Reasonable per-kilometre allowance

If you pay your employee an allowance based on a per-kilometre rate that we consider reasonable, do not deduct CPP contributions, EI premiums, or income tax.

The type of vehicle and the driving conditions usually determine whether we consider an allowance to be reasonable. 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 you can deduct as business expenses, you can use them as a guideline to determine if the allowance paid to your employee is reasonable.

We consider an allowance to be reasonable if all 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 have determined the allowance without including these reimbursements.

When your employees complete their income tax and benefit return, they do not include this allowance in income.

Reasonable allowance rates

For 2016, they are:

  • 54¢ per kilometre for the first 5,000 kilometres driven; and
  • 48¢ per kilometre driven after that.

In the Northwest Territories, Yukon, and Nunavut, there is an additional 4¢ per kilometre for travel.

For prior-year rates, see Automobile allowance rates.

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