If you’re a business owner or self-employed individual, you have a lucrative opportunity to claim motor vehicle expenses on your taxes. The best part — it’s simple and easy to do! Instead of recording your odometer reading for every trip, you can track your business drives with MileIQ. Our automatic mileage tracking app does the work for you so you can earn big savings on your automobile deduction. For 2023, the Department of Finance Canada made some notable changes to the automobile income tax deduction limits and expense benefit rates. Here’s a look at how those changes will impact you.
What are the automobile deduction rates for 2023?
The changes to limits and rates took effect on January 1, 2023. Fortunately, the Canadian government made new changes involving increases to common automobile deductions. To understand how this will have an effect on your tax claim, review the following announcements from the DFC below:
- The ceiling for capital cost allowances (CCA) for Class 10.1 passenger vehicles will be increased from $34,000 to $36,000 before tax, in respect of vehicles (new and used) acquired on or after January 1, 2023.
- The ceiling for capital cost allowances (CCA) for Class 54 zero-emission passenger vehicles will be increased from $59,000 to $61,000 before tax, in respect of vehicles (new and used) acquired on or after January 1, 2023.
- Deductible leasing costs will be increased from $900 to $950 a month, before tax, for new leases entered into on or after January 1, 2023.
- The deduction limit for tax-exempt allowances paid by employers to employees who use their personal vehicle for business purposes in the provinces will increase by seven cents in 2023 to 68 cents per kilometre for the first 5,000 kilometres driven, and 62 cents for any additional kilometres. For the territories, the limit will also increase by seven cents to 72 cents per kilometre for the first 5,000 kilometres driven, and 66 cents for each additional kilometre driven.
- The prescribed rate used to determine the taxable benefit of employees relating to the personal portion of automobile expenses paid by their employers will be increased by four cents to 33 cents per kilometre. For individuals who sell or lease automobiles, the rate used to determine the employee’s taxable benefit will be increased by four cents to 30 cents per kilometre.
- The allowable interest deduction for new automobile loans ($300 per month) will remain the same for 2023.
What vehicle expenses are tax deductible in Canada?
You are eligible to claim a great deal of vehicle expenses on your taxes, however, there are extenuating factors that can impact the size of your deduction. For instance, you can only deduct incurred costs when they are reasonable and you have receipts to support them. That means, you must keep an accurate log of the total kilometres you drive for business purposes in order to receive the highest deduction.
The types of expenses you can claim on “Line 9281 — Motor Vehicle Expenses (not including CCA)” of Form T2125 or Form T2121, or line 9819 of Form T2042 include:
- License and registration feeds
- Auto insurance
- Fuel and oil costs
- Interest on money borrowed to buy a motor vehicle
- Maintenance and repairs
- Leasing payments
In addition to the above expenses, you may also claim Capital Cost Allowance (CCA), which entails the business assets that have value yet depreciate over time.
To learn more about the CRA tax return, visit our blog to find useful resources and information on how to file self-employment taxes.