Motor Vehicle Expenses for Business: Lease or Buy? How to Maximize Your Deduction in 2025

When it comes to claiming motor vehicle expenses for business purposes, there’s more than one road you can take, literally and figuratively. From choosing whether to lease or buy, to deciding how to record and claim your expenses, making the right decisions can have a significant impact on your tax obligations. With the 2025 updates to vehicle expense limits now in place, here’s a helpful guide to navigating your options.

Lease vs. Buy: Pros and Cons

Deciding between leasing and buying a vehicle is one of the most common questions faced by business owners and professionals who use their cars for work.

Leasing Pros:

• Lower monthly payments.
• Frequent access to newer vehicles with the latest features.
• Potentially lower repair costs due to manufacturer warranties.
• Deductible lease payments (within CRA-prescribed limits).

Leasing Cons:

• Annual kilometre limits with penalties for excess use.
• No ownership equity at the end of the lease.
• Potential additional charges for wear and tear.

Buying Pros:

• Full ownership and eventual elimination of payments.
• No kilometre restrictions or penalties.
• Can be more cost-effective in the long run.

Buying Cons:

• Higher upfront or monthly costs (if financing).
• Depreciation risk.
• Repairs and maintenance may increase as the vehicle ages.

2025 CRA Deduction Limits and CCA Maximums

The Canadian government has announced the automobile deduction limits for 2025. These affect both Capital Cost Allowance (CCA) claims and deductible lease amounts:

Key 2025 Deduction Limits:

• CCA Ceiling for Class 10.1 (passenger vehicles): $38,000 (plus applicable federal and provincial sales taxes), up from $37,000 in 2024
• Deductible Lease Cost Limit: $1,100/month (plus applicable taxes), up from $1,050 in 2024.
• Interest Deduction Limit: $350/month on vehicle loans.

These updates help ensure that business owners using vehicles, either leased or owned, can deduct reasonable costs based on fair market values. For full details, visit the Department of Finance Canada’s announcement.

Standard Mileage Rates: A Simpler Option?

If tracking every expense and receipt isn’t your strong suit, the CRA’s prescribed mileage rate method could be your best route.

2025 Mileage Rates:

• 72 cents/km for the first 5,000 business kilometres driven.
• 66 cents/km for any additional kilometres.

This method is all-inclusive meaning it covers gas, insurance, repairs, maintenance, and even HST, simplifying bookkeeping and providing a fair estimate without needing detailed receipts. It’s especially beneficial for sole proprietors or small business owners with limited administrative capacity.

However, to use this method, accurate mileage logs are still required.

Logbooks: Full vs. Simplified

Whether you claim actual expenses or mileage, keeping a proper logbook is essential.

Full Logbook:

• Records every business trip, including date, destination, purpose, and kilometres.
• Required for your first year or any year with significant use changes.

Simplified Logbook:

• After maintaining a full logbook for 12 months, you may switch to a simplified version.
• Requires tracking for a typical 3-month sample period, used to estimate annual use if driving patterns remain consistent.

CRA provides guidance on both formats here.

Should the Vehicle Be Personally Owned or Held in a Corporation?

Owning the vehicle personally:

When you own the vehicle personally but use it for business purposes, you can still be reimbursed by your corporation. This option can offer simplicity and flexibility.

 How It Works

• You track the business use of your personal vehicle (typically through mileage).
• The corporation reimburses you either:
  • Per kilometre using CRA’s prescribed mileage rate, or
  • For actual expenses incurred, supported by receipts and logs.

Pros

• Simplicity: No vehicle asset is recorded on the corporate books.
• Avoids Taxable Benefits: Because the vehicle is not a corporate asset, you sidestep the need to calculate and report a taxable benefit for personal use.
• Flexible Reimbursements: You can choose between actual expenses or the prescribed mileage rate, which is often generous and all-inclusive (including HST).
• CRA-Approved Mileage Rate (2025):
  • 72¢/km for the first 5,000 km
  • 66¢/km thereafter

 Considerations

• Requires good mileage tracking (logbooks).
• You cannot claim CCA (depreciation) through the corporation since the vehicle is not a corporate asset.
• Reimbursement is an expense to the corporation but not taxable to you personally, provided it’s reasonable and well-documented.

Corporation owns the vehicle:

How It Works

• The corporation pays for the vehicle, fuel, insurance, maintenance, etc.
• All these expenses are claimed as corporate tax deductions.
• The corporation may also claim CCA (Capital Cost Allowance) if the vehicle is purchased.
• If there is any personal use (even small), the employee/shareholder must include a taxable benefit in their personal income.

Pros

• The corporation captures all tax deductions, including depreciation and full operating costs.
• Useful if vehicle is used primarily for business.
• Leasing costs up to CRA’s maximum (2025: $1,100/month + tax) are deductible.

Considerations

• Taxable Benefit: If the vehicle is used for both personal and business, CRA requires you to calculate:
  • Standby Charge: For personal access to the vehicle.
  • Operating Cost Benefit: Based on personal use (2025: 33¢/km unless actual cost is tracked).
• Requires extensive recordkeeping and logbooks to determine personal vs. business use split.
• Personal use can lead to a significant tax impact on the user (employee or shareholder).
• Additional complexity for accounting and payroll reporting.

How to Choose?

 If business use is low or moderate, and you want simple compliance, owning personally and reimbursing based on mileage is often best.

If the vehicle is primarily used for business, and you’re comfortable handling the complexity, corporate ownership may yield better deductions, just be sure to track usage carefully and report any taxable benefits appropriately.

Whether you lease or buy, own personally or through a corporation, managing motor vehicle expenses strategically can lead to significant tax savings. Make sure to understand the rules, keep accurate records, and consult a tax advisor to tailor the best solution for your business.

If you’re looking for help assessing your situation or need help setting up a compliant mileage tracking system, the team at DDL & Co. is here to help.