26 October 2023 Ministerial Correspondence 2023-0984161M4 - Motor vehicle allowance rates for small businesses

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Correspondence from federal MP asking the Minister to increase the per-kilometre rates that the CRA usually considers reasonable.

Position: The per-kilometre rates that the CRA usually considers reasonable are amounts prescribed in section 7306 of the Income Tax Regulations. However, depending on the facts of a particular situation, other amounts may also be considered to be reasonable.

Reasons: See above.

Legislative Policy and Regulatory Affairs Branch			          2023-098416
Business and Employment Division					

XXXXXXXXXX

Dear XXXXXXXXXX:

I am writing in reply to your correspondence addressed to my predecessor, the Honourable Diane Lebouthillier, that I received from the Honourable Mona Fortier, former President of the Treasury Board, about reasonable kilometric rates that small businesses can use to calculate motor vehicle allowances for employees. Please excuse the delay of this response.

Reasonable motor vehicle allowances that employees receive for travelling in the performance of their employment duties may be excluded from income. Generally, the Canada Revenue Agency (CRA) considers a motor vehicle 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.
• An employee is not reimbursed for expenses related to the same use of the vehicle.
• The per-kilometre rate is reasonable.

The CRA generally considers the per-kilometre rates prescribed in section 7306 of the Income Tax Regulations to be reasonable for the purposes of excluding from income an allowance for the use of a motor vehicle under paragraph 6(1)(b) of the Income Tax Act.

The rates that are prescribed in the Regulations are the responsibility of the Department of Finance Canada. Therefore, I am sending a copy of our correspondence to the Honourable Chrystia Freeland, Minister of Finance, for her consideration.

While the reasonableness of a motor vehicle allowance is always a question of fact, the CRA may consider a different per-kilometre rate than the prescribed rates to be reasonable. For example, employers may give a higher per-kilometre rate to employees affected by factors such as the type of vehicle, driving conditions, and higher fuel costs at a particular location.

Please note that the CRA generally considers a per-kilometre allowance rate to be reasonable if it is designed to cover an employee’s out-of-pocket costs for the use of a motor vehicle in the course of carrying out duties of employment. You can find more information about reasonable per-kilometre motor vehicle allowances at canada.ca/automotor-allowances.

If an allowance does not cover all of the employee’s out-of-pocket expenses, the employee can include the allowance in their income and claim a deduction for the motor vehicle expenses they incurred over the course of carrying out their employment duties. To do so, the employee must have a completed Form T2200, Declaration of Conditions of Employment, from their employer.

When an employee uses a motor vehicle for employment and personal use, the employee can deduct the expenses related to earning employment income. They can deduct only motor vehicle expenses that are reasonable and supported by receipts. The best evidence employees can use to support the employment use of their vehicle is an accurate logbook of employment travel. They should keep this logbook for the entire year and log the date, destination, reason, and distance covered for each trip. For more information about motor vehicle expenses, see Chapter 8 of Guide T4044, Employment Expenses, which is available at canada.ca/en/revenue-agency/services/forms-publications/publications/t4044.

I appreciate the opportunity to respond to your concerns and trust the information I have provided is helpful.

Sincerely,

Hon. Marie-Claude Bibeau, P.C., M.P.

Minister of National Revenue

c.c.: The Honourable Chrystia Freeland, P.C., M.P.

fin.minfinance-financemin.fin@canada.ca

Prepared by:

Randa El-Kadi
2023-098416