Regulations Amending the Income Tax Regulations (Motor Vehicle Expenses and Benefits 2024–2025): SOR/2025-193
Canada Gazette, Part II, Volume 159, Number 21
Registration
SOR/2025-193 September 19, 2025
INCOME TAX ACT
P.C. 2025-667 September 18, 2025
Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, makes the annexed Regulations Amending the Income Tax Regulations (Motor Vehicle Expenses and Benefits 2024–2025) under section 221footnote a of the Income Tax Act footnote b.
Regulations Amending the Income Tax Regulations (Motor Vehicle Expenses and Benefits 2024–2025)
Amendments
1 Paragraphs 7305.1(a) and (b) of the Income Tax Regulations footnote 1 are replaced by the following:
- (a) if a taxpayer is employed in a taxation year by a particular person principally in selling or leasing automobiles and an automobile is made available in the year to the taxpayer or a person related to the taxpayer by the particular person or a person related to the particular person, 31 cents; and
- (b) in any other case, 34 cents.
2 (1) Paragraph 7306(a) of the Regulations is replaced by the following:
- (a) the product of 64 cents multiplied by the number of those kilometres;
(2) Paragraph 7306(a) of the Regulations is replaced by the following:
- (a) the product of 66 cents multiplied by the number of those kilometres;
3 (1) The description of A in paragraph 7307(1)(b) of the Regulations is amended by striking out “and” at the end of subparagraph (vi) and by replacing subparagraph (vii) with the following:
- (vii) after 2022 and before 2024, $36,000, and
- (viii) after 2023, $37,000, and
(2) The description of A in paragraph 7307(1)(b) of the Regulations is amended by striking out “and” at the end of subparagraph (vii) and by replacing subparagraph (viii) with the following:
- (viii) after 2023 and before 2025, $37,000, and
- (ix) after 2024, $38,000, and
(3) Subsection 7307(2) of the Regulations is replaced by the following:
(2) For the purpose of the description of A in section 67.2 of the Act, the amount prescribed in respect of an automobile that is acquired
- (a) after August 1989 and before 1997 or after 2000 and before 2024, is $300; and
- (b) after 2023, is $350.
(4) The description of A in paragraph 7307(3)(b) of the Regulations is amended by striking out “and” at the end of subparagraph (vi) and by replacing subparagraph (vii) with the following:
- (vii) for leases entered into after 2022 but before 2024, $950, and
- (viii) for leases entered into after 2023, $1,050, and
(5) The description of A in paragraph 7307(3)(b) of the Regulations is amended by striking out “and” at the end of subparagraph (vii) and by replacing subparagraph (viii) with the following:
- (viii) for leases entered into after 2023 but before 2025, $1,050, and
- (ix) for leases entered into after 2024, $1,100, and
Application
4 (1) Section 1 and subsection 2(2) apply to kilometres driven after 2024.
(2) Subsection 2(1) applies to kilometres driven after 2023 but before 2025.
(3) Subsections 3(1) and (4) apply after 2023 but before 2025.
(4) Subsections 3(2) and (5) apply after 2024.
(5) Subsection 3(3) applies after 2023.
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the Regulations.)
Issues
The annual cost of acquiring, financing and operating an automobile is influenced by market conditions and inflationary pressures. Amendments to the Income Tax Regulations (the Regulations) are commonly required to ensure that changes in these underlying costs are reflected in the income tax treatment of motor vehicles.
Background
The Income Tax Act (the Act) contains several rules related to the treatment of automobile expenses and benefits for businesses and employees for income tax purposes. Under the Act, businesses can deduct automobile expenses incurred for earning income, while employees who receive automobile benefits, such as a company vehicle, may be taxed on the value of that benefit based on a prescribed formula. Additionally, employers can provide reimbursements for certain expenses incurred by employees for business purposes, which may be exempt from taxation under specific conditions. These rules, described in detail below, use various rates and limits to reflect the costs of automobile usage for business purposes. These are assessed each year to determine if they need to be adjusted to reflect changes in the costs of acquiring, financing and operating an automobile.
