CRA KM Rates 2026 & Vehicle Expense Limits: Mileage Rates, Lease Caps & CCA

Every year, the Department of Finance Canada publishes updated automobile deduction limits and CRA km rates that determine how much Canadian businesses, incorporated professionals, self-employed sole proprietors, and qualifying employees can claim for business driving.

For 2026, the CRA per-kilometre mileage allowance rate increased to 73 cents per km for the first 5,000 kilometres and 67 cents per km thereafter in the provinces (and 77¢ / 71¢ in the territories), while the Class 10.1 passenger vehicle CCA ceiling rose to CA$39,000.

This guide breaks down the 2026 CRA km rates and every CRA vehicle expense limit currently in effect, explains when to use per-kilometre rates versus actual expenses, and shows you how to apply them to your tax return.

Quick Summary: 2026 CRA KM Rates & Vehicle Deduction Limits

CRA KM Rates 2026 (Per-Kilometre Mileage Allowance Rates)

The CRA automobile allowance rates — commonly searched as CRA km rates 2026 or CRA mileage rates — set the maximum per-kilometre reimbursement an employer (or your own corporation) can pay to an employee for driving a personal vehicle for business without triggering a taxable benefit.

2026 CRA Per-Kilometre Rates (All Provinces)

2026 CRA Per-Kilometre Rates (Yukon, Northwest Territories & Nunavut)

Who Can Use the 2026 CRA KM Rates?

Understanding whether the 73¢ / 67¢ CRA km rate applies to you depends on your business structure:

1. Employers & Incorporated Business Owners: If you operate an incorporated business and drive your personal vehicle for corporate business, your corporation can pay you a tax-free mileage allowance at 73¢/km for the first 5,000 km and 67¢/km thereafter. The corporation deducts the reimbursement, and you do not report it as personal income — as long as every trip is documented in a CRA mileage log book.
2. Employees Receiving a Mileage Allowance: If your employer reimburses you at a rate the CRA considers reasonable (at or below the 73¢/67¢ prescribed thresholds and based solely on actual business kilometres driven), the payment is tax-free and excluded from your T4 slip.
   • If your employer pays a flat monthly car allowance (e.g., CA$500/month regardless of kilometres driven), that allowance is 100% taxable income. To offset the tax, you must get a signed Form T2200 from your employer and deduct your actual vehicle expenses on Form T777.
3. Sole Proprietors & Unincorporated Freelancers (Form T2125): If you are unincorporated, you cannot multiply your kilometres by 73¢/67¢ on Form T2125. Instead, you must track your business vs. total kilometres in a CRA mileage log and apply your business-use percentage to your actual fuel, insurance, maintenance, lease, loan interest, and CCA costs.

Example: Calculating a 2026 CRA Per-Kilometre Reimbursement

Suppose an incorporated consultant in Ontario drives 12,000 business kilometres in their personal vehicle during 2026:

• First 5,000 km × $0.73 = CA$3,650.00
• Remaining 7,000 km × $0.67 = CA$4,690.00
• Total tax-free corporate reimbursement: CA$8,340.00

To keep that reimbursement tax-free, the corporation needs a log backing up every one of those 12,000 kilometres. automileage.app records each business trip with its date, destination, purpose, and distance, and totals your kilometres by fiscal year, so the numbers behind your per-kilometre claim are always ready for your accountant.

Why CRA Vehicle Expense Limits Exist

When claiming actual vehicle expenses (as a sole proprietor, partner, corporation owning a company car, or employee with a T2200), the CRA imposes deduction ceilings on passenger vehicles to prevent taxpayers from writing off luxury cars against business income.

These limits apply specifically to passenger vehicles — defined by the CRA as motor vehicles designed primarily to carry individuals and their luggage, with a seating capacity of no more than nine (including the driver). Most sedans, crossovers, SUVs, and minivans fall into this category.

Vehicles that are not classified as passenger vehicles — such as pickup trucks, cargo vans, or work vehicles used primarily (more than 50% or 90% depending on the test) for transporting goods, equipment, or passengers in the course of earning income — are generally exempt from these caps and qualify as "motor vehicles" with no CCA or lease ceiling.

Capital Cost Allowance (CCA) Limits for 2026

Capital cost allowance is the CRA's term for tax depreciation — the annual deduction you can claim on the declining balance of a vehicle you purchased for business use.

Class 10.1: Standard Passenger Vehicles

2026 limit: CA$39,000 before tax (increased from CA$38,000 in 2025)

If you purchase a passenger vehicle for more than CA$39,000 (before GST/HST or provincial sales tax), the vehicle is placed in Class 10.1. You can only claim CCA on the prescribed CA$39,000 maximum (plus applicable unrecoverable sales taxes on that ceiling), not the full purchase price.

Key rules for Class 10.1:

• Each vehicle gets its own separate class (no pooling with other assets)
• For vehicles acquired after 2024 and available for use before 2030, the Accelerated Investment Incentive (reinstated by Bill C-15 in 2026) replaces the half-year rule: your first-year CCA is 45% of the capped cost instead of 15%. The enhancement phases out for vehicles that become available for use from 2030 to 2033.
• The annual CCA rate is 30% on a declining balance
• No terminal loss can be claimed when you sell or dispose of the vehicle
• No recapture of CCA occurs on disposition (and in the year you sell a Class 10.1 vehicle you owned at the end of the prior year, you can typically claim 50% of the normal CCA for that final year)

Class 54: Zero-Emission Passenger Vehicles (ZEVs)

2026 limit: CA$61,000 before tax (unchanged from 2025)

New zero-emission vehicles (fully battery-electric, plug-in hybrid with at least 7 kWh battery capacity, or hydrogen fuel cell) that have not previously been used for CCA qualify for Class 54, which provides a CA$61,000 ceiling before tax.

