Benefits and allowances for employees can lead to a tax bill. This post will go over the automobile allowance rates, automobile benefits and what it means for your taxes.
The "reasonable" automobile allowance rates for 2019 are:
If you use your personal vehicle for business purposes, this is an important rate to know. It's the rate an employer can reimburse you for business vehicle use without having to report it on your income.
The CRA considers an allowance reasonable if it hits the following criteria:
Here's a list of the how the CRA Automobile Allowance Rate has changed over time. [table id=14 /]
The type of vehicle you use can help determine the CRA taxes, deductions and insurance. You can calculate automobile benefits by using the standby charge and operating expenses. For other motor vehicles, benefits are calculated differently. Regardless of the type of vehicle, a benefit of an amount that exceeds a reasonable allowance is subject to taxation. Employers must determine income tax, Canada Pension Plan, and Employment Insurance on the allowance as it is paid throughout the year. This holds true whether a per-kilometre, flat rate, or combined allowance is used. If an employee reimburses the standby charge, including GST/HST and PST, then there's no taxable benefit to report. In the case of partial reimbursement, the net benefit is reported on the T4 slip. If an employee pays a third party for operating expenses such as fuel or repairs (with GST/HST and PST), then the operating expense benefit is reduced. Records must be available to prove that the employee paid a third party.
Different types of motor vehicles are subject to different ways of calculating benefits. The three main methods and criteria for vehicles not defined as automobiles are:
As with employer-provided automobiles, motor vehicle benefits that exceed reasonable rates must be reported on T4 slips. If considerably higher or lower rates are paid to the employee, employers must provide justification.
An allowance paid for business driving according to prescribed rates is considered part of an employee's income. That amount need not be reported on a T4 slip. Employee records are used to support claims with regard to rate and personal versus business driving. A flat rate allowance must be reported since it is not reasonable. Reasonable rates are determined according to mileage. A flat rate allowance is a taxable benefit. Employers may choose to combine flat rate and per-kilometre allowance. For example, an employer may pay a flat rate allowance for driving within the city where the business is based. For out-of-town trips, the employer may pay a per-kilometre allowance.