CRA writes most of this guidance in employee language, but it specifically says these rules can also apply to shareholders and related persons.
Business Km vs Personal Km
CRA treats home-to-work commuting as personal driving when you are travelling to a regular place of employment. A regular place of employment is any location where you regularly report for work or regularly perform duties, and you can have more than one. If you go from home to the first regular work location, or from the last regular work location home, that is generally personal driving. Travel between regular work locations during the day is generally business driving.
CRA also uses the term point of call. That means a place other than a regular place of employment where you go to perform work duties, such as a client site. Travel between home and a point of call can count as business driving if it is reasonable in the circumstances. This distinction matters because it changes your logbook, your taxable benefit, and sometimes whether a reimbursement can stay non-taxable.
If the corporation owns or leases the vehicle
When the corporation owns or leases the vehicle, you have two separate tax questions. First, what costs can the corporation recover for tax purposes? Second, what personal taxable benefit does the owner pick up because of personal use? Those are related, but they are not the same calculation.
On the corporate side, passenger-vehicle limits matter. CRA says most cars, station wagons, vans, and some pick-up trucks are passenger vehicles. Passenger vehicles are subject to limits on CCA (capital cost allowance, which is tax depreciation), interest, and lease deductions. Some vans, pick-up trucks, and SUVs used heavily enough to transport goods, equipment, or passengers to earn income can fall outside the passenger-vehicle category, which can materially change the limits.
If you are dealing with a passenger vehicle, the 2025 and 2026 federal limits and prescribed rates below are the key numbers to know. CRA also says the prescribed per-kilometre rates are the maximum amount deductible as a business expense for a tax-exempt allowance.
| Item | 2025 | 2026 | Why it matters |
|---|---|---|---|
| Passenger vehicle acquisition ceiling (Class 10.1) | $38,000 before sales tax | $39,000 before sales tax | Caps the capital cost you can use for passenger-vehicle CCA. |
| Passenger vehicle lease deduction ceiling | $1,100/month before tax | $1,100/month before tax | Limits deductible lease cost for new passenger-vehicle leases. |
| Interest deduction ceiling | $350/month | $350/month | Limits deductible interest on passenger-vehicle financing. |
| Reasonable km allowance (provinces) | 72¢ first 5,000 km 66¢ additional km | 73¢ first 5,000 km 67¢ additional km | Benchmark for non-taxable mileage allowances on personally owned vehicles. |
| Reasonable km allowance (territories) | 76¢ first 5,000 km 70¢ additional km | 77¢ first 5,000 km 71¢ additional km | Higher northern benchmark. |
| Operating expense benefit prescribed rate | 34¢ per personal km | 34¢ per personal km | Used for the company-car operating expense benefit. 31¢ if the person mainly sells or leases automobiles. |
| Zero-emission passenger vehicle ceiling (Class 54) | $61,000 before sales tax | $61,000 before sales tax | Relevant if the corporation buys a qualifying zero-emission passenger vehicle. |
Those figures are the current federal automobile limits and prescribed rates published by Finance Canada and reflected in CRA guidance.
For purchased passenger vehicles over the ceiling, the vehicle generally lands in Class 10.1, which has a 30% CCA rate. CRA’s employment-expense guidance also confirms that a passenger vehicle acquired in 2025 that cost more than $38,000 before tax is capped at that amount plus sales taxes for Class 10.1 purposes.
The owner’s personal tax problem: taxable automobile benefits
If the corporation makes an automobile available to you and there is personal driving, CRA says the taxable automobile benefit is generally the standby charge plus the operating expense benefit, minus any qualifying reimbursements.
Standby charge is the tax cost of having the company automobile available for personal use. For an employer-owned automobile, the detailed calculation starts with 2% of the automobile’s cost for each 30-day period it was available. For a leased automobile, the detailed calculation starts with 2/3 of the total monthly lease cost, including certain up-front lease amounts and sales taxes, excluding insurance.
