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• Motor vehicle expenses claimed by self-employed individuals

You may provide an allowance or a reimbursement to your employee to compensate for use of their automobile or motor vehicle in connection with or in the course of their office or employment duties.

What is an allowance, a reimbursement or an accountable advance

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• Steps
• References

Steps

1. Determine if the automobile or motor vehicle was used for business (employment-related) driving

   Business (employment-related) driving is generally any driving done by an employee between work locations for purposes related to their employment duties. These include regular places of employment and a point of call. There may be other situations where driving is also considered to be employment-related.

   Personal driving is any driving by an employee of a vehicle for purposes not related to their employment.

   What is a regular place of employment

   The CRA considers a regular place of employment to be any location where your employee regularly:

   • Reports for work
   • Performs their employment duties

   "Regularly" means there is some degree of frequency or repetition in your employee’s reporting to that particular work location in a period (weekly, monthly or yearly). This does not need to be your establishment. An employee can have multiple regular places of employment.

   Generally, any travel by your employee between home and a regular place of employment is considered personal driving.

   Examples of a regular place of employment

   A regular place of employment may include:

   • The office where your employee reports daily
   • Several store locations that a manager visits monthly
   • A client’s premises when your employee reports daily for a 6 month project
   • A client’s premises when your employee attends biweekly meetings

   What are the exceptions for transportation to a regular place of employment in specific situations

   The benefit may not be taxable where you provide your employee with transportation to a regular place of employment in one of the following situations:

   • You need to provide your employee with transportation from pickup points to an employment location where public and private vehicles are neither allowed nor practical at the location because of security or other reasons
   • You need to provide transportation to your employee who works in remote locations
   • You need to provide transportation to your employee who works at special work sites, including prescribed zones

   What if your employee drives to multiple regular place of employment during the same day

   Depending on the situation, your employee may have more than one location where they regularly report for work. The CRA considers that if your employee drives to multiple regular places of employment in a day, the following is considered personal driving:

   • Between your employee’s home and their first work location
   • Between the final work location and your employee’s home

   Any other travel by your employee between regular places of employment is considered business (employment-related) driving.

   What is a point of call

   The CRA considers a point of call any location other than a regular place of employment where your employee goes to perform their employment duties.

   Generally, any travel by your employee between home and a point of call is considered business (employment-related) driving, if you need or allow your employee to travel directly from home to a point of call, or return home from that point. In order for the travel to be considered business (employment-related) driving, it must be reasonable that your employee’s travel to the point to call be made at that time and on the way to or from work.

   If the travel is not reasonable, it is considered personal driving.

   • Personal driving examples

     • Vacation trips
     • Driving to conduct personal activities
     • Travel between home and a regular place of employment other than a point of call
     • Travel between home and a regular place of employment even if you insist your employee drives the vehicle home, such as when your employee is on call

   • Business (employment-related) driving examples

     • Travel between your employee’s regular place of employment and a client’s workplace (a point of call)
     • Travel for business purpose errands
     • Travel between home and a point of call, such as:
       • Salesperson visiting customers
       • Going to a client’s premises for a meeting
       • Making a repair call

   • If there is no business (employment-related) driving, the allowance or reimbursement paid to your employee is taxable.

     Continue to: Step 5 - Calculate the value of the allowance or reimbursement to be included on the T4 slip.

   • If there is business (employment-related) driving, the allowance or reimbursement to your employee may not be taxable.

     Continue to: Step 2 - Get the detailed records from your employee to confirm the total number of kilometres travelled for business (employment-related) driving.

2. Get the detailed records from your employee to confirm the total number of kilometres travelled for business (employment-related) driving

   If you provide an allowance or reimbursement to your employee to compensate them for expenses paid for the use of their own automobile or motor vehicle in the course of their employment duties, your employee should keep records of the number of kilometres travelled for business (employment-related) driving made with their own vehicle.

   The records, such as expense claims, receipts, logs or other records, will provide support that kilometres driven were in the performance of employment duties. You must get the records from your employee.

   Detailed records

   Depending on the situation, your employee should record the following information in their records:

   • Receipts
   • A log of all kilometres driven all year as part of their employment duties
   • A log of each work trip taken that includes the date, destination and purpose of the trip

   • If no record is kept, the allowance or reimbursement is generally taxable.

     Continue to: Step 5 - Calculate the value of the allowance or reimbursement to be included on the T4 slip.

   • If your employee kept the detailed records and you received a copy, the allowance or reimbursement may not be taxable.

     Continue to: Step 3 - Determine if an exception applies to the allowance or reimbursement you provide.

3. Determine if an exception applies to the allowance or reimbursement you provide

   If you provide an allowance or a reimbursement to your employee with a severe and prolonged mobility impairment for the use of their vehicle, the benefit may not be taxable.

   • If the use of the vehicle is in the above situation, do not continue to next step.

     Learn more on the above exception using the link.

   • If the use of the vehicle is not in the above situation, the allowance or reimbursement may be taxable.

     Continue to: Step 4 - Determine if the allowance or reimbursement is taxable.

