A self-employed person buying a car for the business usually assumes the invoice will eventually be deducted in full, spread over a few years. That is not always true. Above a certain price, the Canada Revenue Agency (CRA) files the car in a class of its own, caps the cost it agrees to recognize, and denies the loss deduction on the day you sell. Here is exactly where the line falls, and what it costs.
Two classes, the same 30% rate
A durable asset is not deducted all at once: its cost is spread over several years through capital cost allowance (CCA). If the mechanism is new to you, start with our introduction to CCA; what follows assumes you have it.
On its classes of depreciable property page, the CRA files vehicles under two classes that carry exactly the same rate: 30% a year, applied each time to the balance still left to depreciate.
- Class 10: motor vehicles and passenger vehicles, other than those Class 10.1 covers.
- Class 10.1: a passenger vehicle whose cost exceeds the ceiling set for the year of purchase.
Same rate, then. The whole difference lies elsewhere: in the cost the CRA agrees to take as a starting point, and in what happens the day you sell.
The ceiling: $39,000 for a car bought in 2026
The threshold changes almost every year. For 2026, the Department of Finance Canada announced that "the ceiling for capital cost allowances (CCA) for Class 10.1 passenger vehicles will increase from $38,000 to $39,000, before tax, in respect of vehicles (new and used) acquired on or after January 1, 2026." New or used: the ceiling does not look at the age of the vehicle, only at its price.
One point is important and often misread: it is the year of purchase that sets your ceiling, not the year of the deduction. The CCA chapter of the CRA's T4002 guide publishes the series for earlier years, which the 2026 announcement extends:
| Car acquired | Ceiling, before tax |
|---|---|
| before 2022 | $30,000 |
| in 2022 | $34,000 |
| in 2023 | $36,000 |
| in 2024 | $37,000 |
| in 2025 | $38,000 |
| in 2026 | $39,000 |
Two details matter. First, the ceiling is a before-tax figure: the sales taxes paid on that $39,000 are added to the cost you depreciate. Second, the excess is never recovered anywhere. A car bought for $55,000 enters your books at $39,000, and the $16,000 difference is deducted neither this year, nor later, nor on resale.
Expensive does not mean Class 10.1
The ceiling only applies to passenger vehicles. A more expensive vehicle that is not a passenger vehicle in the tax sense stays in Class 10 with no ceiling at all. The distinction is worth thirty seconds of your attention, because it turns on seats and on use, not on the body style or the price.
The CRA defines a passenger vehicle as a motor vehicle designed or adapted primarily to carry people, with no more than nine seats — a driver and eight passengers. Its type of vehicle page then settles the borderline cases:
| Vehicle | Seats | Business use | CRA classification |
|---|---|---|---|
| Pick-up truck carrying goods or equipment | 1 to 3 | more than 50% | motor vehicle |
| Pick-up truck, any other use | 1 to 3 | 1 to 100% | passenger vehicle |
| Van carrying goods, equipment or passengers | 4 to 9 | 90% or more | motor vehicle |
| SUV, any other use | 4 to 9 | 1 to 100% | passenger vehicle |
In practice: a three-seat pick-up used two-thirds of the time to haul materials escapes the ceiling, even at $60,000. The same vehicle used 40% of the time for the business becomes a passenger vehicle again — and falls back under the ceiling as soon as its price goes past it. As for electric cars, they have their own class and their own, much higher ceiling: CCA on an electric car.
What you actually deduct, year by year
Put two cars side by side. Both bought in 2026, used 100% for the business, in a fiscal period ending December 31. One costs $35,000 before tax: it stays under the ceiling, so Class 10, full cost. The other costs $55,000: Class 10.1, recognized cost $39,000.
Normally, the year of purchase only gives you half the CCA — that is the half-year rule. But the Accelerated Investment Incentive suspends it: "You must acquire the eligible property after November 20, 2018, and it must be available for use before 2028 to qualify for the measures", and the first year then gives "two times the normal first-year CCA deduction" during the phase-out now under way. Twice half a rate is the full rate: in 2026, the first year is therefore deducted at the full 30%.
| Class 10 — $35,000 car | Class 10.1 — $55,000 car | |
|---|---|---|
| Cost recognized by the CRA | $35,000 | $39,000 |
| CCA, year 1 | $10,500 | $11,700 |
| CCA, year 2 | $7,350 | $8,190 |
| CCA, year 3 | $5,145 | $5,733 |
| Balance left after 3 years | $12,005 | $13,377 |
The figure to look at is the gap on the first deduction line: $1,200. The $55,000 car costs $20,000 more than the other one, and it yields only $1,200 of extra deduction in year one. Past the ceiling, every dollar spent is a dollar that will never come back as tax saved.
