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:
- The allowance is based only on the number of business kilometres driven in a year
- The rate per-kilometre is reasonable
- You did not reimburse the employee for expenses related to the same use of the vehicle. This does not apply to situations where you reimburse an employee for toll or ferry charges or supplementary business insurance, if you determined the allowance without including these reimbursements
When your employees fill out their income tax and benefit return, they do not include this allowance in income.
|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
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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