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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:
A vehicle allowance will be considered a taxable benefit if an employee or officer is paid:
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.
An input tax credit can be claimed by the employer based on the mileage allowance paid to the employees or officers.
Canada Revenue Agency (CRA) ResourcesAutomobile Allowances
Income Tax Folio S2-F3-C2 Motor Vehicle Allowances - as of October 11, 2017 this is currently under review and unavailable.
Revised: October 26, 2023
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