Corporate mileage reimbursement in Canada: a complete employer guide

When employees use their personal vehicles for work, a clear mileage reimbursement policy helps them recover legitimate costs while helping your business manage expenses and tax obligations consistently.

This guide explains how corporate mileage reimbursement works in Canada, which trips qualify, how to use Canada Revenue Agency (CRA) allowance rates, what employees need to record, and how to decide between mileage reimbursement, a car allowance, and a company vehicle.

What is corporate mileage reimbursement?

Corporate mileage reimbursement is compensation an employer pays when an employee uses their personally owned vehicle for business travel.

Rather than asking employees to submit individual fuel, repair, insurance, and maintenance receipts for every journey, employers commonly reimburse a reasonable amount for each business kilometre driven. A reasonable per-kilometre allowance is designed to reflect the overall cost of operating a vehicle, including:

• Fuel and electricity

• Insurance

• Maintenance and repairs

• Tires and other wear and tear

• Registration and licensing costs

• Vehicle depreciation

Mileage reimbursement is separate from a fixed car allowance. A mileage payment compensates employees for actual business travel, while a car allowance is generally a fixed cash amount added to salary to help an employee obtain, lease, or maintain a vehicle.

Which trips qualify for mileage reimbursement?

A business kilometre is a journey made primarily for work purposes. The trip should be necessary for the company’s operations rather than simply convenient for the employee.

Common examples of eligible business travel include:

• Visiting clients, customers, suppliers, or prospective clients

• Travelling between job sites or work locations

• Attending off-site meetings, conferences, or training events

• Purchasing supplies or equipment for the business

• Running errands on behalf of the company

• Travelling to a temporary work location

• Visiting a customer’s premises to provide a service

Is commuting reimbursable?

In most cases, travel between an employee’s home and their regular workplace is commuting, not business travel. It should not be included in a mileage claim.

Your policy should also address mixed-purpose journeys. For example, if an employee drives 80 kilometres each way to attend a conference but their normal round-trip commute is 40 kilometres, the policy may require them to deduct the usual commuting distance. In that example, 120 kilometres would be claimed rather than the full 160 kilometres.

Employees should not claim a personal trip simply because they added a brief business errand along the way. The journey must have a genuine and primarily business purpose.

Does an employer have to pay mileage in Canada?

Canadian employers are generally not legally required to reimburse employees for the use of a personal vehicle. However, reimbursement is common practice where employees are expected to drive for work.

A fair reimbursement process can help employers:

• Avoid leaving employees out of pocket for legitimate business costs

• Create a more consistent employee experience

• Improve expense control and record keeping

• Support tax-compliant business expense practices

• Reduce disputes over what employees can claim

Even where reimbursement is not mandatory, setting clear expectations in a written policy helps protect both the employer and employee.

CRA mileage reimbursement rates

The CRA publishes annual automobile allowance rates that employers can use as a benchmark for a reasonable per-kilometre allowance.

For 2026, the CRA’s prescribed automobile allowance rate is:

• 73 cents per business kilometre for the first 5,000 kilometres driven

• 67 cents per business kilometre after the first 5,000 kilometres

• An additional 4 cents per kilometre for travel in Yukon, the Northwest Territories, and Nunavut

Because these rates can change each year, employers should verify the latest figures on the CRA’s automobile allowance rates page before updating their policy or processing claims.

How mileage reimbursement is calculated

The basic calculation is straightforward:

Business kilometres driven × approved per-kilometre rate = mileage reimbursement

For example, if an employee drives 1,000 eligible business kilometres during the year and your company uses a rate of $0.73 per kilometre, the reimbursement would be:

1,000 km × $0.73 = $730

For employees who exceed 5,000 business kilometres, apply the higher rate to the first 5,000 kilometres and the lower rate to the remaining distance.

Can an employer set a different mileage rate?

Employers can set their own per-kilometre rate. However, the rate should be reasonable and tied to the actual business kilometres driven.

According to the CRA, an allowance is generally considered reasonable when all of the following apply:

• It is based solely on the number of business kilometres driven during the year.

• The per-kilometre rate is reasonable.

• The employee has not also been reimbursed for the same vehicle expenses.