4. Determine if the allowance or reimbursement is taxable

   Depending on your situation, the amounts you pay to your employee for the use of a vehicle they own and use in the course of their employment duties may not be taxable under the Income Tax Act or the CRA's administrative policy .

   Situations

   Situation: You provide an allowance to your employee
   

   Non-taxable situation

   If you provide an allowance to your employee to compensate for using their own vehicle, the allowance is not taxable if all of the following apply:

   • The allowance is based only on business (employment-related) kilometres driven in the course of their employment duties (step 1)

   • The per-kilometre rate is reasonable

   • You did not reimburse your employee for expenses related to the same use of the vehicle (does not apply to situations where you reimburse your employee for supplementary business insurance, or tolls and ferry charges, if you determined the allowance without including these reimbursements)

   What is a reasonable per-kilometre rate
   

   • Using the prescribed per-kilometre rates

     Generally, the CRA considers an allowance based on the per-kilometre rates prescribed in section 7306 of the Income Tax Regulations (ITR) (maximum amount deductible as a business expense) to be reasonable.

     Prescribed per-kilometre rates

     Year	First 5,000 kilometres	Additional kilometres
     2024	$0.70	$0.64
     2023	$0.68	$0.62
     2022	$0.61	$0.55

     The rate is $0.02 higher (or $0.04 for 2023 and previous years) in the Yukon, the Northwest Territories and Nunavut.

     
     Prior year rates
     

     The prior year rates

     Year	First 5,000 kilometres	Additional kilometres
     2021	$0.59	$0.53
     2020	$0.59	$0.53
     2019	$0.58	$0.52
     2018	$0.55	$0.49
     2017	$0.54	$0.48
     2016	$0.54	$0.48
     2015	$0.55	$0.49

     The rate is $0.04 higher in the Yukon, the Northwest Territories and Nunavut.

   • Using higher or lower per-kilometre rates

     Generally, if you use the rate prescribed in section 7306 of the ITR to cover your employee’s main costs of owning and operating their own vehicle as part of their employment duties, it is considered reasonable.

     If you use a rate that is lower or higher than the prescribed rate, it may not be considered reasonable.

     All of the facts relevant to your employee’s situation must be considered to determine if a lower or higher rate is considered reasonable. For example, factors such as the type of vehicle, the driving conditions, or a higher fuel cost at a specific location, may be situations where you determine that the reasonable rates are higher or lower.

     However, if you pay your employee an allowance based on a per-kilometer rate that is not considered reasonable in the situation, the allowance is taxable.

   
   

   Taxable situation

   If you provide an allowance to your employee for using their own vehicle, the allowance is taxable if all of the above conditions are not met.

   The following are examples of taxable situations:

   • The per-kilometre rates are not considered reasonable because they are either too high or too low
   • You provided a flat-rate allowance that is not based on the number of kilometres driven
   • You combined allowances for which you used a flat-rate and a reasonable per-kilometre rate for the same use of the vehicle (the combined amount is considered 1 allowance)

   Examples – Taxable
   

   Examples of allowances that are taxable

   Examples	Result
   You own an office supply company where you have employees on the road as salespersons. Each salesperson has a specific territory to cover and they use their own vehicle. They are paid a monthly flat rate allowance of $600 no matter where they go or how far they drive. This was agreed on when they were hired and is cited in their respective employment contracts.	The allowance is taxable to your employee because: The flat rate allowance is not based on the number of kilometres driven in the course of the taxpayer’s office or employment.
   You pay an allowance to your employee as a flat per-diem rate to offset your employee’s fixed expenses for each day their vehicle is required for business (employment-related) driving. You also pay a reasonable per-kilometre rate for each kilometre driven to offset your employee’s operating expenses.	The total combined allowance is taxable to your employee because: The flat per-diem rate is provided to cover the same use of the vehicle on which the reasonable per-kilometre allowance is based. That is, the flat per-diem rate and the per-kilometre rate both cover some or all of the same fixed expenses. The combined amount is considered one allowance and it is not based only on the number of kilometres the vehicle is used for employment purposes.
   You pay an allowance to your employee as a flat-rate per month for travel inside the employment district. You also pay a reasonable per-kilometre rate for employment-related travel outside the employment district.	The allowances are considered separately and one is taxable to your employee because: Since the flat-rate allowance does not cover any of the same use of the vehicle on which the reasonable per-kilometer is based, the allowances are considered separately. The reasonable per-kilometre allowance paid for travel outside the district is not taxable. The amount based on a flat-rate paid for travel inside the district is taxable, since it is not based solely on the number of kilometres for which the vehicle is used in connection with the employment.

   Situation: You reimburse your employee
   

   Non-taxable situation

   If you reimburse your employee for amounts they spent for expenses for using their own vehicle, the reimbursement is not taxable if all of the following apply:

   • The reimbursement is for expenses they spent for using their own vehicle in the course of or in connection with their office or employment
   • The amounts reimbursed are reasonable and you can justify your position
   • The reimbursement is supported by your employee record’s, such as receipts, expense reports, vouchers, log books and other documentation (step 2)

   Taxable situation

   If the amount you reimbursed to your employee to compensate for using their own vehicle does not meet all conditions above, the reimbursement is taxable. Generally, it is only taxable if you reimburse your employee for personal expenses.

