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Business -> Automobiles, Passenger Vehicles and Motor Vehicles -> Tax-free automobile allowances

Tax-Free Motor Vehicle Allowances

Income tax act s. 6(1)(b)(vii.1), Income Tax Regulations s. 7306

The Income Tax Act sets out the following amounts per kilometre that may be deducted by the employer and paid tax-free to employees or officers as reimbursement for motor vehicle expenses incurred while travelling for business purposes, using their personal vehicle:

Year Provinces Territories
First
5,000 km
Over
5,000 km
First
5,000 km
Over
5,000 km
2021 $0.59 $0.53 $0.63 $0.57
2020 0.59 0.53 0.63 0.57
2019 0.58 0.52 0.62 0.56
2018 0.55 0.49 0.59 0.53
2016-17 0.54 0.48 0.58 0.52
2015 0.55 0.49 0.59 0.53
2013-14 0.54 0.48 0.58 0.52
2012 0.53 0.47 0.57 0.51
2008-11 0.52 0.46 0.56 0.50
2006-07 0.50 0.44 0.54 0.48
2005 0.45 0.39 0.49 0.43
2003-04 0.42 0.36 0.46 0.40

A vehicle allowance will be considered a taxable benefit if an employee or officer is paid:

bulleta per-kilometre rate that Canada Revenue Agency considers too high or too low and thus not reasonable
bulleta flat rate motor vehicle allowance that is not based on the number of kilometres driven
bulletan allowance that is a combination of flat-rate and reasonable per-kilometre allowance that cover the same use for the vehicle
bulletpossibly, a vehicle allowance that covers only part of the employee's kilometres driven for business purposes.  See the August 2021 Life in the Tax Lane, and Technical Interpretation 2017-0713041E5 Allowance for the use of a motor vehicle (French).

These taxable benefit amounts are considered insurable and pensionable, so EI premiums, CPP contributions and income tax must be withheld.  Employees receiving a taxable allowance may be able to claim allowable expenses on their tax return.  See our article on Employee-Owned Vehicles.

Both reasonable allowances and taxable allowances are deductible by the employer.

What is an officer?

S. 248(1) of the Income Tax Act defines "office" as

the position of an individual entitling the individual to a fixed or ascertainable stipend or remuneration and includes a judicial office, the office of a minister of the Crown, the office of a member of the Senate or House of Commons of Canada, a member of a legislative assembly or a member of a legislative or executive council and any other office, the incumbent of which is elected by popular vote or is elected or appointed in a representative capacity and also includes the position of a corporation director, and “officer” means a person holding such an office.

Input Tax Credit on Mileage Allowance

An input tax credit can be claimed by the employer based on the mileage allowance paid to the employees or officers.

TaxTips.ca Resources

Automobiles, Passenger Vehicles and Motor Vehicles - Tax Issues

Canada Revenue Agency (CRA) Resources

Automobile Allowances

T4130 Employers' Guide - Taxable Benefits and Allowances

Income Tax Folio S2-F3-C2 Motor Vehicle Allowances - as of October 11, 2017 this is currently under review and unavailable.

IT-522 Vehicle, Travel and Sales Expenses of Employees

Revised: July 27, 2021

 

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