• Any reimbursement for tolls, ferry charges, or supplementary business insurance is calculated separately from the mileage allowance.

A fixed monthly payment that is not based on business kilometres is generally treated differently from a reasonable per-kilometre allowance and may be taxable.

Is mileage reimbursement taxable?

A reasonable per-kilometre allowance paid for actual business travel is generally non-taxable for the employee and deductible for the employer.

However, reimbursement may become taxable when:

• The allowance is not based on the number of business kilometres driven

• The rate is unreasonably high or low

• The employee receives both a mileage allowance and reimbursement for the same operating costs

• The payment is effectively a fixed cash benefit rather than reimbursement for business travel

When a payment is taxable, it should be handled through payroll as a taxable benefit or remuneration. Employers should consult the CRA guidance or a qualified tax adviser when their program includes fixed allowances, company-owned vehicles, mixed reimbursement methods, or unusual travel arrangements.

What employees need to record in a mileage log

Good record keeping is essential. Employees should keep a detailed mileage log for all business travel and submit it with their expense claim.

At a minimum, the log should include:

1. The date of each trip

2. The starting point and destination

3. The purpose of the journey

4. The number of business kilometres driven

It is also good practice to record the odometer reading at the beginning and end of each year. This helps establish the proportion of total vehicle use that relates to business activities.

The CRA recognizes both full and simplified logbook methods in certain circumstances. Under the full logbook method, employees keep detailed records for the full year. Under the simplified method, a representative three-month sample from a base year may be used to support business-use calculations in later years, provided the employee’s driving pattern remains sufficiently consistent.

A mileage tracking app can make it easier to capture trip details as they happen, but a spreadsheet or paper log can also work if it contains the required information.

How to create a mileage reimbursement policy

A written mileage reimbursement policy gives employees practical guidance and creates a consistent approval process for managers, finance teams, and payroll.

Your policy should be easy to find, written in plain language, and reviewed whenever CRA rates or company travel practices change.

1. Define who is eligible

Specify which employees, contractors, or roles are eligible to claim business mileage. For example, your policy may cover employees who use their own vehicle for client visits, supplier meetings, temporary job sites, or business errands.

Clarify whether the policy applies to cars, vans, motorcycles, or other personal vehicles. Company-owned vehicles, rental vehicles, and hired transportation should be addressed separately.

2. Define eligible and ineligible travel

Include examples that make it easy for employees to understand the difference between business travel and commuting.

Eligible travel may include client visits, supplier meetings, trips between offices, travel to a temporary site, and business errands. Ineligible travel may include the normal commute, personal detours, parking fines, and trips without a clear business purpose.

3. State the reimbursement rate

Explain the rate your business pays, when it takes effect, and how often it is reviewed. If you use the CRA rate, state that the company may update the rate when the CRA publishes new guidance.

Also clarify whether the mileage rate is intended to cover all vehicle operating costs. This avoids duplicate claims for fuel, maintenance, insurance, or depreciation.

4. Explain which additional costs can be claimed

The standard mileage rate is intended to cover the general cost of operating the vehicle. Your policy should state whether employees can claim additional business costs separately, such as:

• Parking fees

• Tolls

• Ferry charges

• Supplementary business insurance, where applicable

Make clear that parking tickets, speeding fines, and other penalties are not reimbursable business expenses.

5. Set documentation and submission requirements

Require employees to submit a mileage log with each claim. State the approval process, claim deadline, payment schedule, and supporting documentation requirements.

A standard form or digital workflow reduces errors and makes it easier for finance teams to review claims consistently. Employers can also use a mileage and car allowance policy template to establish the core rules and adapt them to their operations.

6. Set approval and audit rules

State who can approve claims and how your company will handle incomplete, late, or inaccurate submissions. The policy should also reserve the right to review records or request supporting information where needed.

Mileage reimbursement policy example

A simple policy statement could read:

The policy can then include your company’s specific rate, submission deadlines, approvers, and rules for parking, tolls, and other travel costs.

Car allowance vs. mileage reimbursement

Although the terms are sometimes used interchangeably, a car allowance and mileage reimbursement serve different purposes.

