CRA mileage rates and reasonable automobile allowances
Do you drive your personal vehicle for business purposes? You may be eligible for special allowances in your tax return! Keep reading to learn more about CRA mileage rates and reasonable automobile expenses.
What are mileage rates and reasonable automobile allowances?
The Canada Revenue Agency (CRA) provides mileage rates and reasonable automobile allowances for those who need to use their personal vehicles for work-related purposes. This includes motor vehicle expenses for transportation, travel, or other related business activities.
The CRA mileage rate considers the fixed and variable costs of operating a vehicle. The fixed cost per kilometre combines depreciation, interest on financing, licensing, registration and insurance costs. The variable expenses calculations account for fuel consumption and maintenance costs, including oil, tires and repairs.
Based on these factors, the CRA sets a prescribed rate to reimburse motorists for each kilometre they drive while conducting business activities. The CRA adjusts mileage rates annually and posts them on its public website.
What is the CRA reasonable allowance for mileage rates for 2022 and 2023?
If you are catching up with mileage rates and reimbursements for 2022, the CRA rate for automobile allowances calculates 61¢ per kilometre for the first 5,000 kilometres driven and 55¢ per kilometre driven after that. With an additional 4¢ per kilometre if driving in the Northwest Territories, Yukon, and Nunavut.
As of 2023, the CRA will give back 68¢ per kilometre for the first 5,000 kilometres driven and 62¢ per kilometre after that. If you drive in the Northwest Territories, Yukon or Nunavut, CRA mileage rates are 72¢ per kilometre for the first 5,000 kilometres and 66¢ afterwards.
You can check current and prior mileage rates on the CRA website.
How to report automobile allowances on your tax return?
Employers and business owners can calculate automobile allowances in three different ways:
- Flat rate Allowance: Flat rate allowances are a method of calculating automobile expenses for employees and business owners. This method allows employers to pay employees a fixed amount per pay period regardless of actual kilometres driven. This fixed amount is paid to employees in each pay period. When using the flat-rate allowance method, the allowance is considered a taxable benefit and must be reported on the employee’s T4. As with other taxable incomes, automobile allowances are subject to CPP contributions, Employment Insurance and income taxes. Both box 14 and “Other information” of an employee’s T4 slip shall reflect this allowance under code “40.”
- Mileage Rate Allowance: mileage rate allowances consider the amount driven by a personal vehicle for business purposes. Allowances based on mileage driven are considered reimbursement for employee expenses and not a taxable benefit. In this case, they don’t meet the taxable income criteria nor CPP and EI deductions. This category’s allowance shall be paid using the CRA mileage rates posted under “Reasonable per-Kilometer Allowance.”
- Combination of flat rate and mileage rate: depending on the employment contract and expectations, employers can pay a combination of flat rate and per mileage rate. In that case, CPP and EI deductions apply to the combined allowance under the taxable benefit reported on the employee’s T4.
Whether using per-kilometre mileage rates or a combination allowance, employees must keep detailed records of all motor vehicle expenses incurred while conducting work-related activities to substantiate claims made when filing taxes or applying for employer reimbursements.
Questions about which mileage rate to use and how to report it? Our team of experts can help determine which automobile allowance best fits your business. Contact us today and ensure you comply with CRA reporting and payroll deductions.