How to calculate the allowance you give to your employee for using their own automobile or other vehicle

Instead of providing the employee with a vehicle, you may give the employee an allowance for using their own automobile or other vehicle for work. This type of an allowance is a taxable benefit to the employee unless the allowance is calculated solely on the number of business kilometres driven in a year multiplied by a reasonable rate per-kilometre.

Reasonable rate per-kilometre

If you pay your employee an allowance based on a per-kilometre rate that is considered reasonable, do not deduct CPP contributions, EI premiums, or income tax.

The per-kilometre rates that we usually consider reasonable are the amounts prescribed in section 7306 of the Income Tax Regulations. Although these rates represent the maximum amount that you can deduct as business expenses, you can use them as a guideline to determine if the allowance paid to your employee is reasonable. The type of vehicle and the driving conditions are other factors used to determine whether an allowance is considered to be reasonable.

We consider an allowance to be reasonable if all of the following conditions apply:

When your employees fill out their income tax and benefit return, they do not include this allowance in income.

Reasonable allowance rates
Year Per kilometre rate for
the first 5,000 kilometres
Per kilometre rate after the
first 5,000 kilometres
Additional per kilometre rate for travel in
the Northwest Territories, Yukon and Nunavut
2020 59¢ 53¢
2021 59¢ 53¢
2022 61¢ 55¢

Rates for previous tax years can be found in older versions of the Guide T4130, Employers' Guide – Taxable Benefits Allowances or in section 7306 of the Income Tax Regulations.

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