Paying employees for driving their own cars for work, or being paid for it, raises the same questions every time: which trips count, how much to pay, and whether the payment is taxable.
This guide explains employee mileage reimbursement in Canada from both sides: how employers can set up a tax-free mileage policy, what employees should record, and what happens when an allowance is not reimbursed or not reasonable.
What Is Mileage Reimbursement in Canada?
Mileage reimbursement is an amount an employer pays an employee for using a personal vehicle while performing employment duties. An employer may use a cents-per-kilometre allowance instead of separately reimbursing fuel and maintenance.
Eligible business kilometres × applicable rate = automobile allowance
What Is the 2026 Canada Mileage Reimbursement Rate?
Most employers use the CRA-prescribed rate as their benchmark: 73¢/km for the first 5,000 km and 67¢/km after that in the provinces (77¢/71¢ in the territories). For the full rate explanation, the 2015–2026 rate history and worked examples, see our CRA Mileage Rate 2026 guide.
Example: 3,000 Business Kilometres
An employee in a province drives 3,000 eligible business kilometres:
3,000 × $0.73 = $2,190
Because the total is below 5,000 km, all kilometres use the first-tier rate.
Example: 9,000 Business Kilometres
For 9,000 business kilometres in a province:
- First 5,000 km: 5,000 × $0.73 = $3,650
- Remaining 4,000 km: 4,000 × $0.67 = $2,680
- Total estimated allowance: $6,330
This tiered method avoids applying the higher rate to kilometres above 5,000.
What Counts as Business Mileage?
A trip generally must be connected with employment duties rather than personal travel. Depending on the circumstances, business travel can include:
- Travel between work locations.
- Visits to customers or clients.
- Off-site business meetings.
- Travel to a temporary work location.
- Visits to suppliers.
- Travel between job sites.
- Other duties performed away from the regular workplace.
The purpose and facts of each trip matter.
Does Your Normal Commute Count?
Normal travel between home and a regular workplace is generally personal commuting. By comparison, a trip from the regular workplace to a client location may be business travel. Employees should not record every kilometre driven on a workday as reimbursable mileage.
Mileage Reimbursement vs Fuel Reimbursement
A kilometre-based automobile allowance recognizes more than fuel. Personal vehicle costs can include maintenance, repairs, insurance, depreciation, tires, registration and other operating expenses.
Reimbursing a specific fuel receipt is therefore different from paying a prescribed kilometre-based allowance.
Is Mileage Reimbursement Taxable in Canada?
A reasonable automobile allowance is generally non-taxable when all of the following apply:
- It is based only on business kilometres driven in the course of employment.
- The per-kilometre rate is reasonable.
- The employee is not also reimbursed for expenses covering the same vehicle use, except certain supplementary business insurance, tolls or ferry charges where applicable.
An unreasonable kilometre rate or a flat allowance unrelated to actual kilometres can be taxable. Employers should review the current CRA rules for the specific arrangement.
What About a Flat Monthly Car Allowance?
A fixed CAD 500 payment every month, regardless of whether an employee drives 100 or 2,000 business kilometres, is different from an allowance calculated directly from documented business kilometres.
The CRA generally treats a flat-rate allowance covering the same vehicle use differently because it is not based solely on employment kilometres.
Mileage Reimbursement Policy Checklist for Employers
A written policy keeps reimbursements consistent and makes the tax treatment easier to support. A good policy covers:
- The rate: the per-kilometre rate you pay, and whether it follows the CRA rate including the lower rate after 5,000 km.
- Eligible trips: which trips count as business travel and a clear statement that normal home-to-workplace commuting does not.
- Records: what employees must log for each trip (date, start, destination, purpose, kilometres).
- Deadlines: how often claims are submitted, for example monthly.
- What the rate covers: fuel, maintenance, insurance and depreciation are covered by the per-km rate; say whether parking, tolls and ferries are reimbursed separately.
- No double payment: employees should not also be reimbursed for fuel or other costs covered by the same per-km allowance.
