Canada Revenue Agency
www.cra.gc.ca
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Motor vehicle - Interest
You can deduct interest on money you borrow to buy a motor vehicle, automobile, or passenger vehicle you use to earn income. Include the interest as an expense when you calculate your allowable motor vehicle expenses.
When you use a passenger vehicle to earn income, there is a limit on the amount of interest you can deduct. To calculate the amount of interest you can deduct, complete "Chart B - Available interest expense for passenger vehicles" on page 5 of Form T2125, Statement of Business or Professional Activities.
Example
On May 1, 2011, Julie bought a car that she uses to earn business income. Julie's fiscal year ends on December 31. The car is a passenger vehicle. Julie borrowed money to buy her car, and the interest payable in 2011 was $1,500. Her available interest expense is whichever is less:
- the total interest payable in 2011, which is $1,500; or
- $10 × 245 days = $2,450.
Julie can claim an interest expense of $1,500.
She also recorded the following information for 2011:
| Kilometres driven to earn business income | 25,000 |
| Total kilometres driven | 30,000 |
| Expenses: | |
| Gasoline and oil | $1,330 |
| Interest expense | $1,500 |
| Insurance | $750 |
| Licence and registration fees | $70 |
| Repairs and maintenance | $100 |
| Total car expenses | $3,750 |
Julie calculates the expenses she can deduct for her car for 2011 as follows:
(25,000 (business kilometres) ÷ 30,000 (total kilometres)) × $3,750 = $3,125
