The institution in charge of drawing up and enforcing tax laws is the Canada Revenue Agency (CRA). This authority should be consulted in issues regarding the legal framework for reimbursing your employees tax-free.
The main topic of this article will be the CRA mileage rate and taxpayers' automobile income tax deduction limits in 2024. We’ll also talk about everything you should know to reimburse your employees adequately while keeping your expenses in check.
The CRA mileage rate in 2024 is set at 70 cents for the initial 5,000 kilometers and 64 cents for each subsequent kilometer.
However, the rates are slightly higher in the Territories - the Northwest Territories, Yukon, and Nunavut, with 74 cents per kilometer for the first 5,000 kilometers and 68 cents for each additional kilometer.
Timeero tracks your employees' kilometers and routes accurately.
The Canada Revenue Agency (CRA) establishes an annual per-kilometer rate as a guideline for Canadian employers to follow when setting the rate at which they reimburse their employees.
The CRA mileage rate isn’t mandatory, meaningbusiness owners can pay more or less than the recommended amount for motor vehicle expenses. It’s worth mentioning that this tax law has nothing to do with employment regulations. Therefore, it doesn’t specify the minimum amount an employer has to pay their employees when using their personal vehicles for business purposes.
The CRA mileage rate is the highest amount per business kilometer you can reimburse while still being able to receive a tax deduction.
Employers typically stick to this prescribed rate for practical reasons, as it allows them to compensate their employees fairly while simultaneously cutting their tax bill.
Note that if you reimburse your employees at a higher rate, this will constitute taxable income.
What Are Other Automobile Deduction Limits You Can Take Advantage Of?
Business owners and self-employed individuals in Canada are also eligible for other automobile deduction limits. This means you can claim a tax deduction for the cost of the vehicle. This deduction is referred to as capital cost allowance (CCA), allowing you to recover the cost of the vehicle over several years as it depreciates.
The CRA groups different types of vehicles into classes and assigns a percentage to each class. This percentage is called the CCA rate which represents how fast a vehicle depreciates.
The limit on capital cost changes every year too. Here are the latest CRA stipulations:
If your vehicle belongs to Class 10.1, the capital cost allowance limit is increased from $36,000 to $37,000. This limit applies to new and used vehicles purchased on or after January 1, 2024.
The capital cost allowance limit for Class 54 zero-emission passenger vehicles will be $62,000 before tax, remaining the same as the previous year. This limit applies to both new and used vehicles purchased on or after January 1, 2024.
For new leases signed on or after January 1, 2024, the deductible costs will increase from $950 to $1050 per month before tax.
For new automobile loans signed on or after January 1, 2024, the maximum allowable interest deduction will be increased from $300 to $350 per month.
Mileage Reimbursement Example Using the CRA Mileage Rate In 2024
Let’s say your employee drove 1,500 kilometers, and the CRA mileage rate in 2024 is 70¢ for the first 5,000 kilometers driven.
The formula for calculating the reimbursement amount is 0.7 ×1,500 = $1020. In this case, $1050 is the maximum non-taxable reimbursement amount you can give your employee who drove 1,500 kilometers in a tax year.
What Was The CRA Mileage Rate In 2023?
The CRA mileage rate in 2023 was, on average, 2¢ lower, meaning it was set at the following rates:
68¢ for the first 5,000 kilometers driven
62¢ after the first 5,000 kilometers
An additional 4¢ per kilometer in the Northwest Territories, Yukon, and Nunavut.
This increase is the consequence of higher driving costs. The CRA adjusts the rate to account for inflation as well as fuel prices, maintenance, insurance, and repair costs. The agency considers all factors of owning a vehicle when calculating the CRA mileage rate.
The CRA mileage rate is higher in the Northwest Territories, Yukon, and Nunavut because these regions are considered prescribed northern zones with higher travel costs than other parts of Canada. The additional 4¢ per kilometer added to the standard automobile allowance rates, reflects higher vehicle operating expenses in these areas, such as fuel, maintenance, insurance, and depreciation.
Higher costs in these regions are due to various factors, such as the harsh climate, limited infrastructure, distance from major urban centers, and lack of competition among suppliers.
What Was The CRA Mileage Rate In 2022?
The CRA mileage rate for 2022 was set at:
61¢ for the first 5,000 kilometers driven
55¢ after the first 5,000 kilometers
An additional 4¢ per kilometer in the Northwest Territories, Yukon, and Nunavut.
