Tax-free car allowances
Employees can receive a tax-free car allowance from their employers if the allowance is both (a) reasonable and (b) based on the kilometres driven in the year in the course of employment. The CRA typically allows a tax-free allowance up to the maximum amount deductible for the employer.
In this regard, the limit on the employer’s deduction of tax-free car allowances is increased for 2015 to 55 cents for the first 5,000 kilometres driven in the course of employment and 49 cents for each additional kilometre driven (each amount increased by 1 cent over the 2014 amount). For the Yukon Territory, Northwest Territories and Nunavut, the allowance limits are 59 cents for the first 5,000 kilometres driven and 53 cents for each additional kilometre driven (also up 1 cent).
Employee operating expense benefits
If your employer provides you a motor vehicle and pays any of your personal operating costs, you must include in income an operating expense benefit. For 2015, the prescribed rate used to determine this benefit remains at 27 cents per kilometre driven for personal purposes. For employees who are employed principally in selling or leasing automobiles, the prescribed rate remains at 24 cents per personal kilometre.
(As an alternative, if your work kilometres for the year exceed your personal kilometres, you can elect that your operating expense benefit be ½ of the “standby charge” included in your income for the year. The standby charge is an amount determined by formula, and is meant to reflect the benefit of having a car available for personal use.)