2022 CRA Vehicle Allowance Rates 2021 was a very challenging year and we hope that 2022 will be much better. If you reimburse yourself or your employees for business use of a personal vehicle the CRA vehicle allowance rates for 2022 have increased by $0.02 per km. The rates for 2022 are 61 cents per kilometer for the first 5,000 kilometres driven and 55 cents per kilometer for each additional kilometer above 5000 km.
Also, for the first time in many years, the ceiling for capital cost allowance on passenger vehicles has been increased from $30,000 to $34,000, before tax, for any new or used vehicles acquired on or after January 1, 2022. Deductible leasing costs will also be increased from $800 to $900 per month, before tax, for new leases entered into.
If you pay your employees a vehicle allowance, it is taxable unless it is based on a reasonable per-kilometer rate. The type of vehicle and the driving conditions are considered when determining if an allowance is reasonable. All of the following conditions must be met for an allowance to be considered reasonable:
- The allowance is based only on the number of business kilometres driven in a year. Flat rate allowances are always taxable.
- The rate per kilometer is reasonable.
- You did not reimburse the employee for expenses related to the same use of the vehicle. This does not apply where there are additional expenses such as parking fees, toll charges or supplementary business insurance that were not factored into the allowance paid to the employee.
Reporting Taxable Allowances
If the per kilometer rate that you pay is NOT reasonable, the amount of the allowance paid becomes taxable to the employee. If the allowance is taxable, it is also pensionable and insurable so you have to deduct CPP contributions, EI premiums and income tax. For reporting purposes the amount is included in the employee’s “Employment Income” in box 14 of their T4 slip and the amount is reported in “Other Information” under code 40.
Employee Deduction of Vehicle Expenses
If an employee receives a taxable vehicle allowance, the related vehicle expenses may be deductible on their personal tax return. To be eligible to deduct these expenses, the use of the employee’s personal vehicle must be required by their employment contract and the employer must provide the employee with a completed and signed T2200 Declaration of Conditions of Employment. The employee is responsible to keep records to support their claim.
We trust you enjoyed this article “2022 CRA Vehicle Allowance Rates”. If you have any questions relating to this post or any other tax topics, please feel free to contact us at 403-509-3290 or info@focusllp.ca
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