e-4007 (Employment and labour)

Currently, the tax-exempt per-kilometre allowance limit is 61 cents per kilometre for the first 5,000 kilometres driven and 55 cents for each additional kilometre (these amounts are 4 cents higher in the territories). These amounts reflect the key cost components of owning and operating an automobile, which include fuel costs but also depreciation, financing, licenses/insurance and maintenance. The limit is reviewed annually against inflation to ensure that it continues to roughly reflect the average costs involved in business driving. Any changes to cost components that arise during a year will typically be announced in December and reflected in the limit that applies in the following year.    

Although the tax-exempt per-kilometre allowance limit represents the maximum amount that an employer can deduct as business expenses, employers may opt to pay a different allowance amount to the employee. If the allowance is considered to be reasonable then it would be tax-free for the employee. Otherwise, it is a taxable benefit and has to be included in the employee's income.

Alternatively, employers may choose to deduct reimbursement of actual automobile expenses incurred by the employee in the course of employment instead of using the prescribed limit. This approach would provide the most accurate account of automobile expenses incurred by employees, especially when cost components fluctuate significantly. Employees can also deduct motor vehicle expenses in respect of their work-related driving (subject to conditions) net of all rebates, motor vehicle allowances, and reimbursements for motor vehicle expenses the employee received that are not included in their income.