CRA automobile allowance rates 2026: 73 cents, then 67 cents a km

The 2026 rates next to 2025

Finance Canada announced the 2026 limits on January 14, 2026, and every allowance rate rose one cent canada.ca. The CRA's allowance page carries the same four numbers canada.ca.

The 2025 figures come from Finance's December 30, 2024 release, which raised each rate by two cents canada.ca. "Territories" means kilometres driven in Yukon, the Northwest Territories or Nunavut, which earn the extra 4 cents laws-lois.justice.gc.ca.

The 5,000 km break counts all of one person's business kilometres for the year, across every vehicle they use. It doesn't reset per car or per trip.

Worked example: 7,200 business kilometres

Your client's employee drives 7,200 business kilometres in 2026 in their own car and logs each trip. Here is the most the employer can pay at the prescribed rates.

If only some of the driving happens in the territories, add 4 cents for each of those kilometres to the provincial figure. Say 1,000 of the 7,200 km were driven in Yukon: $5,124 plus 1,000 x $0.04 is $5,164.

Paid this way, the $5,124 stays off the employee's T4 and the employer deducts all of it.

What makes the allowance reasonable and not taxable

An allowance for using a personal vehicle is not taxable only when three things are true canada.ca:

• It's based only on the business kilometres driven.
• The rate per kilometre is reasonable.
• You don't also reimburse the employee for expenses on the same use of the vehicle.

The first two tests are written into the Act. Subparagraph 6(1)(b)(x) deems an allowance unreasonable when it isn't measured solely by business kilometres, and 6(1)(b)(xi) does the same when the employee gets both an allowance and a reimbursement for the same use laws-lois.justice.gc.ca. The one carve out: you can also reimburse supplementary business insurance, tolls and ferry charges, as long as the allowance rate was set without counting them.

The prescribed rates aren't mandatory. The CRA generally accepts them as reasonable, but a lower or higher rate can still pass once you weigh the type of vehicle, the driving conditions and local fuel costs canada.ca.

These are the patterns that make an allowance taxable in practice:

• A fixed monthly amount paid whatever the kilometres.
• A flat amount plus a per km rate for the same driving: the CRA treats the two as one allowance, and the whole thing is taxable.
• Averaging flat payments at year end to back into a per km rate. The CRA doesn't accept that.

Separate allowances for separate driving are judged separately. A flat monthly amount for driving inside the employee's employment district is taxable, while a reasonable per km rate for trips outside it stays tax free.

When the allowance fails the test

The whole amount paid in the year goes on the T4: box 14, box 24 for EI insurable earnings, box 26 for CPP pensionable earnings, and code 40 in the other information area. Withhold income tax, CPP and EI on it. There's no GST/HST to remit on this benefit canada.ca.

Once the allowance is in income, the employee may be able to deduct their actual vehicle expenses on their own return if they meet the conditions, which means you may need to complete Form T2200 for them.

Advances need a reconciliation. If you pay a set per km advance during the year, compare kilometres driven times the rate with the advances paid, by December 31 or the employee's last day, whichever comes first. Pay any shortfall, and have the employee repay any excess. You can't simply report an excess advance on the T4.

The deduction cap for the business paying the allowance

Paragraph 18(1)(r) of the Income Tax Act stops any business, whether a sole proprietor, a partnership or a corporation, from deducting an automobile allowance paid to an individual beyond the amount set by prescribed rules, unless the allowance has to be included in that individual's income laws-lois.justice.gc.ca. The prescribed rule is section 7306 of the Income Tax Regulations.

Section 7306 builds the cap in three parts: a base rate on every business kilometre, an extra 6 cents on the first 5,000, and 4 cents more on kilometres driven in the territories. As of October 2026, the consolidated text on Justice Laws (current to September 21, 2026) still shows the 2025 base of 66 cents laws-lois.justice.gc.ca. The 73 and 67 cent figures for 2026 come from the Finance announcement and the CRA's allowance page.

Take the 7,200 km employee again, but paid 80 cents for every kilometre, with nothing on the T4:

• Allowance paid: 7,200 x $0.80 = $5,760
• Cap under section 7306 for 2026: $5,124
• Not deductible: $5,760 minus $5,124 = $636

Put the full allowance on the T4 instead and 18(1)(r) no longer applies, so the full $5,760 is deductible. Keep in mind the CRA can also decide that 80 cents isn't reasonable for that employee's driving, which makes the whole allowance taxable anyway.

Rates people confuse with the allowance rates

The same Finance release keeps the rate for the personal portion of employer paid operating costs at 34 cents per kilometre for 2026, or 31 cents for employees who mainly sell or lease automobiles canada.ca. That rate measures a taxable benefit on a company car, not an allowance. See operating cost benefit 2026.

The CRA also publishes "kilometric rates" in its Directive on Travel, such as 63.0 cents in Ontario from January 1, 2026. Those apply to CRA employees and others travelling on CRA business, not to the reasonable allowance test canada.ca.

The Class 10.1 cost ceiling, $39,000 before tax for passenger vehicles acquired on or after January 1, 2026, came in the same announcement canada.ca. It limits CCA on a car the business owns. See Class 10.1 limit 2026.