2025 Automobile Deduction Limits and Expense Benefit Rates for Businesses

As the new year begins, businesses need to be aware of the updated automobile deduction limits and expense benefit rates announced by the Department of Finance Canada. Effective January 1, 2025, these changes impact how businesses manage automobile-related expenses for tax purposes.

What’s Changing in 2025?

Increased Capital Cost Allowance (CCA) Limit

The capital cost allowance (CCA) ceiling for Class 10.1 passenger vehicles has been raised:

  • New limit: $38,000 (before tax).
  • Applies to: New and used vehicles acquired on or after January 1, 2025.

This increase allows businesses to claim higher depreciation on eligible vehicles.

Higher Deductible Leasing Costs

The maximum deductible leasing costs are increasing:

  • New limit: $1,100 per month (before tax) for new leases starting on or after January 1, 2025.

This adjustment provides businesses more flexibility in managing leasing expenses.

Tax-Exempt Allowances for Employees

Employers paying tax-exempt allowances for employees using personal vehicles for business purposes can now offer:

  • Provinces:
    • 72 cents per kilometre for the first 5,000 kilometres.
    • 66 cents per kilometre for additional kilometres.
  • Territories:
    • 76 cents per kilometre for the first 5,000 kilometres.
    • 70 cents per kilometre for additional kilometres.

These increases (by two cents per kilometre) reflect rising vehicle operating costs.

Adjusted Taxable Benefit Rates for Personal Use

The general prescribed rate for calculating the taxable benefit of employees for personal automobile use will rise:

  • 34 cents per kilometre (up one cent) for most employees.
  • 31 cents per kilometre (up one cent) for employees primarily involved in selling or leasing vehicles.

What Stays the Same in 2025?

Zero-Emission Vehicle Limits

The CCA ceiling for Class 54 zero-emission passenger vehicles remains unchanged at $61,000 (before tax). Eligible vehicles include:

  • Fully electric vehicles.
  • Plug-in hybrids with a battery capacity of at least 7 kWh.
  • Fully hydrogen-powered vehicles.

Interest Deduction for Automobile Loans

The maximum allowable interest deduction for automobile loans remains at $350 per month for new loans entered into on or after January 1, 2025.

Why These Changes Matter

These updates reflect the government’s recognition of rising vehicle costs and its commitment to supporting businesses and employees. They provide more room for claiming deductions and ensure rates align with current expenses, particularly for those using zero-emission vehicles.

Plan Ahead for 2025

To make the most of these updated limits and rates, businesses should:

  • Review their vehicle acquisition and leasing plans for 2025.
  • Update their policies for reimbursing employees who use personal vehicles for work.
  • Consult with a tax professional to ensure compliance and maximize deductions.

Stay informed and prepared to take full advantage of these changes. If you have questions or need assistance with implementing these updates, feel free to contact us. Let’s make 2025 a tax-efficient year for your business!

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