A reduced standby charge may apply, but only if both main conditions are met:
- business driving is more than 50% of total driving, and
- personal driving does not exceed 1,667 km per 30-day period the car was available, which is 20,004 km for a full year.
Operating expense benefit is the tax cost of the corporation paying the car’s operating costs for your personal driving. The standard method is your personal kilometres × prescribed rate. That rate is 34¢ per personal kilometre in both 2025 and 2026, or 31¢ if your principal source of employment is selling or leasing automobiles. There is also an optional method equal to 50% of the standby charge before reimbursements, but only if a standby charge is included, business driving is more than 50%, and the employee notifies the employer in writing before year-end.
There is one planning point owners often miss: if you reimburse the corporation for all personal operating costs within 45 days after year-end, there is no operating expense benefit. Reimbursements also reduce the standby charge benefit.
This is where logbooks matter. Home-to-office commuting is usually personal driving, even if the corporation wants you to take the vehicle home or you are on call. By contrast, home-to-client travel can be business driving when the client location is a point of call rather than a regular place of employment.
For slips, CRA’s automobile guidance shows the benefit on a T4 under code 34 for employees, or on a T4A under code 028 where the recipient is a shareholder/person or partnership using that reporting path. If the corporation is GST/HST-registered, it may also have a separate GST/HST remittance obligation on automobile taxable benefits, generally at the end of February in the following year. CRA’s Automobile Benefits Online Calculator and Form RC18 are useful year-end cross-checks.
If you own the vehicle personally and use it partly for business
When you own the vehicle personally, the main issue becomes how the corporation pays for the business use. A clean mileage allowance or a documented reimbursement can stay non-taxable. An ad hoc direct payment of personal-car costs can still create a taxable-benefit problem.
Option 1: a reasonable per-kilometre allowance
For many incorporated owners, this is the cleanest structure. CRA says an allowance for an employee’s own vehicle is generally not taxable if it is based only on business kilometres, the per-kilometre rate is reasonable, and the employer did not also reimburse expenses for the same use of the vehicle. CRA also says the prescribed rates are generally considered reasonable and are the maximum amount deductible as a business expense for a tax-exempt allowance.
In practice, that means a 2026 allowance in a province is usually benchmarked at 73¢ for the first 5,000 business km and 67¢ after that. For 2025, the rates were 72¢ and 66¢.
Example: if you personally own the vehicle and drive 7,000 business km in Ontario in 2026, a prescribed-rate allowance would be $4,990 (5,000 × 73¢ + 2,000 × 67¢). If the allowance is paid only for business km and your records support those km, CRA generally treats it as non-taxable.
What makes the allowance taxable? A flat monthly amount, a lump-sum allowance, or a setup that mixes a flat allowance and a per-km allowance for the same use of the same vehicle. CRA also says that if you use advances instead of waiting for exact mileage, the advances can still stay non-taxable if you start with a reasonable pre-established km rate, reconcile the advances by year-end, and the employee repays any excess.
Option 2: reimbursement of actual business-use costs
CRA also allows a reimbursement of actual costs on an employee’s own vehicle to be non-taxable if the reimbursement is for employment use, the amount is reasonable, and the reimbursement is supported by receipts, expense reports, vouchers, logbooks, and other documentation.
This method is more detailed than mileage. You need receipts for fuel, repairs, insurance, licence fees, interest or lease costs where relevant, plus a mileage log to support the business-use percentage. If there is no record, CRA says the allowance or reimbursement is generally taxable.
A common mistake is having the corporation directly pay gas, insurance, or repairs on a personally owned vehicle without a clear reimbursement policy and supporting records. CRA’s GST/HST automobile-benefit guidance notes that an operating cost benefit can arise where an employer pays the operating costs of an employee’s own automobile.
Option 3: the owner claims employment expenses personally
Sometimes the corporation does not fully reimburse the owner. In that case, the owner may try to claim employment motor-vehicle expenses personally. That route is possible only if the owner is also an employee, was required under the employment arrangement to pay the expenses, keeps a T2200, and did not receive a non-taxable allowance. If the owner did receive a non-taxable allowance, they can still claim expenses only if they can show the expenses were higher than the allowance and they voluntarily include the allowance in income.