What Are The Mileage Reimbursement Rules For Employers In Canada?
When discussing mileage reimbursement in Canada and the CRA mileage rate 2024, it’s important to clarify what this refers to and in what cases employees are entitled to these expenses.
Do I Have To Reimburse My Employees?
Legally speaking, you don’t have to. It all depends on your agreement or contract with the employee.
But, even though no law requires you to reimburse your employees for the business use of their personal vehicle, there’s no reason why you shouldn’t cover these expenses.
It’s very unlikely that someone would accept using their personal vehicle for business purposes without being adequately compensated. Let’s not forget that it’s not only about fuel costs, but the vehicle loses its value pretty quickly. For example, most new cars lose 20% of their value over the first year. After five years, a typical car’s value will drop to only 40% of its initial value. If you want to attract quality employees and retain them, you should offer a fair mileage reimbursement policy.
Another factor you should remember is that your company can claim a mileage tax deduction at the end of the year. Not only will you keep your employees happy by offering compensation, but you’ll also benefit from tax write-offs.
Do Your Employees Qualify For Mileage Reimbursement?
If your employees use their personal vehicles for business-related purposes, you can decide to reimburse them for the expenses they paid out of their own pocket.
Here are some examples in which your employees qualify for CRA mileage reimbursement:
Commuting between different work locations, such as construction sites or client homes
Picking up or delivering work-related items.
You probably notice that commuting from home to work and vice versa isn’t listed as a reimbursable expense and isn’t constituted as a taxable benefit. The reason for this is straightforward: the CRA, like its U.S. equivalent, the IRS, considers an employee’s home location their choice and is therefore not responsible for covering mileage expenses related to commuting.
Can My Company Claim A Mileage Tax Deduction?
As we’ve already established, the answer is yes.
If your employees use their personal vehicles for work-related purposes and you reimburse them for these expenses, your company can claim a write-off on the taxes.
However, there are some rules that need to be followed to qualify for a mileage tax deduction.
Paying a reasonable per-kilometer allowance
Apart from using the prescribed CRA mileage rate for 2024, an allowance will be considered reasonable and tax-deductible only if:
It covers the yearly amount of kilometers driven solely for business purposes
It’s based on a reasonable per-kilometer rate
The employee hasn’t already been reimbursed for the same use of their vehicle. This doesn’t refer to reimbursing tolls or additional travel insurance that weren’t included in this allowance
It’s worth mentioning that a reasonable per-kilometer allowance isn’t treated as income, so your employees won’t have to include it in their tax returns.
Using a company car
The situation is more complex if your employees use company cars.
In that case, it all depends on who covers operating expenses and whether the cars are used for business purposes only. That’s why it’s best to consult your accountant on how to maximize your tax return.
A flat-rate car allowance
A flat-rate vehicle allowance that isn’t calculated based on the number of kilometers driven is considered taxable income.
As this is a lump sum you give to your employees in advance, it can’t be averaged at the end of the year and translated to a per-kilometer allowance to be excluded from the employee’s income.
However, the CRA allows a workaround to help you handle this situation without including a flat-rate allowance in your employee’s income. Find more about how to average allowances here.
Best Practices For Implementing The CRA Mileage Rate
To claim your tax deduction, you must substantiate that you’ve properly implemented the standard mileage rate. You must also prove that your business mileage records are accurate.
How To Stay CRA-Compliant
According to the CRA, keeping a detailed logbook for the entire year is the best way to provide evidence about your business travel and substantiate your mileage claim.
Whenever you or your employees use a personal vehicle for business purposes, the following information should be entered in the logbook to stay compliant:
Date of the trip
Starting location
Destination
Trip purpose
Mileage at the start of the trip
Mileage at the end of the trip
Total kilometers driven
How Do You Make Sure Your Employees Are Accurately Reimbursed?
The best way to cut your company car expenses and ensure your employees aren’t reporting their personal driving as business miles is to have them do the following:
Keep a logbook with the previously mentioned details
Track mileage
Submit reports on time
Save all documentation related to their business trips. The CRA can conduct an audit and request to check all data, such as odometer readings, toll receipts, traffic cameras, and any other business expenses.
Having adequate records will hold your employees accountable, properly reimburse them, and prevent any issues with the CRA.
Easier said than done, particularly if your employees have to enter all the details manually, using the pen-and-paper approach. Not to mention that this method is error-prone, which can lead to inaccurate records.
