Can car insurance be deducted as a business expense?
6 minute read Published on Feb 18, 2025 by BrokerLink Communications
If you're a business owner in Canada, you know that business expenses can add up quickly, especially when it comes to insuring your motor vehicle(s). With tax season around the corner, you may have some questions like, "Is car insurance tax deductible?"
To ensure you file your taxes correctly this tax year, take a glance through our tax guide below so you know exactly what you can and can't deduct as a business owner.
What are tax deductions?
Tax deductions are payments you've made over the past year that you can subtract from your total income for that entire year. By doing so, you can make your taxable income for that fiscal period. In Canada, self-employed Canadians can deduct several expenses from their taxes to improve their taxes owed.
Is car insurance tax deductible?
Yes, multiple auto insurance policies and car insurance premiums can be claimed as a tax deduction with the Canada Revenue Agency (CRA). However, only certain individuals in Canada can do so. For example, Self-employed individuals, along with qualified performing artists and armed forces reservists, are able to claim a car insurance tax deductible for the year.
What types of vehicles can be claimed on your taxes?
The type of vehicle you own can impact the expenses you claim with the CRA. Generally, there are four vehicle types that will qualify for a tax deduction on your taxes:
- Motor vehicles.
- Passenger vehicles.
- Zero-emission vehicles.
What motor vehicle expenses are tax deductible in Canada?
Beyond car insurance premiums, there are other motor vehicle expenses you can claim as self-employed individuals, armed forces reservists, and qualified performing artists, including the following:
- Car depreciation.
- Parking fees and tolls.
- Actual car expenses like vehicle repairs that require a deductible during a motor vehicle claim.
- New tires, oil, and gas.
- Licenses and registration fees.
- Electricity costs for zero-emission vehicles.
To make things easier for you during tax season, we recommend keeping your receipts for your motor vehicle expenses and insurance costs so you can easily deduct motor vehicle expenses from your taxes that year. Working with a reputable and experienced accountant during the year can also aid in ensuring that the expenses you deduct are recorded correctly and prevent you from making any errors.
Can I claim my kilometres driven as tax deductible for business use?
Unfortunately, if you opt to claim your business kilometres on your taxes, you will not be able to deduct your insurance premiums as well. You can only choose one or the other. If you choose to use a standard mileage rate, which is approximately $0.065 per mile, you can calculate the distance covered for the year. You would then be able to deduct this from your income.
If you are unsure which one to claim, we recommend choosing the one that will give you more of a tax return at the end of the day. Just keep in mind that if you do choose your mileage over your insurance premiums, you must be able to prove your mileage travelled in order to deduct it from your taxes for that year.
How to deduct your vehicle expenses on your tax return?
So, now that you've collected your receipts throughout the year for your self-employed business expenses, how exactly do you deduct expenses from your income tax? First, you'll need to calculate the total of your actual vehicle expenses for the year. With this final total, you'll want to determine what percentage of your motor vehicle expenses came from business use and personal use. Then, you'll be able to record these car expenses on your taxes.
Are car insurance settlements taxable?
So, you've been in an accident and finally settled with your car insurance company. Now that's everything said and done, you may be wondering, is my car insurance settlement taxable? Generally speaking, personal injury settlements for car insurance are usually not subject to taxes with the CRA, regardless of whether your claim was settled in court or not. The only time you may be required to pay tax on your settlement is if you receive anything other than special or general damages, like a type of compensation that may be regarded as income.
Can you claim leasing costs?
If your personal vehicle used to operate your business is leased rather than owned, you should be able to claim your leasing costs a portion of the time you operate your vehicle for business purposes. Keep in mind that you will only be able to deduct a portion of your leasing costs from your taxes. For example, the percentage of time considered for business travel while using your personal vehicle can be deducted from your income tax. We suggest maintaining an accurate logbook throughout the year to record the times you use your motor vehicle for personal use versus to conduct your business.
Is home insurance a tax deduction?
Nowadays, a lot of Canadians are working remotely or running their own at-home business. If you fall into either boat, you may have some questions about your coverage, such as "Is home insurance tax deductible?' Generally speaking, yes, a portion of your home insurance, including home office expenses, will be considered as a tax deduction. However, you cannot claim the entire cost of your insurance coverage or other expenses if you are self-employed. It would only be the portion of those expenses related to running your business. For example, if you use your cell phone 40% of the time for business, you can only claim 40% of those costs on your income tax.
What are the requirements for a business fleet?
If you operate a business that uses vehicles, fleet car insurance is essential to keeping yourself and your employees safe while they're on the road. Fleet insurance is available to all businesses that operate a minimum number of cars. It also doesn't matter whether these vehicles are owned or leased through a dealership. That said, the number of cars that can be covered by a single business varies depending on the insurance company and the province or territory in which the business operates. For example, fleet insurance requirements in Alberta and Ontario are five cars.
What home office expenses can I deduct from my income tax?
If you work from home and are self-employed, you can deduct some of your home expenses from your business income. Generally speaking, expenses you can claim on your taxes include your cellphone bill, internet, rent, electricity, heat and air conditioning, and other "home office" costs that you accumulate throughout the year. Just remember that only a portion of these expenses can be used for your tax return.
When I renew my car insurance, do I need to inform them that I also use my personal car for business purposes?
When it comes to renewing car insurance for your vehicle, it's always best to inform your provider that you use your car for both personal and business. By doing so, they'll be able to customize an insurance coverage that is tailored to your unique needs. This, in turn, will ensure that you are fully protected while you're behind the wheel, regardless of whether you're on a business trip or not.
Protect your business and motor vehicles with the right coverage
When it comes to owning a business, there are numerous types of business insurance and types of auto insurance you'll need to consider to ensure that your interests are comprehensively protected from all types of risks, including the following:
- Business van insurance
- Food delivery driver insurance
- Home business insurance
- Commercial general liability
- Commercial auto insurance
- Uninsured automobile insurance
- Collision car coverage
- Comprehensive car coverage
- Accident forgiveness
Looking for affordable car insurance? Contact BrokerLink today
With years of experience, BrokerLink is pleased to be one of Canada's top insurance brokers. Whether you have questions about how to protect your commercial vehicle fleet or need an expired car insurance renewal, the experienced brokers at BrokerLink are here to help with whatever you need.
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