CRA Mileage Reimbursement Guide
Welcome to Driversnote’s guide to mileage allowance and deductions in Canada. Here, you'll find a collection of articles and resources that will walk you through the rules around how to deduct your mileage allowance in Canada as an employee or self-employed individual. In short, it's all you need to know about the CRA mileage allowance.
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CRA automobile allowance
Automobile allowance refers to the compensation of costs related to driving when employees use their personal vehicles for business activities. Normally, the employer will cover these costs as payments in addition to employees’ salaries. As self-employed, business owner or an independent contractor, you can deduct vehicle-related expenses for your business driving from your yearly tax return.
Mileage allowance in Canada is normally calculated on a per-kilometre basis and is meant to cover the costs of owning and operating a personal vehicle for business-related purposes.
Every year, the CRA publishes a reasonable per-kilometre allowance rate that companies use to compensate employees.
What the CRA considers business-related driving
Business-related driving is considered to be any driving made for the purpose of being able to complete your work-related tasks. These include:
- Travelling between two places of work
- Attending work-related meetings or conferences
- Meeting clients and visiting customers
- Running employment-related errands such as replenishing supplies
Note that commuting from home to your workplace is not considered business driving.
The current CRA mileage rate
The 2023 CRA mileage rate for business-related driving is:
- 68 cents per km for the first 5,000 kilometres driven, then 62 cents for each additional kilometre
- For the territories, 72 cents per km for the first 5,000 kilometres driven, and 66 cents for each additional kilometre
See our dedicated article for the 2022 CRA mileage rates and rates for previous years.
Is the CRA mileage allowance taxable?
The CRA defines the official mileage rates as “reasonable per-kilometre allowance”.
If the mileage allowance you receive from your employer doesn’t exceed the reasonable per-kilometre rate, your allowance is not taxed. If you receive an allowance higher than the CRA rates, your allowance will be taxed as part of your income.
CRA mileage reimbursement rules
Your employer may reimburse you for driving your personal vehicle for business-related purposes. While there are no laws requiring employers to reimburse employees, it is a common practice to do so in Canada.
The most common reimbursement comes in the form of a per-kilometre rate at or lower than the official CRA automobile allowance rates. Another common reimbursement option is for your actual expenses of operating your vehicle for business-related driving.
Your employer should tell you what records they need you to keep based on the reimbursement method. In short, the things you’d want to keep a record of are your business trips, parking costs, tolls, and other expenses that arise during your work-related journeys. Continue reading below for more details on keeping a record of your business-related driving.
Keep in mind that if you use your vehicle for both personal and business purposes, your employer might require you to record both, in order to find out the business-use percentage of the vehicle.
Your reimbursement will not be taxed as income so long as it does not exceed the CRA reasonable per-kilometre allowance. If you are reimbursed at a higher than the reasonable CRA mileage rate, it will be taxed as part of your income.
If your allowance is taxed, or if your employer doesn’t provide any mileage reimbursement, you will be able to claim deductions for your business-related car expenses on your annual tax return.
Learn more about employee mileage reimbursement rules in our dedicated guide.
The CRA considers an allowance to be any payment to employees for their business-related driving using a personal automobile. Allowances are paid out with employees’ salaries and are taxable unless based on the reasonable CRA mileage rate for the particular year.
The CRA considers an allowance “reasonable”, which means it will not be taxed when it fulfils the following criteria:
- The allowance is paid out only for the number of business-related kilometres of employees
- You use a reasonable mileage rate - at the level of the official CRA mileage rates
- You haven’t provided any other employee reimbursement for the same business usage of the vehicle
If you provide mileage reimbursement that meets all the criteria, you will not need to deduct tax from employees’ allowances.
Any vehicle allowance you provide that does not meet these criteria should be taxed as income.
Mileage reimbursement must be taxed if:
- The reimbursement you pay per kilometre is too high or too low compared to the official CRA mileage rate for that year
- The reimbursement you provide is not based on the business kilometres employees drive for work purposes.
Providing a non-taxable mileage reimbursement in Canada to your employees is tax-free for your business if done under the specific regulations (as reimbursements are deductible business costs), and will ease the burden of work-related expenses for them.
For self-employed individuals
If you are self-employed and use your vehicle to conduct business, you will be able to deduct CRA mileage on your annual tax returns. If you use your vehicle solely for business, you will be able to claim all car-related expenses for the year. In case you use your vehicle for both business and personal driving, you will only be entitled to a car expense deduction for the portion of business driving.
The car expenses you can claim are:
- Licence and registration fees
- Fuel and oil costs
- Interest on money borrowed to buy a motor vehicle
- Maintenance and repairs
- Leasing costs
- Capital cost allowance
You will have to keep receipts for all expenses you are eligible to claim.
There are two methods by which you can claim CRA mileage - the full logbook and the simplified logbook methods.
The full logbook method requires you to keep a record of your driving each year. You need to record the following for each business trip:
- The date of the trip
- Your destination
- The purpose of the trip
- The number of kilometres you’ve driven.
You will also need to record odometer readings of your vehicle at the beginning and end of the tax year.
The simplified logbook method lets you keep a full logbook for one year to establish a base year’s use of your vehicle. You will have to record the same details as for the full logbook for the first year, and from then on will be able to use 3 months of your full logbook to estimate the business usage of your car.
You are required to keep your CRA mileage records for six years from the date of your tax return submission.
Note that you might have to follow specific rules on the business mileage expenses you can deduct according to how your vehicle is classed by the CRA. The CRA defines the following four types of vehicles:
- Motor vehicles
- Passenger vehicles
- Zero-emission passenger vehicles (ZEPV)
- Zero-emission vehicles (ZEV)
See which category your vehicle falls in according to the CRA.
Calculate the business use percentage of your vehicle
Knowing the portion of your vehicle's business use will help you determine how much you can claim in CRA mileage.
Let’s look at this simple example:
You've driven ten personal trips, each of which was 20 km. That totals 200 personal km (10*20 = 200).
You've also driven three work journeys totalling 200 business kilometres throughout the same period.
Divide your business kilometres by the total number of kilometres driven to determine your business use. In our example, you've used your car for business 50% of the time (200/400 = 0.5).
Calculating your total deduction from there is simple: Multiply your vehicle-related expenses by the share of business kilometres. For example, if you had $500 of expenses, multiply that by the share of business kilometres (0.5) – your CRA mileage deduction is $250.
CRA mileage records
No matter your employment situation, you will need to keep records to prove your CRA mileage claim or mileage reimbursement from an employer.
The general information you will need to record includes:
- The date
- Purpose; and
- The kilometres driven for each business trip.
If you use your vehicle for personal trips too, you will have to record these to figure out the percentage of use for business-related purposes only. Keep receipts of all vehicle-related expenses if your employer pays out mileage reimbursement based on the actual expenses or if you claim CRA mileage on your annual tax return.