Averaging allowances

To comply with the rules on reasonable per-kilometre allowances, employees have to file expense claims with you on an ongoing basis, starting at the beginning of the year.

A flat-rate or lump-sum allowance that is not based on the number of kilometres driven cannot be averaged at the end of the year to determine a reasonable per-kilometre rate and then be excluded from the employee's income.

We understand the administrative problems that can result from this. As a result, we are giving you a choice. If you make accountable advances to employees for vehicle expenses, you do not have to include them in the employee's income if all of the following conditions are met:

  • there is a pre-established per-kilometre rate that is not more than a reasonable amount
  • the rate and the advances are reasonable under the circumstances
  • you document this method in the employee's record
  • no other provision of the Income Tax Act requires you to include the advances in the employee's income

Employees have to account for the business kilometres they travelled and any advances they received. They have to do so on the date their employment ends in the year, or by December 31, whichever is earlier.

At that time, you have to pay any amounts you owe the employee and the employee has to repay any amount over actual expenses. Where no repayment occurs, you cannot simply report the excess advances on the employee's T4 slip.

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