   Situation: You provide an accountable advance to your employee
   

   Non-taxable situation

   If you provide an accountable advance to cover the expenses your employee will incur for using their own vehicle in the course of or in connection with their employment, the advance is not taxable if all of the following apply:

   • The amount is reasonable and you can justify your position
   • The advance is supported by your employee records such as receipts, expense reports, vouchers, log books and other documentation (step 2)
   • Your received from your employee any amount that they did not spend from the advance

   Example - Not taxable
   

   Example of an accountable advance that is not taxable

   Example	Result
   You own a sporting goods store. There is an out of town sales conference your business is participating in and you have scheduled a salesperson who is an employee to attend. Two weeks prior to travel, you pay an accountable advance to your salesperson to cover expenses relating to the use of their personal vehicle to travel to and from the conference. The salesperson accounted for their expenses.	In this example, the accountable advance is not taxable to your employee because all of the following were true of the expenses incurred: In connection with the employee’s employment Were all supported by receipts The employee returned any remaining amount of the advance they did not spend

   
   

   Taxable situation

   If you provide an accountable advance to cover the expenses your employee will incur for using their own vehicle in the course of or in connection with your employee’s employment which does not meet all the conditions above, the advance is taxable.

   Situation: You are averaging allowances to your employee
   

   Taxable situation

   If you provide your employee with a flat-rate or lump-sum allowance that is not based on the number of kilometres driven, you cannot average the allowances at the end of the year to determine a reasonable per-kilometre rate .

   The allowances are taxable and must be included in your employee’s income.

   Non-taxable situation

   Where you provide allowances based on the number of kilometres driven calculated using a reasonable per-kilometre rate, your employees have to file expense claims with you on an ongoing basis, starting at the beginning of the year.

   To reduce the burden on employers from the administrative problems this can create, if you provide allowances to employees for vehicle expenses in advance, the allowances may not be taxable if all of the following apply:

   • You have a pre-established per-kilometre rate starting at the beginning of the year
   • The rate and the advances are reasonable under the circumstances and you can justify your position
   • You record this method in your employee’s file
   • No other provision of the Income Tax Act requires you to include the advances in your employee’s income

   What to do at the end of the year

   In addition to the above conditions, your employee must also account for the business (employment-related) kilometres they travelled and any advances they received. They have to do this on the date their employment ends in the year or by December 31, whichever is earlier. At that time, you need to review the total amount of allowances or advances you paid using the following calculation:

   • Kilometres driven for business driving in the year
   • multiply by Pre-established per kilometre rate
     
   • equals Result A
   • minus Total of allowances or advances you paid to your employee in the year
     
   • equals Result B

   • If result B is positive, you must pay your employee the difference at that time.

   • If result B is negative, your employee must repay you the difference at that time. You cannot simply report the excess advance on the employee’s T4 slip.

   
   

   • If the allowance or reimbursement is not taxable, you do not need to do any calculations.

     Do not continue to next step.

   • If the allowance or reimbursement is taxable, continue to: Step 5 - Calculate the value of the allowance or reimbursement to be included on the T4 slip.

5. Calculate the value of the allowance or reimbursement to be included on the T4 slip

   If the allowance or reimbursement paid to your employee for the use of their own vehicle is taxable, the value of the benefit is equal to the amount paid to your employee in the year. This amount must be included on the T4 slip of your employee.

6. Determine if you need to fill out Form T2200

   If the allowance has been included in your employee’s income, your employee may be eligible to deduct employment expenses if certain conditions are met and you may need to fill out Form T2200, Declaration of Conditions of Employment.

   It is your employee’s responsibility to claim the expenses on their income tax and benefit return and to keep records to support the claim.

   Learn more on allowable employment expenses:

   • Allowable motor vehicle expenses – Salaried employee expenses
   • Allowable motor vehicle expenses – Commission employee expenses
   • Transportation employees

7. Withhold payroll deductions and calculate the GST/HST to remit

   If the benefit is taxable, you must withhold the following deductions:

   Withhold:

   • Income tax
   • CPP
   • EI

   Do not remit:

   • GST/HST (do not remit)

   The amounts must be included in the pay period they were received or enjoyed.

   Learn how to calculate deductions and the GST/HST to remit on benefits: How to calculate - Calculate payroll deductions and contributions

8. Report the benefit on a slip

   If the benefit is taxable, you must report the following amounts on the T4 slip:

   • Box 14 - Employment Income
   • Box 24 - EI insurable earnings
   • Box 26 - CPP/QPP pensionable earnings
   • Code 40 - Other Information

   Learn how to report the benefit on a slip: Fill out the slips and summaries - File information returns (slips and summaries).

References

Related

Government Announces the 2024 Automobile Deduction Limits and Expense Benefit Rates for Businesses

Legislation