For shareholder-employees, CRA applies extra scrutiny. CRA says the expense must be incurred in the person’s capacity as an employee and not as a shareholder, and it must be comparable to what non-shareholder employees with similar duties would be expected to incur. CRA also says a shareholder may certify their own T2200 only if the conditions are actually met.
Which structure is usually cleaner?
There is no universal winner. The right answer depends on the business-use percentage, the amount of personal driving, the cost of the vehicle, and how much admin you are willing to do. The table below is a practical planning summary based on CRA’s taxable-benefit rules for employer-provided automobiles, the allowance and reimbursement rules for personally owned vehicles, and the passenger-vehicle deduction limits.
| Situation | Corporate-owned or leased vehicle | Personally owned vehicle used for business |
|---|---|---|
| Personal use is high | Often less attractive because standby charge and operating expense benefit can grow quickly. | Often cleaner because you can usually use mileage or documented reimbursement instead of company-car benefit rules. |
| Business use is very high and personal km are low | Can work well, especially if you qualify for the reduced standby charge or can eliminate the operating expense benefit by reimbursement. | Still workable, but mileage may understate the actual economics for some owners. |
| Vehicle is expensive | Passenger-vehicle CCA and lease limits still apply, and the taxable benefit can still be large. | You avoid standby-charge math, but the corporation’s supportable reimbursement still needs records. |
| Admin burden | Higher. You need a logbook plus year-end taxable-benefit calculations. | Usually lighter if you use a straight per-km allowance with strong records. |
| Biggest risk | Underreporting personal use or commuting. | Using a flat allowance, mixing methods, or paying personal-car costs without documentation. |
Record-keeping checklist
CRA is clear that records drive the result. For either structure, keep:
- total kilometres for the year
- business kilometres for the year
- a log of each business trip with date, destination, purpose, and kilometres
- odometer readings at the start and end of the year or fiscal period
- receipts for fuel, repairs, insurance, licences, interest, lease costs, parking, and any other vehicle spending
- copies of mileage claims, reimbursement reports, and any written election for the optional operating expense method
- separate records for each vehicle if you use more than one
CRA also allows a simplified logbook method, but only after you keep a full 12-month base-year logbook. After that, you may use a 3-month sample logbook if the later year’s use stays within 10% of the base year. If it does not, you need a new base year or full records.
Common mistakes that trigger extra tax
1) Treating commuting as business mileage
For most owners, the biggest mistake is counting home-to-office driving as business use. CRA normally treats that as personal driving.
2) Paying both a flat allowance and mileage for the same use
A flat monthly allowance is taxable. A combined flat allowance and mileage allowance for the same use of the same vehicle is also taxable.
3) Using a personally owned vehicle but having the corporation pay mixed personal costs directly
That can create a taxable benefit if the payments are not set up as a proper reimbursement or reasonable allowance.
4) Missing the 45-day reimbursement deadline on a company car
If the corporation owns the car and you want to eliminate the operating expense benefit, the reimbursement for personal operating costs has to be made within 45 days after year-end.
5) Assuming every truck or SUV is outside the passenger-vehicle rules
CRA says many vans, SUVs, and pick-up trucks are still passenger vehicles unless they meet specific business-use thresholds.
6) No logbook
CRA says if detailed records are not kept, the allowance or reimbursement is generally taxable.
Final Takeway
For incorporated business owners, the tax result usually turns on one decision: corporate vehicle or personally owned vehicle. A company vehicle can create a personal taxable benefit even when it is mostly used for business. A personally owned vehicle can be much cleaner, but only if the corporation uses a proper mileage allowance or a well-documented reimbursement policy.
Good records matter in both cases, and commuting mistakes are where owners often get burned or have to suffer through intensive audits. If this was helpful and you prefer working with an accounting that can guide you on tax issues such as these along your business journey, reach out via the link below to discuss our services.
