The 2026 automobile deduction limits — a $39,000 ceiling and a 73-cent allowance

How it works

A business vehicle is not an ordinary expense. A corporation that owns one writes it off through capital cost allowance; a lease payment is deductible; an employee’s own car can be reimbursed per kilometre. Each route has an annual ceiling, reset by Finance Canada every January.

A passenger vehicle above the ceiling falls into Class 10.1, capping depreciation whatever was paid. For vehicles acquired on or after 1 January 2026 the ceiling is $39,000 before tax, up from $38,000: spend $70,000 and you still depreciate $39,000.

The per-kilometre allowance also moved. For 2026 the tax-exempt, deductible limit for an employee’s personal vehicle is 73 cents for the first 5,000 kilometres and 67 cents for each kilometre after that, both up one cent. In the territories the rates are 77 cents and 71 cents.

Everything else held: deductible leasing on new leases $1,100 a month before tax, new-car-loan interest $350 a month, the Class 54 zero-emission ceiling $61,000, and the operating-cost benefit 34 cents a kilometre (31 cents for those mainly selling or leasing cars).

How it applies to you

Any corporation that owns or leases a passenger vehicle, and any employer that reimburses employees by the kilometre.

For an incorporated owner-manager the Class 10.1 ceiling is usually the binding one. It is a cap, not a target: the write-off is limited to $39,000 of cost however much the vehicle cost.

For mileage payers, the risk runs the other way. An allowance at or below the prescribed rate is tax-exempt to the employee and deductible to the company; any excess is a taxable benefit on the T4. Update the rate in payroll rather than keeping last year’s.

How to calculate it

The 2026 figures, and which of them changed:

What changed

Only two figures moved. The $1,100 monthly leasing deduction, the $350 monthly interest deduction, the $61,000 Class 54 zero-emission ceiling and the 34-cent operating-benefit rate are all unchanged for 2026. The territorial allowance rates also rose a cent, to 77 cents and 71 cents.

What to do

Change the mileage rate in payroll before the next run. It is a one-cent move, but paying above the prescribed rate creates a taxable benefit rather than a bigger deduction.

If the corporation is about to buy a passenger vehicle, the ceiling is the number that decides how much of the price is ever deductible. That belongs in the decision before the purchase, not at year-end.

The acquisition date governs, not the order date. The $39,000 ceiling applies to vehicles acquired on or after 1 January 2026.

The terms used on this page

Class 10.1

The capital cost allowance class for a passenger vehicle costing more than the annual ceiling. Each vehicle sits in its own class, and no recapture or terminal loss arises on sale.

Class 54

The capital cost allowance class for zero-emission passenger vehicles, with its own separate ceiling.

Capital cost allowance

The tax deduction that writes off the cost of a capital asset over time rather than all at once.

Tax-exempt allowance

A per-kilometre payment for business use of a personal vehicle that is not taxable to the employee, provided it is reasonable and at or below the prescribed rate.

Operating-cost benefit

The taxable benefit on the personal share of vehicle running costs paid by an employer, calculated at a prescribed rate per personal kilometre.

Common questions about the 2026 automobile deduction limits

Where this comes from

Every figure on this page is taken from the source below, not from interpretation:

• Department of Finance Canada — 2026 automobile deduction limits and expense benefit rates

General information, not tax advice. This page explains a change in general terms. It cannot account for your circumstances and does not create a professional relationship. Confirm anything that affects a decision — send an enquiry.