Moore
February 2016 Newsletter

Deductible Tax-Free Car Allowances

Employers can normally deduct reasonable tax-free car allowances provided to employees. The limit on the employer’s deduction of tax-free car allowances is determined each year on a per-kilometer basis. It usually stays the same as the previous year or increases.

However, in 2015 the price of gas dropped signi-ficantly. As a result, for 2016, the limit actually decreased by 1 cent per kilometre from the 2015 amounts, to 54 cents for the first 5,000 kilometres driven in the course of employment and 48 cents for each additional kilometre driven. For Yukon, the Northwest Territories and Nunavut, the allowance limits are similarly decreased by 1 cent per kilometre to 58 cents for the first 5,000 kilometres driven and 52 cents for each additional kilometre driven.

Employee Car Benefits

If your employer provides you a car vehicle and pays any of your personal operating costs, you must include an “operating expense benefit” in your employment income. For 2016, the prescribed rate used to determine this benefit under regular rules is reduced by 1 cent to 26 cents per kilometre driven for personal purposes. For employees who are employed principally in selling or leasing auto-mobiles, the prescribed rate is reduced to 23 cents per personal kilometre.

Alternatively, if your work kilometres for the year exceed your personal kilometres, you can elect that your operating expense benefit equal . of the “standby charge” included in your income for the year (the stand-by charge is determined by a different formula meant to measure the benefit of using the car for personal purposes).

Last modified on February 12, 2016 12:00 am