Do you drive your personal vehicle for business purposes? Your employer may reimburse you for these costs using a CRA-approved automobile allowance. Keep reading to learn more about CRA mileage rates and reasonable automobile expenses.
Driving a personal vehicle for work can create significant costs for employees and businesses alike. To simplify reimbursements and maintain fairness, the Canada Revenue Agency publishes annual reasonable per-kilometre automobile allowance rates.
These rates allow employers to reimburse employees for business travel using their personal vehicles without the reimbursement being treated as taxable income, provided certain conditions are met.
Understanding these rates is important for employees who receive travel reimbursements, employers who administer payroll, and business owners reviewing historical tax years.
This updated guide explains:
- CRA mileage rates for 2024, 2025, and 2026
• How reasonable automobile allowances work
• How automobile allowances are reported for tax purposes
• Updated automobile deduction limits for 2026
• Key compliance considerations for employers and businesses
All figures are accurate as of March 2026 and reflect official CRA and Department of Finance announcements.
What Are CRA Mileage Rates and Reasonable Automobile Allowances?
The Canada Revenue Agency provides mileage rates and reasonable automobile allowances for those who need to use their personal vehicles for work-related purposes. This includes motor vehicle expenses for transportation, travel, or other related business activities.
When employees use their personal vehicles for business travel, employers can reimburse them using a reasonable per-kilometre allowance. When this allowance meets CRA criteria, it is considered a reimbursement rather than income.
This means the allowance is generally:
- Not taxable
• Not subject to CPP deductions
• Not subject to Employment Insurance deductions
• Not included as income on a T4 slip
The CRA sets these rates based on the estimated cost of operating a vehicle.
The CRA mileage rate considers the fixed and variable costs of operating a vehicle. The fixed cost per kilometre combines depreciation, interest on financing, licensing, registration, and insurance costs. The variable expenses calculations account for fuel consumption and maintenance costs, including oil, tires, and repairs.
Based on these factors, the CRA sets a prescribed rate to reimburse motorists for each kilometre they drive while conducting business activities. The CRA adjusts mileage rates annually and posts them on its public website.
CRA Mileage Rate Comparison (2024–2026)
Because many individuals file prior-year taxes or reconcile expenses from multiple years, the table below compares recent CRA mileage rates.
Standard Province
| Year | First 5,000 km | Additional km |
| 2024 | 70¢ | 64¢ |
| 2025 | 72¢ | 66¢ |
| 2026 | 73¢ | 67¢ |
Northern Territories (Northwest Territories, Yukon, Nunavut)
The CRA allows an additional 4¢ per kilometre due to higher vehicle operating costs.
| Year | First 5,000 km | Additional km |
| 2024 | 74¢ | 68¢ |
| 2025 | 76¢ | 70¢ |
| 2026 | 73¢ | 71¢ |
For 2026, the CRA reasonable per-kilometre allowance is 73¢ per kilometre for the first 5,000 kilometres driven and 67¢ per kilometre thereafter. Employees working in the Northwest Territories, Yukon, or Nunavut may add 4¢ per kilometre, resulting in 77¢ and 71¢ respectively.
Difference Between CRA Mileage Rates and Government Travel Rates
The CRA reasonable allowance rates used for tax purposes are different from the kilometric rates published under the National Joint Council Travel Directive.
Those rates vary by province and are used primarily for federal government travel reimbursements.
Employers and payroll administrators should rely on the CRA reasonable per-kilometre allowance rates when determining whether reimbursements are taxable.
How Automobile Allowances Are Reported for Tax Purposes
Employers and business owners can calculate automobile allowances in three different ways.
Flat Rate Allowance
Flat rate allowances are a method of calculating automobile expenses for employees and business owners. This method allows employers to pay employees a fixed amount per pay period regardless of actual kilometres driven.
Because this allowance is not tied to actual business travel, it is considered a taxable benefit.
When using the flat-rate allowance method, the allowance is considered taxable income and must be reported on the employee’s T4.
This benefit is included in Box 14 of the T4 and reported under Code 40 in the “Other information” section. It is also subject to CPP deductions, Employment Insurance premiums, and income tax.
Per-Kilometre Allowance
Mileage rate allowances consider the amount driven by a personal vehicle for business purposes.
