Tax-Free Travel Allowances [Jun 12, 2018]

If your employees use their own vehicles for employment purposes, you can help them avoid a lot of paperwork by providing them with a tax-free allowance to cover employment-related travel expenses.

The allowance qualifies for tax-free status if it’s reasonable— and only if it’s based on the actual number of km that the car is used for employment purposes. Provided the per-km reimbursement is reasonable, 100% of the amounts paid are deductible.

Allowances not based on the number of km driven, such as a flat allowance of $400 per month, must be included in the employee’s income. You can reimburse an employee for certain limited expenses (i.e., supplementary business insurance, parking costs incurred for business purposes, and toll and ferry charges) without affecting the tax-free status of the allowance, provided the per-km requirement is met.

If you provide your employees with a combination of flat-rate and per-km allowances (e.g., $400 per month plus $0.25 per km,) both components must be included in the employee’s income.

Tax Tip – If you currently pay your employee a combination of a flat rate allowance and a per km allowance, consider changing the structure to just a per km rate.  What is considered reasonable? For 2018 in BC the rates are $0.55 Per Kilometre Up To 5,000 KM; $0.49 thereafter.

Kevin Cox, CPA, CGA can be reached at kevincox [at] coxandcompany {dot} ca