CRA Mileage Rate 2026 in Canada: Rates, Calculation and Rules

For many small businesses and incorporated companies across Canada, mileage reimbursement is part of everyday operations. Whether you're reimbursing employees for business travel or using your own vehicle as a shareholder-employee, the CRA mileage rate 2026 directly affects your expenses, your tax compliance, and how you run payroll.

The Department of Finance Canada announced the updated rate on January 14, 2026, and the Canada Revenue Agency (CRA) applies it every year to reflect the rising cost of operating a vehicle. It isn't set arbitrarily: Regulation 7306 of the Income Tax Act (ITA) defines what the CRA considers a reasonable allowance.

Applying it correctly based on your status isn't just a paperwork exercise, it's what keeps the reimbursement tax-free and fair to your employees. Below, you'll find the current 2026 rate, how it's changed since 2022, along with worked examples and practical rules for Canadian businesses.

What does the CRA mileage rate mean for your business?

The CRA mileage rate, also called the prescribed kilometre allowance or CRA mileage allowance, is the tax-free amount a company can pay an employee for using their personal vehicle for business purposes.

To stay tax-free under section 6(1)(b)(vii.1) of the ITA, the allowance must meet three conditions:

• it's based solely on the actual business kilometres driven,
• it uses a rate consistent with the CRA's prescribed rates for 2026, under section 7306 of the Income Tax Regulations,
• it isn't combined with other reimbursements for the same expenses, such as fuel, insurance, repairs, or lease payments.

If any of these conditions isn't met, the entire allowance becomes a taxable benefit, not just the excess.

What is the CRA mileage rate 2026?

These rates took effect on January 1, 2026, following the Department of Finance Canada's announcement on January 14, 2026: $0.73/km for the first 5,000 business kilometres, then $0.67/km after that. A reimbursement within these limits stays tax-free for the employee.

Anything above these amounts loses its tax-free status and must be added to income. This limit isn't arbitrary: it comes from Regulation 7306 of the ITA, which defines what counts as a reasonable per-kilometre rate under section 18(1)(r) for deductibility, and under section 6(1)(b)(vii.1) for the employee's tax-free treatment.

How has the rate changed from 2022 to 2025?

The CRA revises these cents-per-kilometre rates every year to keep pace with rising vehicle operating costs, and publishes its automobile allowance rates in an updated appendix.

The gap between provinces and territories reflects the higher cost of travel in the North, a gap that has held at exactly 4 cents per kilometre every year since 2022.

Does the mileage rate vary by province?

No. The CRA mileage rate is a federal rate, and it applies the same way whether you're in Ontario, Alberta, British Columbia, Saskatchewan, or Manitoba: $0.73/km for the first 5,000 business kilometres, then $0.67/km after that. Only the territories (Yukon, Northwest Territories, Nunavut) get a higher rate, with the extra $0.04/km supplement.

This surprises a lot of business owners searching for a separate "Ontario mileage rate" or "Alberta mileage rate", expecting a provincial variation the way some other tax rules work. There isn't one here: the CRA sets a single national rate under Regulation 7306. Quebec is the one exception worth knowing about, covered separately below.

Who qualifies for a CRA mileage allowance?

Employees and shareholder-employees can rely on the CRA's prescribed rate for their business travel. Self-employed individuals and non-employee shareholders, on the other hand, have to calculate their actual expenses instead of using this rate.

Employees using their personal vehicle

An employee who drives for their employer's business can be reimbursed at the CRA's prescribed rate without that amount being added to their taxable income. For this to hold, the allowance has to be based solely on actual business kilometres, follow the current rate, and be backed by a detailed mileage log.

When a reimbursement exceeds the prescribed rate, the excess becomes taxable and shows up on the T4. Conversely, if the employer reimburses less than the employee is entitled to, the employee can claim the difference, provided they get a T2200 form signed by their employer and report their actual expenses on Form T777.

Self-employed individuals: the vehicle deduction instead of the allowance

Unlike an employee, a self-employed individual can't simply rely on the CRA's prescribed rate to work out vehicle costs. They have to use the actual expense method instead, which takes a bit more work but reflects what running the vehicle really costs:

• track total kilometres and business kilometres separately,
• work out the percentage of business use,
• deduct actual costs, such as fuel, insurance, repairs, lease or loan interest, parking, and maintenance.

