What is the CRA operating cost benefit rate for 2026, and when can my client use half the standby charge instead?
For 2026, the operating cost benefit is 34 cents per kilometre of personal driving, or 31 cents for employees whose main job is selling or leasing cars, both unchanged from 2025. If business use tops 50% and the employee tells you in writing by December 31, the benefit can instead be half the standby charge.
The 2026 rate next to 2025 and 2024
Finance Canada announced the 2026 automobile limits on January 14, 2026, and the operating cost rates didn't move: 34 cents per kilometre in general and 31 cents for people employed principally in selling or leasing automobiles canada.ca.
| Figure | 2026 | 2025 | 2024 |
|---|---|---|---|
| Prescribed rate per personal km | $0.34 | $0.34 | $0.33 |
| Rate for employees selling or leasing automobiles | $0.31 | $0.31 | $0.30 |
| Optional method | 50% of the standby charge | 50% of the standby charge | 50% of the standby charge |
| Reimbursement deadline for that year | February 14, 2027 | February 14, 2026 | February 14, 2025 |
The CRA lists the same rates in its prescribed rate table, which comes from section 7305.1 of the Income Tax Regulations canada.ca. Note that the CRA's worked examples on that page still use the 2022 rate of 29 cents, so don't copy their arithmetic into a 2026 file.
When the benefit applies and what counts as an operating cost
The operating cost benefit only exists when there is, or would be, a standby charge for the employee. It's paragraph 6(1)(k) of the Income Tax Act, and it piggybacks on the standby charge in paragraph 6(1)(e) laws-lois.justice.gc.ca. Work out the standby side first: see the standby charge page.
Then the benefit applies when you pay operating expenses for the employee's personal driving and the employee doesn't repay all of them within the year or 45 days after it.
| Counts as an operating expense | Does not count |
|---|---|
| Fuel and oil | Interest on a car loan |
| Maintenance, net of insurance proceeds | Capital cost allowance |
| Repairs, net of insurance proceeds | Leasing costs |
| Licences | Parking |
| Insurance | Highway and bridge tolls |
The employer's operating costs are counted including GST/HST and PST canada.ca. The prescribed rate is applied to personal kilometres, so the employee needs a log even under the fixed rate.
The optional method: half the standby charge
Instead of kilometres times the rate, the benefit can be 50% of the standby charge. All three conditions have to hold: you include a standby charge in the employee's income, the employee uses the car primarily (more than 50%) for work, and the employee told you in writing, before the end of the year, that they want the optional method canada.ca.
The Act says the same thing in subparagraph 6(1)(k)(iv): the car must be used primarily in the duties of the office or employment, and the employee must notify the employer in writing before the end of the year laws-lois.justice.gc.ca. For 2026 that means a signed note in your file by December 31, 2026. A request in January is too late for 2026.
The CRA bases the 50% on the standby charge before the employee's standby reimbursements. The CRA also warns the optional method can produce a higher benefit than the fixed rate, so run both numbers before your client signs anything.
Worked example: fixed rate against the optional method
Your client's employee drives a company car 30,000 km in 2026, 9,000 km of it personal, so business use is 70%. The employee isn't in car sales. You pay all the fuel, insurance and repairs. Assume the 2026 standby charge comes to $4,800, and the employee repays you $500 toward operating costs on February 10, 2027.
| Step | Fixed rate | Optional method |
|---|---|---|
| Base amount | 9,000 km × $0.34 = $3,060 | 50% × $4,800 = $2,400 |
| Less reimbursement by February 14, 2027 | $500 | $500 |
| Operating cost benefit | $2,560 | $1,900 |
If the employee gave you written notice by December 31, 2026, the optional method cuts the benefit by $660. Without that note, $2,560 is the only answer.
The break even point is easy to check. The optional method wins when personal kilometres exceed the standby charge divided by 0.68 (twice the 34 cent rate). With a $4,800 standby charge that's about 7,059 personal km. Below that, the fixed rate is lower and nobody should elect.
For an employee whose main job is selling or leasing cars, the fixed rate side would be 9,000 km × $0.31 = $2,790, less the $500, or $2,290.
Reimbursements, the 45 day window and the T4
Whatever the employee repays for operating costs in the year, or no later than 45 days after it ends, comes off the benefit under either method canada.ca. For 2026 the last day is February 14, 2027. A payment on February 15, 2027 doesn't reduce the 2026 benefit.
If the employee repays every dollar of personal operating costs inside that window, you don't calculate an operating cost benefit at all. The standby charge still stands on its own.
Add the operating cost benefit to the standby charge and report the total in code 34 of the T4. It's also included in box 14 employment income and box 26 pensionable earnings canada.ca. See T4 box 14 for what else lands there.
Can the employee choose the optional method after December 31?
No. The written notice has to reach you before the end of the year, so a 2026 election needs to be on file by December 31, 2026 laws-lois.justice.gc.ca. Missing it locks the fixed rate of 34 cents per personal km for that year.
What if the employee pays some costs straight to the gas station or garage?
You can usually deduct it. Under CRA administrative policy, if you require the employee to pay a third party for part of the operating costs, the personal use portion comes off the benefit, provided your records show the employee paid the third party directly canada.ca.
Is the tax free mileage allowance the same thing?
No. The 2026 allowance limit of 73 cents for the first 5,000 km and 67 cents after that, in the provinces, covers employees driving their own car for work canada.ca. The operating cost benefit covers personal driving in a car you provide. See the 2026 allowance rates.
General information for the tax year shown, not advice for a specific client. Confirm the facts before you file or remit.