There are five prescribed limits and rates that help define the level of automobile expense deductions and taxable benefits allowed under the Act.
- Capital cost ceilings restrict the cost of an automobile on which capital cost allowance may be claimed. The ceilings reflect the cost of acquiring an automobile that is generally acceptable for business purposes in respect of passenger vehicles and zero-emission passenger vehicles. The ceilings are set under subsections 7307(1) and (1.1) of the Regulations.
- The interest expense limit restricts the deductibility of interest related to financing the purchase of an automobile that costs more than the capital cost ceiling. The limit is set under subsection 7307(2) of the Regulations.
- The leasing limit restricts the deductibility of automobile leasing costs. The limit is set under subsection 7307(3) of the Regulations.
- The tax-exempt per-kilometre allowance limit is a simplifying provision allowing employers to deduct, at a rate no higher than the prescribed limit, the cost of reimbursing employees who use their personal vehicle for business use. The limit is set under section 7306 of the Regulations.
- The operating expense benefit rate determines the amount of an employee’s taxable benefit where an employer pays the operating costs of an automobile that the employee uses for personal purposes. The rate is set under section 7305.1 of the Regulations.
Objective
The objective of the Regulations Amending the Income Tax Regulations (Motor Vehicle Expenses and Benefits 2024–2025) is to implement the automobile deduction limits for the 2024 and 2025 taxation years.
Description
The amendments ensure that the capital cost ceilings, interest expense limit, leasing limit, tax-exempt per-kilometre allowance limit and the operating expense benefit rate reflect the underlying costs related to financing, acquiring or operating an automobile.
Capital cost ceilings
For purchases in respect of vehicles acquired on or after January 1, 2024, the ceiling on passenger vehicles increased from $36,000 to $37,000 (plus applicable federal and provincial sales taxes).
For purchases in respect of vehicles acquired on or after January 1, 2025, it increased to $38,000 (plus applicable federal and provincial sales taxes).
For zero-emission passenger vehicles, the ceiling remains unchanged at $61,000 (plus applicable federal and provincial sales taxes).
Interest expense limit
The maximum allowable interest deduction for new automobile loans entered into on or after January 1, 2024, increased from $300 per month to $350.
Leasing limit
The limit on deductible leasing costs increased from $950 to $1,050 per month (plus applicable federal and provincial sales taxes) for new leases entered into on or after January 1, 2024.
Deductible leasing costs increased to $1,100 per month (plus applicable federal and provincial sales taxes) for new leases entered into on or after January 1, 2025.
Tax-exempt per-kilometre allowance limit
The tax-exempt allowance paid by employers to employees who use their personal vehicle for business purposes increased by two cents per kilometre in 2024. Consequently, the tax-exempt allowance for the first 5 000 kilometres is set at 70 cents per kilometre, while the allowance for each additional kilometre is set at 64 cents for 2024. For the Yukon, Northwest Territories, and Nunavut, the tax-exempt allowances are 4 cents higher than the rate allowed in other provinces, reflecting the additional cost of operating a motor vehicle in northern regions. Therefore, the tax-exempt allowance for the first 5 000 kilometres is set at 74 cents per kilometre, while the allowance for each additional kilometre is set at 68 cents.
The per-kilometre limit increased by 2 cents per kilometre in 2025. Consequently, the tax-exempt allowance for the first 5 000 kilometres is set at 72 cents per kilometre, while the allowance for each additional kilometre is set at 66 cents for 2025. For the Yukon, Northwest Territories, and Nunavut, the tax-exempt allowances are 4 cents higher than the rate allowed in other provinces, reflecting the additional cost of operating a motor vehicle in northern regions. Therefore, the tax-exempt allowance for the first 5 000 kilometres is set at 76 cents per kilometre, while the allowance for each additional kilometre is set at 70 cents.
Operating expense benefit rate
The prescribed rate used to determine the taxable benefit of employees relating to the personal portion of automobile expenses paid by their employers increased by one cent to 34 cents per kilometre for 2025. For people who are employed principally in selling or leasing automobiles, the rate used to determine the employee’s taxable benefit has also increased by 1 cent to 31 cents per kilometre for 2025.
