April 19, 2021

Mileage reimbursement rules for employers

PUBLISHED APR 19, 2021 - 6 MIN READ

Whether your employees drive company cars or drive their personal vehicles for business, employees generally expect to be reimbursed for their work-related car expenses. 

There are benefits to reimbursing your employees’ business expenses, particularly that it can help keep your employees happy and even attract new ones. If done right, reimbursing them is also tax-free for you (since reimbursements are deductible business expenses), so it also helps your business to pay less tax.

Below, we'll go through the mileage reimbursement rules for employers and business owners, the choices you might have, and best practices for a mileage reimbursement program.

So, do I have to reimburse my employees?

Perhaps. It depends on if your employees fall under an agreement or contract that requires car expense and mileage reimbursement. Even if they don’t, it can be a tax benefit to do so, as your business can claim the expenses as a tax deduction at the end of the financial year. We suggest you check with your legal advisor, accountant, or HR advisor to be sure.

Does the CRA set a standard rate for reimbursing car expenses?

Each year, the CRA sets their standard rate for deducting work-related car expenses from a tax return - the “automobile allowance” rate. It represents the highest that you can reimburse each kilometre driven for business and still get a tax deduction. 

The same goes for your employees: If they are reimbursed at the automobile allowance rate, they do not pay tax off of the reimbursement. Other methods of covering employee car expenses may be treated as income and taxed.

Learn more about how the CRA automobile allowance rate is set and see current and historical rates here.

You can choose to use a different cents per km rate, but most companies consider the CRA rate the standard. If the CRA considers the rate that you set to be unreasonable, they will consider the entire allowance to be taxable - learn more about that here.

Can my business claim a tax deduction for reimbursement of employee expenses?

In short, yes. If an employee is reimbursed for using their personal vehicle for work, your business can claim a deduction for any reasonable reimbursements you pay.

If an employee is using a company car, the rules are a little more complicated, depending on if you pay operating costs, if the employee is able to use the car for personal purposes, and more. Learn more about these rules here, as they will impact taxation and other costs required by the CRA.

Best practices for your mileage program

To keep things simple, many companies use an app for mileage tracking and most use the CRA automobile allowance rate. It saves time for employees who no longer have to manually keep mileage logs, and administratively it's the easiest solution. Using an app also helps your company avoid over-reported mileage claims, while making sure your employees get what they're entitled to.

While Driversnote is one such app, we recommend that you research options to automate mileage tracking and record keeping.

Of course, the best mileage reimbursement program is also compliant with CRA requirements. Read on to see what that means for you and your employees.

You need to record business mileage accurately

Whether your business is small or large, it is crucial to accurately record work mileage - and to be able to keep it separate from any personal travel using the same car or cars.

Depending on which method you use to calculate your work-related car expenses, you will generally need to keep the following records:

  • Details of the kilometres travelled for business and private use
  • Any fuel, oil, repair, servicing, or insurance receipts 
  • Registration papers
  • If relevant, any loan or lease documents
  • Any relevant tax invoices
  • Details of how you calculated your claim

This means that both you and your employees - at least, those who are being reimbursed for work-related car expenses - must keep records that are updated frequently to ensure their accuracy. 

That's it for our guide on the basics of reimbursing mileage for employers in Canada. We hope we've been of assistance :)

Happy tracking! 

 

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This material has been prepared for general informational purposes only, and should not be taken as professional advice from Driversnote. You should consider seeking independent legal, taxation, or financial advice from a professional to check how this information relates to your own circumstances. Relevant laws also change from time to time.