle Deductions

The rules differ slightly depending on your employment status:

Self-employed / sole proprietor:
Deduct eligible vehicle expenses on your T2125 (Statement of Business Activities). Your business use percentage determines the deductible amount.

Employee (with a T2200 from employer):
You can deduct vehicle expenses on your personal return (T1) using form T777, but only if:

• Your employer requires you to work away from the office
• You don’t receive a non-taxable vehicle allowance
• Your employer certifies the requirement with a signed T2200

Incorporated business owner (shareholder-employee):
You have two options:

1. The corporation owns the vehicle and deducts all business expenses, you receive a taxable shareholder benefit for personal use
2. You own the vehicle personally, the corporation pays you a per-kilometer allowance, tax-free if within CRA’s prescribed rates ($0.70/km for the first 5,000 km, $0.64/km thereafter in 2024)

The best structure depends on your total driving patterns and personal tax situation.

CRA’s Prescribed Per-Kilometer Rates (2024/2025)

If your employer or corporation reimburses your vehicle use at CRA’s prescribed rates, the reimbursement is tax-free:

Northern residents add: $0.04/km

These rates are meant to cover all vehicle operating costs. If the actual cost of running your vehicle is significantly higher (as it often is), keeping the actual log and claiming actual expenses may be more beneficial.

Reconstructing a Mileage Log: Can You Do It?

If you forgot to keep a log during the year and are facing an audit, can you reconstruct one?

Technically: CRA requires contemporaneous records. A reconstructed log made after the fact is not ideal and CRA auditors are skeptical of them.

Practically: CRA may accept a reconstructed log if it’s supported by corroborating evidence:

• Credit card statements showing fuel purchases
• Calendar entries showing client meetings
• Invoices for service calls
• GPS data from your phone (Google Maps Timeline, for example)
• Bank statements for parking or tolls

A reconstructed log supported by corroborating evidence is better than nothing, but it’s still a risk in an audit. Going forward, always keep a contemporaneous log.

The Electric Vehicle Consideration

If you drive an electric or hybrid vehicle for business, the same rules apply, you still need a mileage log. “Fuel” costs for EVs would be the portion of your home electricity bill attributable to vehicle charging, or commercial charging costs.

Home charging is more complex to calculate. Keep records of your electricity bills and determine a reasonable allocation based on the vehicle’s consumption and your business vs. personal driving ratio.

Step-by-Step: Setting Up Your Mileage Tracking System

Week 1:

1. Record your vehicle’s current odometer reading
2. Download a mileage tracking app (MileIQ or Driversnote recommended)
3. Enable automatic trip detection
4. Set up your “home” and “regular work location” so commutes are auto-classified as personal

Ongoing:

1. Each day (or at minimum each week), review your recorded trips
2. Classify each as Business or Personal with a tap
3. Add a brief note for business trips (e.g., “Client meeting, ABC Corp”)

Year-end:

1. Export your mileage report from the app
2. Note closing odometer reading
3. Calculate business use percentage: (Business km ÷ Total km) × 100
4. Apply percentage to all vehicle expenses
5. Store the report with your tax records

Common Mistakes to Avoid

Not tracking from January 1: Many business owners start tracking mid-year when they realize they should have been. The full-year opening and closing odometer readings are essential.

Vague purpose notes: “Business” is not a sufficient description. “Client meeting with John Smith, Sherwood Park” is. The more specific, the better if audited.

Including commuting: As noted above, driving from home to a regular place of business is personal. Don’t include it.

Using the same car log for multiple vehicles: Each vehicle needs its own log.

Claiming 100% business use on a personal vehicle: CRA is highly skeptical of 100% business use claims on passenger vehicles. Unless you have a dedicated business vehicle you never use personally, a 100% claim will likely trigger scrutiny.

How BOMCAS Canada Helps

Vehicle expense deductions are one of the most valuable, and most audited, areas of Canadian tax. At BOMCAS Canada, we help clients across Edmonton, Alberta, and all of Canada set up proper record-keeping systems, determine the optimal vehicle ownership structure, and maximize their legitimate deductions while keeping them audit-proof.

If you’ve been missing out on vehicle expense deductions or received a CRA query about your vehicle claim, contact us for a free consultation.

Quick Reference: CRA Mileage Log Checklist

For each business trip, record:

• [ ] Date
• [ ] Destination
• [ ] Business purpose (specific)
• [ ] Starting odometer
• [ ] Ending odometer
• [ ] Total km for trip

At year-end:

• [ ] January 1 opening odometer reading
• [ ] December 31 closing odometer reading
• [ ] Total annual km
• [ ] Total business km
• [ ] Business use percentage

Questions about vehicle expenses or other business deductions? Book a free consultation with BOMCAS Canada, serving Edmonton, Alberta, and all of Canada in person or online.