If an employer is provided with travel allowance, is it a taxable benefit to an employee?

Allan Madan, CA

Feb 5, 2013

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Question:

I have employees that are driving frequently due to the nature of their work. If I provide them with a car allowance, is it a taxable benefit to them?

Answer:

As a corporation, you can pay them a flat allowance, but then it would be part of their regular payroll. The employee would then deduct the business use portion of the car expenses on their personal tax return (based on mileage). You would have to complete and sign form T2200, Declaration of Conditions of Employment.

Or, you could pay a tax-free vehicle allowance of 53 cents per KM for the first 5,000KMs and 47 cents thereafter. This per KM allowance is tax deductible to the company and tax-free to the recipient.

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ABOUT THE AUTHOR

ALLAN MADAN

CA.CPA.CGA

Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.