Using a robust mileage tracker app like Timeero can help you streamline mileage reimbursement in Canada. An automatic mileage tracking app helps you stay CRA compliant while eliminating the need to enter miles into a log book, a time consuming task.
Timeero mileage logs keep you CRA compliant.
With Timeero, you no longer need to count on your employees to log their business miles accurately or worry if they are taking longer routes. Timeero’s GPS-tracking can tell you exactly where every employee is while they’re at work or traveling for business. All your employees need to do is clock in and out using their mobile apps.
In addition, Timeero’s geofencing technology reminds your employees to clock in or out in the event they forget to do so and discourages mileage fraud.
Track your employees' work hours, locations, and mileage with ease.
If you need to replay entire routes to see where your employees have driven while performing business tasks, the breadcrumb trail feature shows you every stop your worker has taken during their shift.
Segmented Tracking: Timeero lets you see an entire workday, including necessary reporting details, at a glance.
Timeero works offline and doesn’t require installing expensive hardware.
Since it automatically captures the location, date, and purpose of the trip, Timeero is a great choice if you need a tool for tracking your whole company’s mileage without having to worry about whether someone forgot to make an entry in the logbook.
The best mileage tracking apps also keep a detailed history of changes in the employee’s time or mileage logs, preventing any confusion or complications.
How To Claim Mileage On Taxes In Canada
The CRA is very strict and persistent in preventing excessive claims for business uses of personal cars. The Agency tends to scrutinize the cases in which all or most mileage driven is claimed as business use.
If an audit is requested, you’ll need to determine exactly how many non-business-related miles/kilometers every employee drove and be able to prove this.
To figure this out, determine the total miles/kilometers that were driven using the odometer readings at the beginning and end of the tax year and calculate the difference between the two. Next, subtract the number of business miles/kilometers driven in that period from the total miles/kilometers driven to calculate the personal mileage.
Implement A Policy For The Personal Use Of Company Vehicles
If you have company vehicles that your employees use, it’s important to monitor mileage and separate business-related miles from personal miles/kilometers.
Don’t forget that commuting from home to work isn’t considered a business-related purpose, so it’s taxable.
It’s important to have a policy in place that will allow you to claim mileage with the CRA.
This policy should outline the following:
Who can drive the vehicle - is it only the employee or can their spouse drive the vehicle too?
Is personal use allowed, and to what extent? Define what’s allowed and what’s not. For example, explain whether your employee can use the company vehicle for a family trip.
Specify how employees should keep mileage records. To respect privacy, we discourage tracking employees outside of work hours. As a solution, you can use Timeero. This tool allows tracking of mileage or kilometers exclusively during work hours, ensuring both accuracy and privacy.
Besides keeping track of mileage and separating business from personal use, you and your employees must keep the following relevant documentation:
Receipts for gas, oil, repairs, insurance, or any other operating and maintenance expenses
Vehicle registration certificate
Lease contract and documentation, if applicable
Tax invoices
The method you used to determine your claim, i.e., if you used the CRA mileage rate for 2024 or something else
Understanding The 2024 CRA Mileage Rate
Making sure your employees are fairly reimbursed for driving their personal vehicles for business-related purposes, while cutting your expenses can be challenging.
By following the CRA mileage rate method, your employees will receive proper reimbursement. At the same time, your company can benefit from tax deductions on these business mileage reimbursements.
A tool like Timeero will streamline the entire process of mileage tracking. With its automated tracking feature, it ensures accurate record-keeping without any manual intervention. The seamless submission process further simplifies the task for your employees. This means you can focus on other important aspects of your business without worrying about the accuracy of mileage records.
2024 CRA Mileage Rate: FAQ
What is the 2024 CRA mileage rate in Alberta?
The 2024 CRA Mileage Rate in Alberta is set to 70 cents per kilometer for the first 5,000 kilometers driven and 64 cents for each extra kilometer. The per-kilometer rate is the same across Canada, except for Territories.
What is the 2024 CRA mileage rate in Ontario?
The 2024 CRA Mileage Rate in Ontario is set to 70 cents per kilometer for the first 5,000 kilometers driven and 64 cents for each additional kilometer, the same as in other parts of Canada, except Territories.
Capture mileage in real-time and avoid inaccurate reporting with Timeero.
Andjelka is a sociologist turned digital marketer. She specializes in creating content for SaaS and software companies. When she’s not researching the most effective employee management techniques, Andjelka loves cooking, reading, and fighting for human rights.
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