- Payroll treatment: how any taxable allowance is processed through payroll.
Reasonable vs Taxable Allowances: Examples
| Arrangement | Typical tax treatment |
|---|---|
| Per-km allowance at the CRA rate, based only on logged business kilometres | Generally reasonable and non-taxable |
| Flat $500 a month regardless of kilometres driven | Generally taxable to the employee |
| Per-km allowance plus separate fuel reimbursement for the same trips | Generally taxable, because the same vehicle use is covered twice |
| Reimbursement of actual receipts (parking, tolls) for business trips | Generally not a taxable benefit |
A taxable allowance is added to the employee’s employment income on their T4 slip. Check the current CRA guidance for your exact arrangement.
What If Your Employer Doesn’t Reimburse Your Mileage?
If you must use your own vehicle for work and are not paid a non-taxable allowance for it, you may be able to deduct motor vehicle expenses yourself. Your employer completes Form T2200 (Declaration of Conditions of Employment) and you claim the expenses on Form T777 (Statement of Employment Expenses) with your tax return, based on the business-use percentage shown by your mileage log.
Do Employers Have to Use the CRA Rate?
Employer policies can vary. The prescribed rate is an important benchmark for a reasonable allowance, but employment contracts and internal expense policies may use another rate. If a rate is not reasonable in the circumstances, its tax treatment may differ.
What Records Should Employees Keep?
| Record | Example |
|---|---|
| Date | March 12 |
| Starting point | Office |
| Destination | Client location |
| Purpose | Client meeting |
| Distance | 36 km |
A mileage log should distinguish business travel from personal driving. Keeping records throughout the year is more reliable than reconstructing kilometres later.
Mileage Reimbursement in the Territories
The prescribed 2026 rates are four cents higher in Yukon, Nunavut and the Northwest Territories: $0.77 for the first 5,000 km and $0.71 for each additional kilometre.
Employee Reimbursement vs Self-Employed Vehicle Expenses
A self-employed person may calculate the business-use percentage of actual expenses such as fuel, insurance, repairs, lease costs, interest and capital cost allowance. This is different from an employee receiving a reasonable per-kilometre allowance from an employer.
Calculate Your Canada Mileage Reimbursement
Enter business kilometres, province or territory and the applicable year to see the first tier, additional kilometres, territorial adjustment and total allowance.
Use the CRA Mileage Calculator 2026 →
The result is an estimate and does not replace tax or payroll advice.
Frequently Asked Questions
What is mileage reimbursement in Canada?
It is compensation an employer may provide when an employee uses a personal vehicle for employment-related travel.
How is mileage reimbursement calculated?
A common method multiplies eligible business kilometres by a reasonable per-kilometre rate, with a lower rate applying after 5,000 km.
Does commuting to work count?
Ordinary travel between home and a regular workplace is generally personal commuting.
Is mileage reimbursement taxable?
A reasonable allowance based only on business kilometres may be non-taxable when the CRA conditions are met. Flat or unreasonable allowances may be taxable.
Can my employer pay a different mileage rate?
Employer policies vary, but a rate that is not reasonable in the circumstances may receive different tax treatment.
Should I keep a mileage log?
Yes. Detailed records help separate business kilometres from personal driving.
Is a flat car allowance taxable in Canada?
Generally yes. A flat monthly amount that is not based on business kilometres is usually taxable and included in the employee’s income.
What can I do if my employer doesn’t pay mileage?
If you are required to use your own vehicle for work, your employer can complete Form T2200 and you can claim eligible motor vehicle expenses on Form T777.
Official Sources
- Canada Revenue Agency: Automobile allowances and reimbursements
- Department of Finance Canada: 2026 automobile rates
Final Thoughts
Mileage reimbursement in Canada is easier to manage when the allowance is based on genuine business kilometres and supported by accurate records. Separate commuting from employment travel, use the correct year and location, and apply both kilometre tiers when annual travel exceeds 5,000 km.
