Reasonable per-kilometre allowance
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.
For 2022, they are:
- 61¢ per kilometre for the first 5,000 kilometres driven
- 55¢ per kilometre driven after that
In the Northwest Territories, Yukon, and Nunavut, there is an additional 4¢ per kilometre allowed for travel.
For prior-year rates, see Automobile allowance rates.