2023 CRA Vehicle Allowance Rates, If you reimburse yourself or your employees for business use of a personal vehicle the CRA vehicle allowance rates for 2023 have increased by $0.07 per km. The rates for 2023 are 68 cents per kilometer for the first 5,000 kilometres driven and 62 cents per kilometer for each additional kilometer above 5000 km.

Also, for the second time in as many years, the ceiling for capital cost allowance on passenger vehicles has been increased from $34,000 to $36,000, before tax, for any new or used vehicles acquired on or after January 1, 2023.  Deductible leasing costs will also be increased from $900 to $950 per month, before tax, for new leases entered into.

The ceiling for capital cost allowance for Class 54 zero-emission passenger vehicles will be increased from $59,000 to $61,000, before tax, in respect of vehicles (new and used) acquired on or after January 1, 2023.

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:

  1. The allowance is based only on the number of business kilometres driven in a year. Flat rate allowances are always taxable.
  2. The rate per kilometer is reasonable.
  3. 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 “2023 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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