Rules of Application
- Generally, automobile allowances received by employees are subject to tax unless it is a “reasonable” allowance for travelling expenses or for the use of an automobile.
- In order to be considered “reasonable”, the allowance must meet all the following conditions:
- be based solely on business kilometers driven in a year;
- the rate per kilometer is reasonable;
- relates to business activities in Canada; and
- employee must not be entitled to other forms of reimbursements by employer for automobile related expenses which are covered by the allowance.
- Fixed allowance – flat rate allowance is not considered “reasonable” and is therefore taxable.
- Combination of flat rate allowance and reasonable per kilometer allowance is also taxable.
- Note that for the employer, a per kilometer allowance is deductible for 2007, only up to:
- $0.50 per km on the first 5,000 kms
- $0.44 per km thereafter
- For 2008, the per kilometer allowance will be deductible only up to:
- $0.52 per km on the first 5,000 kms
- $0.46 per km thereafter
Computation of Taxable Benefit
- Benefit = Amount of allowance.
- No GST/HST, or QST benefit.
- Employee may claim automobile expenses and GST and QST rebates (where employer is a registrant) on personal income tax return (Form T2200).
- NO GST rebate available where employer is a listed financial institution.