The federal government has released the 2026 automobile deduction limits and expense benefit rates, effective January 1, 2026. These annual updates affect employers, owner-managers, and employees who use vehicles for business purposes.
Below is a practical breakdown of what changed, what stayed the same, and how to plan properly.
1. Passenger Vehicle Capital Cost Allowance (CCA) Limit Increased
For 2026, the maximum capital cost that can be depreciated for a passenger vehicle (Class 10.1) has increased:
-
2026 CCA limit: $39,000 (before GST/HST)
-
2025 limit: $38,000
Who this affects
-
Corporations purchasing passenger vehicles
-
Owner-managers buying vehicles through their corporation
Practical impact
Only the first $39,000 of a passenger vehicle’s cost is eligible for depreciation, even if the actual purchase price is higher.
2. Automobile Allowance Rates Increased (Tax-Free Per-Kilometre)
The CRA’s “reasonable” automobile allowance rates for 2026 are:
Provinces (including Ontario)
-
$0.73 per km for the first 5,000 km
-
$0.67 per km for each additional km
Territories
-
$0.77 per km for the first 5,000 km
-
$0.71 per km thereafter
Why this matters
Allowances paid within these limits are generally non-taxable to employees. Exceeding them can trigger taxable benefits.
3. Lease Cost Deduction Limit (Unchanged)
-
Maximum deductible lease cost: $1,100 per month (before tax)
This applies to automobile leases entered into in 2026.
4. Operating Expense Benefit Rates (Unchanged)
If an employer pays operating costs for a vehicle used personally by an employee:
-
General rate: $0.34 per personal kilometre
-
Sales/leasing employees: $0.31 per km
These rates determine the taxable benefit included in the employee’s income.
5. Zero-Emission Vehicle (ZEV) CCA Limit (Unchanged)
-
ZEV CCA ceiling (Class 54): $61,000 (before tax)
This continues to support electric and hydrogen-powered passenger vehicles.
6. Maximum Deductible Interest on Auto Loans (Unchanged)
-
$350 per month maximum deductible interest
Key Planning Takeaways
Employers
-
Update 2026 mileage reimbursement policies
-
Ensure payroll systems apply correct taxable benefit rates
Owner-Managers
-
Re-evaluate corporate vs personal vehicle ownership
-
Confirm CCA claims are capped correctly
Employees
-
Maintain detailed mileage logs
-
Understand how allowances vs reimbursements affect taxability
Need help structuring vehicle benefits correctly?
Try our AsraniCPA Virtual Tax Assistant — available 24/7 for CRA questions, T1/T2 filing, HST, payroll and more.
👉 https://asranicpa.ca/tax-assistant/
