Using vehicles is an essential part of modern day business. Whether your employee needs to go visit a client, or goes to pick up stamps from the store. You need to know how to reimburse them for the kilometers driven.
Criteria for Reimbursing Kilometers to Employees:
There are three criteria that you must meet in order to make your employees mileage reimbursement tax free.
1). You must pay them according to the CRA’s reasonable rates. The CRA reasonable rate per-kilometer rate has gone up in 2019 (below is a chart with both the 2019 and 2018 rates). As an employer, you can choose to pay them more than these rates. However, all the reimbursement would become a taxable income to the employee.
2) You are only reimbursing your employees for business KMs driven.
3) You are not reimbursing your employee for any other expenses related to the use of the same vehicle. For example, you do not reimburse them for fuel in addition to kilometers driven.
For the first 5,000 KM
For all KM after
If you do not meet these criteria you must take CPP, EI, and income tax off the monies given to the employee for their KMs.
You can read more about this here, on the CRAs website.
If you have any questions, you can contact On-Core and our payroll specialists would be happy to help!
For information on tracking mileage if you’re a business owner, you can check out our post here. Which includes a free mileage log download sample. It is important to note, the same KM rates apply to business owners.