Motor Vehicle Expense Updates 2024–2025

Summary#

The final rule called Regulations Amending the Income Tax Regulations (Motor Vehicle Expenses and Benefits 2024–2025) updates several tax numbers tied to cars and driving. It raises mileage allowance rates, vehicle cost limits, and monthly interest and lease caps for the 2024 and 2025 tax years. These rules were registered on September 19, 2025 and published in the Canada Gazette on October 8, 2025.

What it does#

• Changes the tax-free per-kilometre reimbursement amounts that employers can pay without taxing the employee:
  • For the first 5,000 kilometres in 2024: 70 cents per km.
  • For each additional km in 2024: 64 cents per km.
  • For the first 5,000 kilometres in 2025: 72 cents per km.
  • For each additional km in 2025: 66 cents per km.
  • Employers in the Yukon, Northwest Territories and Nunavut get an extra 4 cents per km on those rates (so northern rates are 74/68 in 2024 and 76/70 in 2025).
• Changes the taxable “operating expense” benefit rate (how much an employee is taxed if their employer pays personal operating costs):
  • For most employees in 2025: 34 cents per km.
  • For employees employed mainly in selling or leasing cars in 2025: 31 cents per km.
• Raises the capital cost ceiling that limits how much of a vehicle’s purchase price can be depreciated for tax:
  • Passenger vehicle ceiling: $37,000 for purchases on or after January 1, 2024, and $38,000 for purchases on or after January 1, 2025.
  • Zero-emission passenger vehicle ceiling remains $61,000.
• Raises the interest expense limit for car loans:
  • Maximum deductible interest per month for loans entered into on or after January 1, 2024 increases to $350.
• Raises the limit on deductible lease costs for new leases:
  • $1,050 per month for leases entered into on or after January 1, 2024.
  • $1,100 per month for leases entered into on or after January 1, 2025.
• Applies these changes retroactively for the 2024 and 2025 taxation years (see dates above).

Who's affected#

• Employees who get a company car or whose employer pays their vehicle operating costs.
• Employers who reimburse staff for business driving and who report taxable vehicle benefits.
• Businesses and self-employed people who claim vehicle expenses, depreciation or lease costs on tax returns.
• Tax preparers and the Canada Revenue Agency, which apply and process these amounts on tax returns.
• Drivers in the North (Yukon, Northwest Territories, Nunavut) because their per‑kilometre allowances are higher.

Why it matters#

• The changes reflect higher real-world costs for buying, leasing, financing and running cars. Higher ceilings and caps let businesses claim more of those costs for tax purposes.
• The higher tax-free mileage rates mean employees reimbursed at those rates are less likely to owe tax on reimbursements. Northern drivers get a bigger boost because driving costs are higher there.
• The higher operating expense benefit rate can increase taxable income for employees whose employer pays personal operating costs, so some workers may see slightly higher tax bills.
• Applying the rules retroactively to January 1, 2024 and January 1, 2025 avoids having to correct many past tax returns for the 2024 tax year.