CRA Mileage Rates for Vehicle Allowance

Each year the CRA (Canada Revenue Agency)  sets a fixed mileage rates on a per-kilometre. The CRA considers this rate reasonable and allows employees to be paid a vehicle allowance for business-related activities KMs driven using their own personal vehicle.

This allowance paid to the employee is tax-free so long the rate used matches the reasonable CRA mileage rate, this way the employee receives fair compensation for using their vehicle for business travels. If the employer does not pay any allowance, then a T2200 form can be requested, and the employee can deduct expenses on their personal tax return instead.

CRA mileage rate for 2025

The current CRA mileage rates for 2025 are:

• 72¢ per kilometer for the first 5,000 kilometers
• 66¢ per kilometer over 5,000 kilometers
• An additional 4¢ per kilometer in the Northwest Territories, Nunavut, and Yukon.

Prior Years CRA mileage rates

CRA Mileage Allowance Requirements for tax-free allowance

The mileage allowance for work-related driving will not be taxed as income as long as the conditions below are met:

• A logbook is kept detailing the date, distance to and from, and reason for business/work related travel.
• The allowance provided is provided strictly for the distance driven for business activities as calculated.
• It is calculated using the reasonable rate set by the CRA each year.
• The employee was not already reimbursed for the motor vehicle expenses incurred. Please be aware that toll, parking etc. are not included in the rate, and should be calculated separately.

What happens if the employer calculates the mileage allowance using a custom rate?

Sometimes as part of the employee/employer negotiation, a different per-KM rate is used for the employee using their own vehicle for work purposes,  the allowance provided by the employer can either be too low or too high compared to the CRA annual set rates; as a result, it is required to be included as a taxable benefit to the employee’s income on the annual T4 slip. The employee can claim a tax deduction for their motor vehicle expenses by obtaining a T2200 form.

In cases where the employee receives a taxable mileage reimbursement, the employer should complete the relevant sections in form T2200 and send it to the employee so that the employee can claim their out-of-pocket motor vehicle expenses.

Conclusion

As a employee using the CRA Mileage rates can be a good tax strategy to receive reimbursement for vehicle expenses without incurring additional taxable personal income. As a result, reducing overall tax liability.

By using the set CRA mileage rates, the vehicle allowance is not added to your annual T4 slip. If the T2200 approach is opted for, you must complete the T777 Employment expenses form with personal tax return.

If you need personalized help with your personal tax responsibilities with vehicle expenses/mileage allowances, you might want to talk to a Canadian tax expert who has experience in this area.