Mileage allowance

A mileage allowance is the money a business pays an employee who uses their personal car for work. You don’t pay tax on it if the amount is reasonable: calculated based on the actual kilometers travelled for work, at the rate set each year by the Canada Revenue Agency (CRA).

At a glance

Non-taxable (no tax due) if it is based on the actual kilometers driven for work
At the rate set by the Canada Revenue Agency (CRA), which is higher for the first 5,000 kilometers of the year
2026 ARC rate: $0.73/km for the first 5,000 kilometers, then $0.67/km ($0.77 and $0.71 in the Northern Territories)
A fixed amount paid each month, regardless of mileage, becomes taxable
Requires a travel log, a simple notebook where you record your business trips

Why it matters

Let’s take a plumber who drives 300 km a month to visit clients. If his business reimburses him for these kilometers at the CRA rate, the money goes into his pocket tax-free, and the business deducts the expense (reducing its own tax liability). At the 2026 CRA rate, those 300 km are worth 300 times $0.73, or $219 tax-free for that month, and the rate drops to $0.67/km for mileage over 5,000 km in a year. But the rule is strict: without a logbook tracking the kilometers, the CRA and Revenu Québec can revoke this benefit and collect the tax, even years later. The classic pitfall: the entrepreneur who owns their own business and pays themselves a fixed amount each month without tracking their trips. A small logbook kept week by week protects the deduction and gives you peace of mind. The exact rate is published annually by the CRA and adopted by Revenu Québec (see the Limits and Rates for 2026). This allowance is in addition to your other payroll obligations, such as the HSF and the Employment Statement paid when an employee leaves the company. Bankeo will connect you for free with a vetted accountant or CPA who specializes in working with business owners, at no cost to you.

Frequently asked questions

What exactly is a mileage allowance?

It’s a reimbursement: your business pays you for the kilometers you drive in your personal car for work. Each year, the Canada Revenue Agency publishes a per-kilometer rate deemed reasonable, which is higher for the first 5,000 kilometers: in 2026, $0.73/km for the first 5,000 kilometers, then $0.67/km. As long as you stick to this rate and keep track of your trips, this money is tax-free.

Is a fixed monthly allowance taxable?

Yes. A fixed amount paid each month, regardless of the actual number of kilometers driven, is considered a taxable benefit: it is added to the employee’s income on the T4 (the federal pay stub) and the RL-1 (its Quebec equivalent). The employee can then deduct their actual car expenses using forms T2200 and TP-64.3, but this is more cumbersome than an allowance that’s calculated correctly from the start.

I own my own company, can I pay myself a mileage allowance?

Yes. Your company can reimburse you for business travel expenses at the CRA rate: deductible for the business, tax-free for you, provided you keep an accurate log of your mileage. To set this up properly, Bankeo will connect you, at no cost to you, with a vetted accountant or CPA who specializes in working with business owners.