Key rules for Class 54:

• 100% first-year CCA deduction (up to the CA$61,000 cap) for zero-emission vehicles acquired after 2024 and available for use before 2030, phasing out for vehicles available for use from 2030 to 2033; 30% declining balance in later years
• Vehicles costing more than CA$61,000 have their depreciable capital cost capped at CA$61,000 (plus applicable sales tax)

Class 10: Passenger Vehicles Under the CCA Threshold

If you purchase a passenger vehicle for CA$39,000 or less (before tax), it goes into Class 10 rather than Class 10.1. The CCA rate is still 30% on a declining balance, but Class 10 vehicles are pooled together, and both recapture (if sold for more than the undepreciated capital cost) and terminal loss rules apply on disposition.

Lease Payment Limits for 2026

2026 limit: CA$1,100 per month before tax (unchanged from 2025)

If you lease a passenger vehicle for business use, the CRA caps the monthly lease cost you can include before applying your business-use percentage. Specifically, the CRA limits your deductible lease cost using a two-part formula that restricts both the monthly payment (CA$1,100/month plus applicable taxes) and the vehicle's manufacturer's suggested list price (if the vehicle's list price exceeds roughly CA$45,882, the deductible lease amount is scaled down proportionally even if your monthly payment is under CA$1,100).

How to Apply the Lease Limit

After determining your allowable lease cost under the CRA formula, multiply it by your business-use percentage from your mileage logbook.

Example: You lease a vehicle with a list price under the threshold at CA$1,200 per month before tax. The CRA limits your eligible lease cost to CA$1,100 for every 30 days (CA$1,100 × 365 ÷ 30 = about CA$13,383 for a full 365-day year). If your business-use percentage is 70%, your tax deduction is about CA$9,368.

Auto Loan Interest Limits for 2026

2026 limit: CA$350 per month (unchanged from 2025)

If you finance the purchase of a passenger vehicle with a loan, the CRA limits the amount of interest you can include in your motor vehicle expenses to CA$350 per month (calculated as CA$350 ÷ 30, or about CA$11.67 per day) — regardless of your actual interest charges.

How Loan Interest Works in Practice

Example: You finance CA$60,000 at 8.6% interest, paying about CA$430 per month in loan interest during the first year. The CRA caps your eligible interest expense at about CA$11.67 per day (about CA$4,258 for a 365-day year). Multiplied by your business-use percentage (e.g., 70%), your deductible interest is about CA$2,981.

Taxable Benefit Rates for Employer-Provided Vehicles (2026)

If an employer or corporation provides an employee with a company-owned or company-leased vehicle and pays for operating costs, any personal kilometres driven create a taxable operating expense benefit on the employee's T4:

Historical Comparison of CRA Mileage Rates & Limits (2023–2026)

Tracking Your Mileage & Expenses Against CRA Limits

Knowing the 2026 CRA km rates and vehicle deduction caps is only half the equation. Whether you reimburse yourself per kilometre through a corporation or prorate actual expenses on Form T2125, the CRA requires a contemporaneous mileage log book recording every business trip and your annual odometer readings.

automileage.app keeps your trips, expenses, and odometer readings in one place, calculates your business-use percentage for you, and lets you export CRA-ready PDF and CSV reports in seconds.

Get started risk-free and stay on top of your 2026 CRA vehicle deductions.

Frequently Asked Questions

What are the CRA km rates for 2026?

The CRA automobile allowance rates (CRA km rates) for 2026 are 73 cents per kilometre for the first 5,000 km driven and 67 cents per kilometre for each additional kilometre in the provinces. In the territories (Yukon, Northwest Territories, and Nunavut), the 2026 CRA km rates are 77 cents per km for the first 5,000 km and 71 cents for each additional km.

What is the CRA lease deduction limit for 2026?

The CRA limits monthly lease deductions for passenger vehicles to CA$1,100 per month before tax for 2026. This limit is unchanged from 2025. The limit is set annually by the Department of Finance Canada.

How much loan interest can I deduct on a vehicle used for business?

You can deduct up to CA$350 per month in interest charges on a loan used to purchase a passenger vehicle for business purposes in 2026. This limit applies regardless of the actual interest you pay — any amount above CA$350 per month is not deductible.

What is the CCA limit for passenger vehicles in Canada in 2026?

For the 2026 tax year, the capital cost allowance (CCA) ceiling for Class 10.1 passenger vehicles is CA$39,000 before tax, up from CA$38,000 in 2025. For zero-emission passenger vehicles (Class 54), the limit remains CA$61,000 before tax.

Can sole proprietors use the 2026 CRA per-kilometre rate on Form T2125?

No. Sole proprietors and partnerships filing Form T2125 must deduct the business-use percentage of their actual vehicle expenses rather than multiplying kilometres by the 73¢/67¢ per-km rate. The per-kilometre CRA mileage rate applies to tax-free allowances paid by employers or corporations to employees and shareholder-employees.

What happens if my lease payment exceeds the CRA limit?

You can still lease a vehicle with payments above the CRA limit, but you can only deduct up to the prescribed maximum. The excess is treated as a non-deductible personal expense. Your business-use percentage is then applied to the deductible portion.