Employers may pay employees an allowance as compensation for the cost of using their own vehicle in the course of performing their employment duties. This allowance is taxable to the employee as additional salary or wages unless it is a “reasonable” allowance as provided by the Income Tax Act.

An allowance is considered to be “reasonable” if all of the following criteria are met:

• The allowance is based only on the number of business kilometres driven in a year;
• The rate per-kilometre is “reasonable”; and
• The employee is not reimbursed for any actual expenses related to the vehicle.

The “reasonable” per-kilometre rate is determined annually by the Department of Finance. For 2020, the Department of Finance has announced the “reasonable” automobile allowance rates as follows:

• 59¢ per kilometre for the first 5,000 kilometres driven; and
• 53¢ per kilometre driven thereafter.

For prior year rates, please see this link to the CRA website.

The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Accordingly, the information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. While we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. Again, no one should act upon any information contained herein without seeking appropriate professional advice after a thorough examination of their particular situation.