Regulatory development
Consultation
The Minister of Finance announced the automobile deduction limits and expense benefit rates for businesses in a news release on December 18, 2023, for the 2024 taxation year and on December 30, 2024, for the 2025 taxation year. The public, including businesses and employees who would be impacted by these changes, along with their tax advisors, were given an opportunity to comment on the recommended changes following the issuance of the two news releases by the Department of Finance through its website. Further, interested stakeholder associations are provided the opportunity to supply comments to the Department of Finance on the automobile deduction and taxable benefit provisions under the Act on an ongoing basis.
No comments were received in response to the news release.
The amendments were exempt from prepublication in the Canada Gazette, Part I, based on the broad circulation through the above-noted consultation process.
Modern treaty obligations and Indigenous engagement and consultation
No impacts have been identified in respect of the Government’s obligations in relation to Indigenous rights protected by section 35 of the Constitution Act, 1982, modern treaties and international human rights obligations.
Instrument choice
Regulatory amendments are required to continue an annual process of ensuring that the expense benefit rates and income tax deduction limits remain appropriate and reflect changes in the costs associated with acquiring, financing, and operating an automobile for business purposes. No other type of instrument is available under the Act to achieve this objective.
Regulatory analysis
Benefits and costs
These amendments codify previously announced changes in the automobile expense deduction limits and prescribed rates related to deductions for the business use of vehicles and the taxable benefit for personal driving of employer-provided vehicles that have already been applied in the 2024 taxation year or will be applied in the 2025 taxation year. These changes are generally relieving in nature. For employees using employer-provided automobiles for personal purposes, the change in the operating expense benefit rate may increase their taxable income and tax payable.
Implementation of the motor vehicle expenses and benefits does result in costs for the Government of Canada in the form of foregone tax revenue, which is retained by implicated businesses. However, these amendments do not create new costs for the Government beyond those that would already be incurred because of the automobile deduction limits and expense benefit rates for businesses announced in 2023 and 2024.
If the regulatory amendments were not implemented, the Canada Revenue Agency (CRA) would have had to correct the limits and rates claimed on tax returns for 2024. Adopting these changes will save additional costs associated with refiling and correcting 2024 tax returns that claimed incorrect amounts.
Small business lens
Analysis under the small business lens concluded that the amendments would have no positive impact on small businesses, as there is no increase in the regulatory burden. However, there are indirect, positive impacts in reflecting increases in automobile costs that those businesses incur in the Regulations.
One-for-one rule
The one-for-one rule does not apply, as there is no incremental change in administrative burden on business and no regulatory titles are repealed or introduced.
Regulatory cooperation and alignment
Given the Regulation’s purpose to maintain the neutrality of the domestic tax treatment of automobiles, there is no international regulatory cooperation component. Provinces and territories, except for Quebec, and Alberta for corporate tax, have entered into Tax Collection Agreements with the Government of Canada and therefore follow the federal rules. Quebec and Alberta generally follow an analogous approach to the federal regulations in their own legislation.
International obligations
The amendments are not subject to obligations in Canada’s international trade agreements.
Effects on the environment
In accordance with the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, a preliminary scan concluded that a strategic environmental assessment is not required.
Gender-based analysis plus
No gender-based analysis plus (GBA+) impacts were identified for the amendments.
Implementation, compliance and enforcement, and service standards
The Act provides the necessary compliance mechanisms for enforcement of the Regulations. These mechanisms allow the Minister of National Revenue and the CRA to assess and reassess tax payable, conduct audits and seize relevant records and documents. These regulations would come into force retroactively effective January 1, 2024, for changes affecting the 2024 taxation year and effective January 1, 2025, for changes affecting the 2025 taxation year.
Contact
Andriy Krugliak
Tax Legislation Division
Department of Finance
Telephone: 343‑596‑6756
Email: Andriy.Krugliak@fin.gc.ca