If your business relies on vehicles for operations, whether through employee reimbursements, leasing, or ownership, the 2025 updates to automobile tax deduction limits could impact your tax planning. Effective January 1, 2025, several key thresholds are increasing, providing greater deductions for businesses and employees using vehicles for work-related purposes. The following outlines what is changing and how you can maximize your tax savings.
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Higher Tax-Exempt Mileage Allowances for Employees
Employers reimbursing employees for using their personal vehicles for business will see a two-cent increase per kilometre for tax-exempt allowances:
- Provinces:
- 72 cents/km for the first 5,000 km (up from 70 cents)
- 66 cents/km for each additional kilometre (up from 64 cents)
- Territories:
- 76 cents/km for the first 5,000 km (up from 74 cents)
- 70 cents/km for each additional kilometre (up from 68 cents)
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Higher Taxable Benefit Rates for Employer-Provided Vehicles
Employees with employer-paid vehicles used for personal driving will see a slight increase in taxable benefit rates:
- The general prescribed rate increases by one cent to 34 cents per kilometre in 2025.
- For employees primarily engaged in selling or leasing automobiles, the prescribed rate increases by one cent to 31 cents per kilometre.
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Increased Capital Cost Allowance (CCA) Limits for Passenger Vehicles
For businesses purchasing vehicles, the capital cost allowance (CCA) ceiling for Class 10.1 passenger vehicles is increasing:
- New and used vehicles acquired on or after January 1, 2025, will have a CCA ceiling of $38,000 (before tax), up from $37,000.
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Increased Deductible Leasing Costs
For businesses that lease vehicles instead of purchasing, the maximum deductible lease cost is increasing:
- $1,100 per month (before tax), up from $1,050, for new leases entered into on or after January 1, 2025.
No Changes to These Limits
While several key thresholds are increasing, two limits remain unchanged:
- The Class 54 zero-emission passenger vehicle CCA ceiling stays at $61,000 (before tax).
- The maximum allowable interest deduction for automobile loans remains at $350 per month for new loans entered into on or after January 1, 2025.
Final Thoughts: How Business Owners Can Optimize These Changes
These modest increases provide opportunities for greater tax deductions for business-related vehicle expenses. Business owners should:
- Review and update mileage reimbursement policies to align with the new tax-exempt rates.
- Assess whether purchasing or leasing is the more tax-efficient option under the new CCA and leasing limits.
- Ensure compliance with updated taxable benefit rates for employer-provided vehicles.
Business owners and other taxpayers eligible to deduct business mileage should maintain an accurate and detailed mileage log. Using a highly rated mileage tracking app can simplify the process by distinguishing between business and personal trips. Remember, mileage between home and the office is not eligible as business mileage. Accurate record-keeping is essential, as the Canada Revenue Agency (CRA) frequently reviews mileage claims during audits, making proper documentation a critical part of compliance and avoiding disputes.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
