Is car allowance taxable income?
Here we will quickly go over when your reimbursement for work-related car expenses is taxed as income and when not in regard to CRA car allowance rules and rates.
Depending on the method you are reimbursed by, your car allowance may or may not be taxed.
Car allowance is taxable
If you receive a fixed monthly car allowance to cover your work-related car costs, this is considered a benefit. Your car allowance will be taxed as part of your income.
If your employer pays out car allowance on a per work kilometre basis at a much higher or lower rate than the reasonable per-kilometre rate set by the CRA, your car allowance will also be taxed.
If the reimbursement you receive is not based on your actual business kilometres, but say on expenses, your reimbursement will be taxed.
Read more about car allowances and when they are taxed.
Car allowance is not taxable
If your employer reimburses you at the official CRA automobile allowance rate per km based on your actual business kilometres driven, your reimbursement will be tax-free.
How to know if your reimbursement was taxed
If your payment summary from your employer shows your reimbursement as a benefit, then your reimbursement was taxed. If the payment summary doesn’t show any withheld tax on the car allowance, then your reimbursement is tax-free. The withheld tax from your reimbursement is income, pension and insurance tax.
Claiming car expenses at tax time
One thing to keep in mind is that if you are paid for your expenses but no tax is deducted, you cannot claim them as a tax deduction. On the other hand, if your reimbursement had tax withheld, you can then claim your work-related car expenses as a deduction at tax time.
That's it for our guide on if mileage reimbursements are taxable income in Canada. We hope we've been of assistance and made your mileage tracking a bit easier.
How to automate your mileage logbook
CRA Mileage Guide
- Mileage logbook requirements
- Mileage rates for 2021 and previous years
- Current CRA mileage rates
- For self-employed
- Calculate your reimbursement
- Is car allowance taxable?
- CRA mileage rate 2022
- For employers
- For employees