Vehicle Expenses — Mileage vs Actual Cost

Introduction
Understanding vehicle expenses mileage vs actual cost is essential for self-employed professionals, incorporated business owners, contractors and anyone using a personal vehicle for business purposes in Canada. Vehicle deductions are among the most frequently claimed—and audited—business expenses. Choosing between the mileage method and the actual cost method can significantly impact tax savings, compliance obligations and audit risk. The CRA and Revenu Québec apply strict rules regarding logbooks, business-use calculations, allowable expenses and recordkeeping. Errors in vehicle expense claims often lead to reassessments, penalties or denied deductions. This guide provides a full explanation of vehicle expenses mileage vs actual cost so taxpayers can select the right method and ensure full compliance.

Legal and Regulatory Framework
Vehicle expenses mileage vs actual cost are governed by the Income Tax Act, the Excise Tax Act and Québec’s Taxation Act. Taxpayers may deduct vehicle expenses only for the business-use portion of kilometers driven.

Two methods are available:

1. Mileage (Simplified) Method
   Taxpayers track business kilometers and apply a CRA-prescribed per-kilometer rate. This method is simple but usually yields lower deductions. It is commonly used by employees with a T2200 form or by businesses that prefer minimal recordkeeping.

2. Actual Cost Method
   Taxpayers track actual vehicle-related expenses, including:
   • fuel
   • repairs and maintenance
   • insurance
   • license and registration fees
   • loan interest or lease payments (subject to limits)
   • depreciation (Capital Cost Allowance – CCA)
   • parking (business-related)

The business-use percentage = business kilometers ÷ total kilometers for the year.

Québec applies similar provincial rules and requires vehicle business-use percentages to be reflected in RL-1 and QST filings when applicable.

Vehicle expenses must be reasonable, supported by receipts and tied directly to earning business income.

Key Court Decisions
Courts have issued numerous rulings related to vehicle expenses mileage vs actual cost. Themes include:

• Mileage logbooks are mandatory — Courts confirmed that reconstructed logs made months later are not reliable.
• Personal use must be excluded — Casual or mixed-use drives do not count as business mileage.
• CCA limits apply — Courts upheld CRA rules limiting vehicle depreciation deductions.
• Luxury vehicles — Deductions are limited; expensive cars do not justify higher claims.
• Parking — Only business-related parking is deductible, not personal or employer-provided parking.

Québec courts have also confirmed that vehicle deductions must match QST input credit claims and provincial business-use percentages. These rulings make it clear that strict documentation is required for both mileage and actual cost claims.

Why CRA Targets This Issue
The CRA frequently audits vehicle expenses because they are often overclaimed or poorly documented. Common audit triggers include:

• large vehicle expense claims compared with revenue
• unusually high business-use percentages (over 75%)
• missing or incomplete mileage logs
• claiming personal trips as business
• luxury vehicle write-offs
• inconsistent fuel or repair expenses
• mismatches between GST/QST claims and mileage

Revenu Québec applies additional scrutiny, especially when businesses claim large QST refunds related to vehicle expenses. Selecting the proper method—mileage vs actual cost—reduces risk when documentation is complete and compliant.

Mackisen Strategy
Mackisen CPA provides a complete strategy for vehicle expenses mileage vs actual cost. Our approach includes:

• determining whether mileage or actual cost yields better tax results
• setting up digital mileage logs (GPS apps or logbook templates)
• reviewing fuel, repair, insurance and lease receipts
• applying CCA depreciation for owned vehicles
• calculating business-use percentages accurately
• integrating GST/HST and QST claims into the calculation
• ensuring corporate owners avoid shareholder-benefit issues
• preparing documentation that withstands CRA or Revenu Québec audits

We tailor the calculation for self-employed individuals, incorporated professionals, Quebec residents, and mixed-use vehicles.

Real Client Experience
Many clients contact Mackisen after CRA challenges relating to vehicle expenses mileage vs actual cost. One self-employed contractor claimed 90% business use without a logbook. CRA denied most expenses. Mackisen reconstructed evidence, created proper logs going forward and restored part of the claim.

A Québec consultant mixed personal and business receipts and claimed 100% of fuel and repairs. Revenu Québec requested supporting documents and issued adjustments. Mackisen separated personal use, corrected business-use percentages and reduced penalties.

Another corporate owner bought a luxury car and attempted to write off the full cost. We applied CRA’s CCA limits and structured the calculations to avoid shareholder-benefit exposure.

A delivery driver used multiple apps (Uber, DoorDash) without tracking mileage. Mackisen rebuilt mileage data using ride logs and platform reports. These examples show how expert support prevents major reassessments.

Common Questions
Taxpayers frequently ask whether CRA prefers mileage or actual cost. CRA allows both, but requires full documentation for either method.

Common questions include:

• Do I need a logbook?
Yes. A detailed, daily log is required for both methods.

• Can I estimate business-use percentage?
No. Estimates are not accepted.

• Are car payments deductible?
Loan interest is deductible; principal is not. Lease payments are deductible but limited.

• Can I claim 100% business use?
Only if the vehicle is strictly used for business with no personal trips—rarely allowed.

• Do Québec rules differ?
Generally aligned with CRA, but QST input credit rules must be matched.

These questions clarify how to apply vehicle expenses mileage vs actual cost correctly.

Why Mackisen
With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps businesses stay compliant while recovering the taxes they’re entitled to. Whether you’re filing your first GST/QST return or optimizing multi-year refunds, our expert team ensures precision, transparency and protection from audit risk. When calculating vehicle expenses mileage vs actual cost, Mackisen provides airtight documentation, tax-efficient strategies and complete support to ensure compliance with both CRA and Revenu Québec.