2019-0827841M4 Mileage rates

Principal Issues: What per-kilometre rates are generally considered a reasonable motor vehicle allowance.

Position: The prescribed rates are generally considered reasonable.

Reasons: Income tax regulation 7306.

Author: McCarthy, Kathryn
Section: 6(1)(b), Regulation 7305.1, Regulation 7306.

XXXXXXXXXX

Dear XXXXXXXXXX:

The Honourable Diane Lebouthillier, Minister of National Revenue, has asked me to reply to correspondence she received on September 23, 2019, from the office of the Honourable Bill Morneau, Minister of Finance, about reasonable motor vehicle mileage rates for employment benefit purposes.

An employee must generally include any amount received because of employment, including allowances for personal or living expenses, in their employment income. However, certain reasonable motor vehicle allowances received by employees for travel to perform their employment duties may be excluded from their income. A motor vehicle allowance is considered reasonable if it meets the following conditions:

* the allowance is based only on the number of business kilometres driven in a year;

* the per-kilometre rate is reasonable; and

* the employee is not reimbursed for expenses related to the same use of the vehicle.

In your correspondence, you include a news release titled, Government Announces the 2019 Automobile Deduction Expense Benefit Rates for Businesses, which is available at fin.gc.ca/n18/18-125-eng.asp. The per-kilometre rates described in the news release are considered reasonable rates for an employee’s use of a personal vehicle for business purposes. Other rates can also be considered reasonable. For example, the Canada Revenue Agency considers an allowance rate to be reasonable if it covers the out‑of‑pocket costs of an employee’s use of a personal motor vehicle for business purposes.

In particular, you ask whether 28 cents per kilometre is the minimum allowance rate for the use of an employee’s personal vehicle for business purposes. There is no minimum allowance rate. The 28-cent rate mentioned in the news release is for employer-owned automobiles. This rate does not apply to employees’ personal motor vehicles.

I appreciate the opportunity to respond to your concerns and trust the information I have provided is helpful.

Sincerely,

Geoff Trueman
Assistant Commissioner
Legislative Policy and Regulatory Affairs Branch
Canada Revenue Agency

Prepared by:
Kathryn McCarthy

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