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.
What are the CRA automobile allowance rates?
The "reasonable" automobile allowance rates for 2019 are:
- 58¢ per kilometre for the first 5,000 kilometres and 52¢ thereafter
- Add 4¢ per kilometre in the Northwest Territories, the Yukon, and Nunavut.
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.
What does the CRA consider a reasonable allowance?
The CRA considers an allowance reasonable if it hits the following criteria:
- It only considers the business kilometres driven in a year
- The rate per-kilometre is reasonable
- You did not reimburse the employee for expenses related to the same use of the vehicle (some exceptions).
How have the automobile allowance rates changed over time?
Here's a list of the how the CRA Automobile Allowance Rate has changed over time. [table id=14 /]
What are automobile benefits?
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.
Calculating benefits for motor vehicles that are not automobiles
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:
- Using the vehicle's fair market value
- When there are restrictions on personal use, and the vehicle is essential for performing the work, a cents-per-kilometre basis is used according to Income Tax Regulation 7306
- When there are written restrictions on personal use, and the vehicle is specifically designed for and suited to the work, and is essential for work duties, a cents-per-kilometre basis is used according to Income Tax Regulation 7305.1
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.
Reasonable allowances
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.
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