Allowances calculated using the CRA per-kilometre rates are generally considered reasonable reimbursements.
Allowances based on mileage driven are treated as reimbursement for employee expenses rather than taxable income.
For the allowance to remain non-taxable:
- It must be based solely on business kilometres driven
• The rate must be considered reasonable according to CRA guidelines
• The allowance must not include unrelated compensation
If these conditions are met, the allowance does not appear on the employee’s T4 slip.
Combination of Flat Rate and Per-Kilometre Allowances
Depending on the employment agreement, employers may provide both a flat allowance and a per-kilometre allowance.
CRA rules state that if both allowances compensate the employee for the same use of the vehicle, the entire allowance may be considered taxable.
If the flat-rate allowance covers one type of vehicle use and the per-kilometre rate covers another, they may be treated separately.
Because this structure can become complex, many employers choose to reimburse employees using only a per-kilometre allowance.
Record Keeping Requirements
Employees who receive mileage reimbursements should maintain detailed records of their work-related travel.
A mileage log should include:
- Date of each trip
• Destination
• Purpose of the trip
• Number of kilometres driven
Maintaining accurate records helps ensure allowances remain compliant and can support claims if the CRA reviews payroll records or expense reimbursements.
Automobile Deduction Limits (2024–2026 Comparison)
The Department of Finance also sets annual limits for certain automobile deductions used by businesses and employers.
Capital Cost Allowance Limit for Passenger Vehicles (Class 10.1)
| Year | Maximum CCA Cost |
| 2024 | $37,000 |
| 2025 | $38,000 |
| 2026 | $39,000 |
For vehicles acquired after January 1, 2026, the maximum capital cost used for depreciation purposes is $39,000 before tax.
Leasing Deduction Limits
| Year | Maximum Deductible Lease Cost |
| 2024 | $1,050 per month |
| 2025 | $1,100 per month |
| 2026 | $1,100 per month |
The leasing deduction ceiling remains $1,100 per month before tax for 2026.
Automobile Benefit Rates
These rates are used when calculating the taxable benefit of personal use of an employer-provided vehicle.
| Year | General Rate | Automobile Sales/Leasing Employees |
| 2024 | 33¢ per km | 30¢ per km |
| 2025 | 34¢ per km | 31¢ per km |
| 2026 | 34¢ per km | 31¢ per km |
These rates remain unchanged for 2026.
Zero Emission Vehicle CCA Ceiling
| Year | Limit |
| 2024 | $61,000 |
| 2025 | $61,000 |
| 2026 | $61,000 |
The capital cost ceiling for eligible zero-emission passenger vehicles remains $61,000 before tax.
Maximum Interest Deduction
| Year | Monthly Limit |
| 2024 | $300 |
| 2025 | $350 |
| 2026 | $350 |
The maximum deductible interest expense remains $350 per month.
Key Compliance Considerations
Employers should review their automobile allowance policies each year because CRA mileage rates are updated regularly.
Common compliance issues include:
- Using outdated mileage rates
• Combining allowances incorrectly
• Failing to maintain mileage records
• Misreporting taxable benefits on T4 slips
Conducting regular payroll reviews can help businesses ensure reimbursements remain compliant with CRA rules.
How E&E Professional Accountants Can Help
CRA mileage rates and automobile deduction limits play an important role in business expense reimbursements and payroll reporting.
For 2026, the key updates include:
- Mileage allowance increased to 73¢ and 67¢ per kilometre
• Class 10.1 CCA ceiling increased to $39,000
• Most other automobile deduction limits remain unchanged
Keeping up to date with these rates helps employers reimburse employees fairly while ensuring compliance with Canadian tax regulations.
Questions about which mileage rate to use and how to report it? At E&E Professional Accountants, our team of experts can help determine which automobile allowance best fits your business. Contact us today and ensure you comply with CRA reporting and payroll deductions.
Sources
Canada Revenue Agency. Automobile or Motor Vehicle Allowances.
Canada Revenue Agency. Employers’ Guide – Taxable Benefits and Allowances (T4130).
Canada Revenue Agency. Motor Vehicle Expenses.
Canada Revenue Agency. Directive on Travel: Appendix A – CRA Kilometric Rates.