Mileage reimbursement
Paying employees a per-kilometre rate for business trips made in their own vehicle.
In short
- The rate covers fuel, wear, insurance and depreciation. No fuel receipts are needed.
- In Canada, a reasonable per-kilometre allowance based only on business distance is generally not taxable. The CRA publishes a reference rate each year.
- A log of dates, destinations, purpose and distance is what supports the claim.
Mileage reimbursement compensates employees who use their personal vehicle for work. Instead of reimbursing fuel and a share of repairs, the company pays a fixed rate for each business kilometre driven.
How the rate works
The rate is meant to cover the full cost of running a car: fuel, maintenance, insurance, depreciation. Each year the CRA publishes the per-kilometre amounts it considers reasonable, with a higher rate for the first 5,000 km and a lower rate after that, and slightly higher rates in the territories. Employers can pay those rates or their own, as long as the allowance is reasonable.
Taxable or not
In Canada, an allowance is generally not a taxable benefit if it is reasonable and calculated solely on business kilometres. A flat monthly car allowance that does not depend on distance is generally taxable. In the United States, reimbursements up to the IRS standard mileage rate under an accountable plan are not taxable.
What counts as business driving
Driving between home and a regular workplace is personal commuting and not reimbursable. Trips to clients, suppliers, other offices or temporary work locations count. A log recording the date, start and end point, purpose and distance of each trip is the documentation tax authorities expect.
Worked example
A month of client visits
A sales rep logs 640 business kilometres in March across 11 client visits. At a company rate of $0.70 per km, they are reimbursed $448. The rate is within what the CRA considers reasonable and the claim is based only on distance. The $448 is not a taxable benefit. No fuel receipts are needed; the trip log is the support.