A company may choose to offer a car allowance and mileage reimbursement together. In that case, the tax treatment and policy language must be carefully structured to avoid paying duplicate vehicle costs or creating an unreasonable allowance.

What does a car allowance cover?

A car allowance is a fixed sum paid to an employee to help them buy, lease, insure, maintain, or operate a personal vehicle. It may help cover:

• Vehicle lease or financing costs

• Fuel or electricity

• Routine maintenance and repairs

• Tires and wear and tear

• Insurance

• Registration and licensing costs

• Depreciation

The allowance amount can vary based on an employee’s role, expected travel, location, vehicle requirements, and the overall compensation package.

Unlike mileage reimbursement, the employee usually chooses and owns or leases the vehicle. The employer does not typically manage the vehicle’s maintenance, resale, or replacement.

How to calculate a car allowance

There is no universal “average” car allowance because vehicle costs and business travel needs vary considerably. Employers should calculate an allowance based on the employee’s expected use and local costs.

Consider the following factors:

Fuel and energy costs

Estimate the expected annual business and personal distance, fuel efficiency or electricity consumption, and local fuel or charging prices. Fuel is only one component of vehicle ownership, so it should not be the sole basis for the allowance.

Maintenance and repairs

Include routine servicing, oil changes, brake pads, tires, inspections, and likely repair costs. Costs can vary considerably based on the vehicle’s age, make, model, and mileage.

Insurance

Insurance premiums may depend on the driver’s history, location, vehicle type, annual mileage, and whether the vehicle is used for business. Employees who regularly drive for work may need to confirm that their insurance permits business use.

Depreciation

Depreciation is often one of the largest long-term costs of vehicle ownership. It will depend on whether the vehicle is new or used, its expected resale value, its mileage, and its condition.

Taxes and registration

Include applicable registration, licensing, and tax costs when calculating the full cost of vehicle ownership.

A fixed allowance should be documented in the employee’s employment agreement or benefits policy. This helps ensure both parties understand the amount, eligibility criteria, review dates, and circumstances in which the allowance may change or end.

Company car vs. car allowance

A company car is owned or leased by the employer, while a car allowance is paid to the employee to use their own vehicle.

Company car

With a company car, the employer is generally responsible for obtaining, insuring, maintaining, and eventually replacing or selling the vehicle. This option can work well when a role requires extensive driving, specialized equipment, consistent branding, or a vehicle used predominantly for business.

However, personal use of a company vehicle can create taxable benefit considerations. Employers must also manage administration, maintenance, and what happens when an employee changes roles or leaves the business.

Car allowance

With a car allowance, the employee is responsible for sourcing and maintaining the vehicle. This reduces the employer’s direct involvement in fleet management and can give employees more flexibility.

However, a fixed allowance is generally taxable income, and it may not reflect the actual cost of business driving. Employees with substantially different travel needs may view a uniform allowance as unfair.

Which option is right for your business?

A company car may be more suitable when the vehicle is primarily a business asset. A car allowance may be more appropriate where employees need flexibility and will use the vehicle for both personal and work purposes. Mileage reimbursement is often the clearest choice when employees drive their own vehicles occasionally or when reimbursement can be tied directly to actual business travel.

Mileage reimbursement for independent contractors

Self-employed individuals and independent contractors may be able to deduct eligible vehicle expenses related to earning business income. Qualifying travel can include driving between work sites, meeting clients, purchasing supplies, attending off-site meetings, and visiting customers.

Contractors should maintain records that distinguish business driving from personal driving. Their tax treatment differs from that of employees because they generally claim eligible vehicle costs as business expenses rather than receiving an employer-paid allowance.

Depending on their circumstances, self-employed people may calculate deductible vehicle expenses based on the business-use portion of actual operating costs, including fuel, insurance, maintenance, registration, and depreciation. Contractors should retain complete records and seek professional tax advice where needed.

Frequently asked questions about mileage reimbursement and car allowances

A well-designed mileage reimbursement policy makes business travel easier to manage, protects employees from being out of pocket, and gives employers a clear framework for controlling costs. For broader guidance on setting travel rules across your organization, see Perk’s guide to creating a corporate travel policy.