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Employee-Owned Motor Vehicles
If an employee-owned motor vehicle is used for travelling in the performance of the duties of employment, then:
(i) a reasonable allowance may be paid to the employee on a tax-free basis for the use of the vehicle, or
(ii) the employer can reimburse the employee for the business use of the vehicle, based on submitted receipts, or
(iii) the motor vehicle expenses may be deducted by the employee on their tax return (Income Tax Act s. 8(1)(f), (h.1)) if the employee:
Form T2200, Declaration of Conditions of Employment, must be completed by the employer in order for the employee to claim these expenses.
Reimbursements or allowances paid by the employer to the employee can be deducted by the employer. These payments need not be reported on a tax return by the employee, unless the allowance does not fit the definition of reasonable allowance. Employers - see also GST/HST Input Tax Credits on Motor Vehicle Allowances.
Video Tax News Life in the Tax Lane August 2022 re required travel between home and work
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Canada Revenue Agency (CRA) Resources
Interpretation bulletin IT-522R Vehicle, Travel and Sales Expenses of Employees (Archived)
A reasonable per-kilometre allowance is tax-free, and is the easiest method for an employee to recover vehicle expenses.
Employees deducting vehicle expenses on their tax return must track vehicle kilometres and vehicle expenses for the entire year.
Revised: December 19, 2023
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