The complete guide to corporate mileage reimbursement

We’re hitting the road more than ever before, and employers need to have a sound company mileage reimbursement policy in place.Mileage reimbursement can benefit both employees and business owners. For employees, it provides compensation when they put their personal vehicle to business use. At the same time, it provides companies with tax-deductible benefits.However, the rules on mileage reimbursement can be more complicated than other forms of business travel, which merely require employees to provide a receipt when filing their moving expenses. The sheer number of available content addressing this issue demonstrates just how complex this topic can be.In this guide, we will provide a definitive overview of what the system entails, so employers know exactly how to reimburse employees for mileage and their employees know how to claim properly when using their own vehicles for business driving.

In Canada, business expenses are usually tax-deductible. When taxpayers travel by plane, train, or taxi, they can claim the money back and their employer can claim tax relief.Corporate mileage reimbursement schemes extend this benefit to personal vehicles. When employees use their personal car, van, or bike for day-to-day business activities, they can claim back the cost without paying income tax.An important point to note here is that mileage reimbursement is not designed to cover commuting to and from work. It is designed to cover the journeys that employees make during work hours, more specifically those with a business purpose (unfortunately you can’t claim travel expenses for going to the gym or picking up food at lunchtime).The CRA considers an allowance to be reasonable if all of the following conditions apply:You can only deduct the car and related expenses for business use of your personal vehicle if you use your car for both personal and business trips. Some examples of business-related driving include:The mileage reimbursement regulations also state that the majority of the journey has to be work-related. For example, if you stop off to pick up some office equipment on the way back from visiting your parents, that will not count towards your mileage reimbursement claimIt’s important to stress the importance of good record-keeping at this point. In Canada, the CRA expects employees to maintain a mileage log, with four details:The mileage log can be written down with pen or paper, or on a computer. The important thing is that they are written down.

In most instances…no. Most countries have refrained from making mileage reimbursement a formal requirement. The same goes in Canada: there are no official laws, but it is common practice to do so.The majority of employers will pay mileage even though they don’t have to. If they choose not to reimburse an employee for using their private vehicle, or indeed for any business expenses, they risk losing staff and damaging their brand.

When paying mileage reimbursements at the end of the year, an employer doesn’t need to work out the value of each journey or the amount the employee has spent. Employees simply need to use a logbook or app for their reimbursable mileage tracking. Then the employer can simply multiply each employee’s total number of kilometres by their country’s approved per-kilometre allowance, which is also known as the business rate and most commonly as the standard mileage rate.The standard mileage rate is set by the CRA in Canada. It provides an approved benchmark for tax-deductible reimbursement: in other words, a maximum amount that employers can pay out tax-free.Employers can set their own figure if they so choose. However, if they exceed the standard mileage rate, the reimbursement will count as regular wages and employees will lose their tax benefits (if they go below the rate, employees in many countries can deduct their difference when filing their tax return).In Canada, the

CRA business mileage rate

(also known as the automobile allowance rate) for 2024 is as follows:Here are some examples of the

optional standard mileage rates in Europe

:Some countries have a more complicated version of the standard mileage rate, which depends on the type of car and the distance travelled.You may have noticed that the mileage reimbursement rate is generally higher than the cost of fuel (in Canada, motorists pay an average of around 0.07 cents per kilometre for their gas, less than an eighth of the CRA mileage rate). In fact, the rate is designed to include the total cost of maintaining a vehicle.When an employee uses their car, they not simply paying for fuel expenses—they’re also paying for tax, insurance, and other upkeep costs. Additionally, every trip made t accelerates the depreciation of the vehicle’s value. When calculating the standard mileage rate, the revenue agencies take all these factors into account.

If the mileage reimbursement falls within the approved rate then no, it does not need to pass payroll. If the reimbursement exceeds the standard mileage rate, however, then it is regarded as remuneration, and the element of ‘profit’ comes into play. In other words, once past a certain threshold, it is no longer tax-deductible.

With more and more people going freelance during the pandemic, this question is more relevant than ever. And the good news is that, in Canada,

self-employed individuals

can claim the same rate as payrolled staff.As a contractor (or indeed subcontractor) you can claim for a variety of journeys providing they qualify as ordinary and necessary moving expenses. Examples include:Self-employed taxpayers can claim their mileage expenses on their tax return by working out the amount they’ve spent on gas, maintenance, repairs, and other related vehicle expenses over the whole year, or by calculating how much of their overall driving is for work.Ok, that’s all! We hope we’ve answered all your questions about mileage reimbursement and its many mysteries. Happy driving… and happy earning!