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Tax Free Vehicle Allowances

If you pay your employee an allowance based on a per-kilometre rate that we consider reasonable, do not deduct CPP contributions, EI premiums, or income tax.

The type of vehicle and the driving conditions usually determine whether we consider an allowance to be reasonable. The per-kilometre rates that we usually consider reasonable are the amounts prescribed in section 7306 of the Income Tax Regulations. Although these rates represent the maximum amount you can deduct as business expenses, you can use them as a guideline to determine if the allowance paid to your employee is reasonable.

We consider an allowance to be reasonable if all the following conditions apply:

  • The allowance is based only on the number of business kilometres driven in a year.

  • The rate per-kilometre is reasonable.

  • You did not reimburse the employee for expenses related to the same use of the vehicle. This does not apply to situations where you reimburse an employee for toll or ferry charges or supplementary business insurance, if you have determined the allowance without including these reimbursements.

When your employees complete their income tax and benefit return, they do not include this allowance in income.

Reasonable allowance rates

For 2018, they are:

  • 55¢ per kilometre for the first 5,000 kilometres driven

  • 49¢ per kilometre driven after that

In the Northwest Territories, Yukon, and Nunavut, there is an additional 4¢ per kilometre for travel.

Taxpayer Relief Provisions (Fairness provisions)


Canada Revenue Agency (CRA) has the ability to waive penalties and interest, accept late-filed, amended or revoked income tax elections,  and to provide income tax refunds beyond the 3-year period normally allowed (for individuals and testamentary trusts only).  There is a 10-year time limit on these taxpayer relief provisions (previously termed fairness provisions).  This means that to apply for leniency for tax year 2006, the application must be submitted to CRA by December 31, 2016.


The taxpayer relief provisions and 10-year time limit also apply to GST/HST registrants.


The taxpayer relief provisions can apply when a taxpayer or registrant has not been able to meet tax obligations due to:

extraordinary circumstances actions of the CRA inability to pay or financial hardship, other circumstances.


To make application under these provisions, taxpayers can complete form RC4288 - Request for Taxpayer Relief (see below), and submit it to their local tax services office.

A June 2011 Federal Court of Appeal decision, Bozzer v Canada, resulted in an outcome which benefited the taxpayer.  As a result, the taxpayer relief provisions can apply to reduce interest and penalties which have accumulated in the 10 taxation years preceding the request for leniency, even if the tax debt causing the interest arose prior to that period.  So, if a tax debt arose from the 2000 tax year, penalties and interest that have accumulated from 2006 to 2015 could still be reduced as a result of a 2016 request for leniency.


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