Automobile and motor vehicle allowances

Automobile and motor vehicle allowances An automobile allowance means any payment that employees receive from an employer for using their own vehicle in connection with or in the course of their office or employment. This payment is in addition to their salary or wages, without having to account for its use. An allowance is taxable unless it is based on a reasonable per-kilometre allowance.

Reasonable per-kilometre allowance

If the allowance paid to your employees is based on a per-kilometre rate that we consider reasonable, it is not taxable. When your employees complete their returns, they do not include this allowance in income. A non-taxable allowance is not subject to CPP and EI withholdings. We consider an allowance to be reasonable only 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; and you did not reimburse the employee for expenses related to the same use, except in 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. The type of vehicle and the driving conditions usually determine whether we consider an allowance to be reasonable. The per kilometre allowance 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. The automobile allowance rates for 2008 are 52¢ per kilometre for the first 5,000 kilometres, and 46¢ per kilometre thereafter. In the Northwest Territories, Yukon, and Nunavut, there is an additional 4¢ per kilometre for travel. For prior-year rates, see Automobile allowance rates.