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 the CRA usually considers reasonable are the amounts prescribed in section 7306 of the Income Tax Regulations.
For 2023, they are:
- 68¢ per kilometre for the first 5,000 kilometres driven
- 62¢ per kilometre driven after that
In the Northwest Territories, Yukon, and Nunavut, there is an additional 4¢ per kilometre allowed for travel.
Rates for previous tax years can be found in older versions of the Guide T4130, Employers' Guide – Taxable Benefits Allowances.
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