Driving directions; Travel expenses increased for employee car use

National Post

2015-02-03



If you require your employees to travel using their own car to client meetings away from the office and, as a result, reimburse them on a per-kilometre basis for the distance they travel, you should be aware that the government in December announced a slight increase in the tax deductible per-kilometre limit for 2015.

The limit, which has been frozen at 54¢ per kilometer since 2013, was increased for 2015 by 1¢ to 55¢ per kilometre for the first 5,000 kilometres driven and to 49¢ (from 48¢) for each additional kilometre. For the Northwest Territories, Nunavut and Yukon, the tax-exempt allowance is 4¢ higher, and will also increase by 1¢ to 59¢ for the first 5,000 kilometres driven and to 53¢ for each additional kilometre.

The purpose of the allowance is to reflect the "key cost components of owning and operating an automobile, such as depreciation, financing, insurance, maintenance and fuel costs." Note that the perkilometre limits, which are annually reviewed, also serve as a guide for determining whether an allowance is "reasonable" and thus can be excluded from being considered a taxable benefit to the employee. That said, Canada Revenue Agency has previously acknowledged that, depending on the circumstances of a particular situation, rates that are higher than those above, while not fully tax deductible, may still be considered reasonable and, therefore, non-taxable to employees.

Of course, there is no requirement to reimburse employees the full 55¢ (or 49¢) per kilometre. Indeed, many business owners choose to reimburse less than the maximum amount. If your employees feel that your reimbursement is insufficient to cover the actual costs of operating their vehicle, they still have the option of deducting the business portion of their actual vehicle's operating expenses. They can do so by completing CRA form "T2200, Declaration of Conditions of Employment," which must be signed and certified by the employer acknowledging that the employee is required to use his or her car for work.

By choosing to claim these expenses, any reimbursement that you provide to your employee must be included in the employee's income. Other rates and limits associated with automobile expenses will remain constant for 2015. For example, the ceiling on the cost of a vehicle for tax depreciation purposes remains at $30,000 (plus applicable federal and provincial sales taxes) and the maximum allowable interest deduction for interest paid on a car loan remains at $300 per month. Deductible auto-leasing costs are frozen at $800 per month (plus applicable sales taxes) with a proration required where the value of the car exceeds the $30,000 ceiling.