What remains is turning a deduction into money. Its worth depends on your marginal rate, meaning the tax rate that hits your last dollar of income. In Quebec, around $90,000 of income, it sits near 36%. The $11,700 of first-year CCA is therefore worth roughly $4,200 of tax saved. Our Quebec calculator shows that marginal rate from your own income.
The loss you cannot deduct
Then comes resale day, and that is where Class 10.1 really stands apart.
Under the ordinary rules, two mechanisms settle the account when an asset leaves. If nothing is left in the class but a balance has not yet been depreciated, that balance becomes a terminal loss: you deduct it from your business income. If instead the sale price exceeds what was left to depreciate, the excess is a recapture: you add it to your income.
For a Class 10.1 car, the T4002 guide rules out both: the recapture and terminal loss rules do not apply to passenger vehicles in that class. In their place, the CRA offers a small consolation — in the year of the sale, you can claim 50% of the CCA you could have claimed by keeping the vehicle to the end of the fiscal period.
| On resale | Class 10 | Class 10.1 |
|---|---|---|
| Sold for less than the balance left | deductible terminal loss | nothing to deduct |
| Sold for more than the balance left | recapture added to income | nothing to add |
| CCA in the year of the sale | the class's general rules | 50% of the normal CCA |
Take the capped car from the previous table. There is $13,377 left to depreciate at the start of year four, and you sell it for $9,000. You claim half the CCA for the year — 50% of 30% of $13,377, about $2,007 — and then the class closes. Had that same car been the only asset in a Class 10, its departure would have opened a terminal loss of $4,377. The gap in deduction, about $2,370, is the price of Class 10.1.
The rule also cuts the other way, and that is its one piece of good news: a Class 10.1 car sold for more than the balance left to depreciate triggers no taxable recapture. A car that depreciates slowly comes out ahead; a car that collapses in value comes out behind.
Three checks before you sign
- Compare the before-tax price with the ceiling for the year of purchase. $39,000 for a 2026 purchase. Below it, Class 10 and the full cost; above it, Class 10.1 and a cost truncated for good.
- Check whether your vehicle really is a passenger vehicle. A one-to-three-seat pick-up used more than 50% of the time to carry goods is a motor vehicle: no ceiling, whatever the price.
- Give each capped car its own class. The T4002 guide says it in one sentence: "List each Class 10.1 vehicle separately." Two capped cars are never pooled; each has its own balance and its own story.
And if the choice comes down to two models, one of which goes past the ceiling, frame the question this way: the dollars above $39,000 are not "less deductible" — they are not deductible at all.
Frequently asked questions
What is the difference between Class 10 and Class 10.1?
Both depreciate a vehicle at the same 30% rate a year, applied to the balance left. The difference is price: a passenger vehicle bought in 2026 for more than $39,000 before tax goes in Class 10.1, and the CRA recognizes only $39,000 as its starting cost. Below that threshold, the car goes in Class 10 and its full cost is depreciated. Class 10.1 also carries two special rules: each car gets its own class, and resale gives no terminal loss.
What is the Class 10.1 ceiling for 2026?
$39,000 before tax, for a new or used car acquired on or after January 1, 2026, according to the Department of Finance Canada announcement. The sales taxes paid on that $39,000 are added to the depreciable cost. The ceiling was $38,000 for a 2025 purchase, $37,000 in 2024, $36,000 in 2023 and $34,000 in 2022. It is the year of purchase that sets the ceiling applying for the vehicle's whole tax life.
Can you deduct a loss when you sell a Class 10.1 car?
No. The terminal loss rules do not apply to Class 10.1: if you sell the car for less than the balance left to depreciate, the difference never becomes a deduction. In exchange, the recapture rules do not apply either, so selling above that balance adds nothing to your taxable income. In the year of the sale, you can still claim 50% of the CCA you could have claimed by keeping the vehicle to the end of the fiscal period.
Do pick-up trucks and SUVs fall under the $39,000 ceiling?
Not necessarily, because the ceiling only applies to passenger vehicles. A one-to-three-seat pick-up used more than 50% of the time to carry goods or equipment is classified as a motor vehicle by the CRA: it goes in Class 10, with no ceiling. A van or an SUV seating four to nine must reach 90% business use to earn the same classification. Below those thresholds, the vehicle is a passenger vehicle and the ceiling applies.
How much can you deduct in the first year?
In 2026, the full 30% rate. The half-year rule would normally allow only half, but the Accelerated Investment Incentive suspends it for property acquired after November 20, 2018 and available for use before 2028, and grants two times the normal first-year CCA. On a Class 10.1 car capped at $39,000, that is $11,700 in year one; on a Class 10 car bought for $35,000, $10,500.