Businesses often require employees to use automobiles to perform
their employment duties. Most often, a business will provide an
automobile to the employee or will pay the employee for use of the
employee's own vehicle. These options present different income
tax consequences for the employer and the employee.
Employee-owned automobiles
Many businesses prefer to pay employees to use their own
automobiles. If payments to the employee are based solely on the
business kilometres driven, the payments will be deductible to the
employer and considered a tax-free allowance if the payments do not
exceed the prescribed rates set annually by the Canada Revenue
Agency. For travel occurring in one of the provinces, the rates for
2015 are $0.55 per kilometre for the first 5,000 kilometres driven
in the year (calculated on the calendar year and not the fiscal
period of the employer) and $0.49 for each additional kilometre.
(For travel occurring in one of the territories, the rates
