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CRA Rate for Mileage: Vehicle Allowance Information That Employers Should Know

If you’re an employer whose employees use their own vehicles for work, it’s essential for you to know the CRA rate for mileage (or kilometre rate, as determined and upheld by the Canada Revenue Agency.) Understanding the CRA vehicle allowance ensures your business complies with the law, from employee reimbursement rights and employer obligations to tax claims and deductions. In this article, we’ll cover the 2021 mileage rate for provinces and territories, how to properly reimburse those who use their own vehicles for work, and identify what the reasonable costs are.

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What is the CRA vehicle allowance?

This is a payment that employees are entitled to receive from their employer if they’re using their own personal vehicle for business purposes. This vehicle allowance is an additional payment to the employee’s wages or salary.

Calculated according to the CRA rate of mileage, more commonly known as the per-kilometre rate, employees are permitted to claim vehicle expenses on their income tax returns, unless the allowance is not taxable or is based on a suitable per-kilometre rate.

What are the 2021 CRA mileage rates for various provinces?

Generally speaking, provinces share what vehicle allowance rates they consider reasonable, with the territories receiving an added 4¢ per kilometre. The 2021 reasonable vehicle allowance rate per kilometre (km) is as follows:

  • 59¢ per km for the first 5,000 km driven.
  • 53¢ per kilometre driven after the first 5,000 km.
  • An additional 4¢ per km driven in the Northwest Territories, Nunavut, and Yukon.

Find the latest kilometre rates for your province or territory here, as well as the vehicle mileage rates for previous years.

How do I determine eligibility for the CRA vehicle allowance?

If you’re having trouble determining when employees can or can’t receive payment for use of their private vehicle, please review this section. Whether you and your employee have a written or verbal agreement or not, if the employee incurs out-of-pocket business expenses, a certain sum may be claimed on their income tax return. The CRA has laid out criteria for the reasonable per-kilometre allowance.

How should employers reimburse the CRA vehicle allowance?

Employers operating and/or paying business taxes in Canada must sign a government-mandated T2200 form. After filling out your section, you may distribute it to your employees so they can deduct the work expenses they accrued from their income. A form signed by you, the employer, means you recognize that the employee has paid for these expenses and according to their contract with you, the agreed conditions for deduction were met.

The Form T2200, Declaration of Conditions of Employment is available for you to download and print from the Government of Canada website. Once an employee claims the vehicle allowance expenses to the CRA, it is recommended that both the employee and employer keep these on record to back up the claim in case of an audit or questioning. Information on additional employment expenses can be found by reviewing the Guide T4044, Employment Expenses

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