Accounting for automotive repair & sales.

Questions worth getting ahead of

• Checking that repairs, sales and leases are treated as taxable
• Valuing parts and vehicle inventory at year-end
• Reporting benefits when staff drive demonstrators or shop vehicles
• Understanding which tool and commission expenses staff can claim
• Knowing the 2026 limits on vehicles bought for business use

Repairs, sales and leases are generally taxable

The CRA lists car repairs, and sales and leases of automobiles, as taxable supplies for GST/HST. If you are not a small supplier, generally meaning your taxable revenue, with your associates, has passed $30,000 in a single calendar quarter or across four consecutive quarters, you register, collect the tax and may claim input tax credits on related costs. A shop that starts small can cross the line faster than expected after one fleet contract. Track taxable sales by month from the beginning, and ask your accountant how each revenue stream, such as labour, parts or leasing, is classified.

Count and value parts inventory consistently

For income tax, the CRA describes two ways to value inventory: the entire inventory at fair market value, or individual items at the lesser of cost and fair market value. Cost includes expenses to bring an item to your location and put it in a condition to be used. Opening and closing inventory feed directly into your cost of goods sold. Parts, tires and vehicles held for sale all belong in that discussion. Document your count date, how costs are assigned to parts, and how you treat slow-moving stock before the year ends.

Staff driving demonstrators create benefit questions

When an employer provides a vehicle that an employee can also use personally, the CRA treats that personal use as a taxable benefit. It uses a standby charge and an operating expense benefit. For 2026 the prescribed rate for the operating expense benefit calculation is 34 cents per kilometre, or 31 cents for employees whose employment is principally selling or leasing automobiles. Detailed records of personal and business kilometres can support a reduced standby charge. Keep a logbook for each shop or demonstrator vehicle and tell your payroll provider which employees qualify for the lower rate.

Tools and commissions have their own rules

Employed tradespeople may be able to deduct the cost of eligible tools, up to a limit, if the employer certifies on Form T2200 that the tools were bought as a condition of the job. An eligible apprentice mechanic may qualify for a further deduction. Commission sales staff face another test: to deduct their own expenses, they must be normally required to work away from the employer’s place of business, among other conditions. A salesperson who works from the showroom may not meet it. Plan your T2200 process before year-end so staff can file correctly.

Vehicles bought for business use have limits

For passenger vehicles acquired on or after January 1, 2026, the Department of Finance says the Class 10.1 capital cost allowance ceiling is $39,000 before tax. Deductible leasing costs stay at $1,100 a month for new leases, and the interest deduction limit stays at $350 a month on new automobile loans. These limits matter when the business buys a vehicle for an owner, a manager or a courtesy car. Decide at purchase whether a vehicle is inventory or business equipment, and keep the paperwork that shows the decision.

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