The applicable capital cost allowance (CCA) rate depends on the vehicle's class, a detail that can make a real difference in the deductible amount.

Incorporated business owners (shareholders)

A shareholder who receives a mileage allowance isn't automatically treated as an employee. They can only rely on the prescribed rate if they're genuinely acting as an employee and their travel relates to their duties. The reimbursement then has to be based solely on business kilometres, backed by a complete log, and consistent with the prescribed rates.

If the owner isn't an employee, two scenarios are possible:

• the reimbursement becomes a shareholder benefit under subsection 15(1) of the ITA, to be reported on a T4A slip rather than a T4,
• or, if the company provides and pays for the vehicle directly, the rules for taxable benefits on a company car apply instead.

When does a mileage allowance become taxable?

An allowance becomes taxable when it fails to meet the reasonableness criteria set out in section 6(1)(b)(vii.1) of the ITA, even if every kilometre claimed is otherwise fully eligible. Here are the most common cases:

• it's a flat amount, paid monthly regardless of actual mileage, for example $500/month no matter how much driving is done, which is always taxable, even if the amount looks reasonable,
• it combines a flat amount with a per-kilometre rate,
• it significantly exceeds CRA rates,
• no mileage log is kept to support it.

When the allowance becomes taxable, it has to appear on the T4 for an employee, or on the T4A for a non-employee shareholder as a shareholder benefit, and it may become subject to payroll deductions.

Do the same rules apply in Quebec?

Yes, for the most part. Revenu Québec applies essentially the same criteria as the CRA, though under a different name: the allowance for the use of a motor vehicle. An allowance deemed taxable has to be reported on the RL-1 slip rather than the T4, which can increase QPP and QPIP contributions. During an audit, Revenu Québec can also disallow all claimed vehicle expenses if no compliant mileage log can be produced.

What travel qualifies for mileage reimbursement?

For a kilometre to qualify, it has to be directly tied to your job or your business, not just happen during work hours. For example, an employee who drives straight from home to a client's office is making an eligible trip. If they stop for groceries on the way, that personal detour doesn't qualify, even if it happens during the same outing.

This distinction between business-related travel and personal expenses follows the same logic as eligible business expenses allowed by the CRA.

Eligible kilometres

Any trip made in the direct course of your business activities counts, including to:

• visit a client, supplier, or partner,
• travel from one work location to another,
• attend an off-site meeting,
• deliver documents, goods, or materials,
• make a deposit or handle a banking transaction for the business,
• purchase supplies needed for operations.

Non-eligible kilometres

On the other hand, some trips remain personal in the CRA's eyes, even when they're loosely connected to work:

• the commute between home and work, always considered personal,
• a personal detour during a business trip,
• a personal trip on the weekend,
• a mixed trip that isn't documented,
• picking up materials from home, when home isn't your main place of work.

How do you calculate mileage reimbursement?

Mileage reimbursement is calculated by multiplying business kilometres driven by the applicable rate for the year, whether you think of that rate in dollars or in cents per kilometre, nothing more complicated than that:

business kilometres × applicable rate = reimbursement

Worked example

An employee drives 7,000 km for work in Ontario.

• 5,000 km × $0.73 = $3,650
• 2,000 km × $0.67 = $1,340
• Total reimbursement: $4,990

If the allowance meets the rules, this amount is tax-free.

Example for self-employed individuals (actual expense method)

The logic changes once you switch to the actual expense method. If you drive 18,000 km for business out of 30,000 km total, and your annual vehicle expenses come to $9,000:

• Business use percentage = 60%
• Deductible amount = $5,400

This business use percentage should stay consistent from year to year. A significant change, for example if you start working from home more often, may justify recalculating it rather than carrying the same figure forward automatically.

How do you track mileage for taxes in Canada?

To keep mileage reimbursement tax-free, a detailed log is required. A compliant log includes:

• the date,
• the starting point and destination,
• the purpose of the trip,
• the kilometres driven,
• the odometer reading at the start and end.

You can keep a log for every trip or one full annual log, whichever fits your situation best. After a full year of tracking, the CRA may allow a simplified log: a full logbook for one base year, followed by a three-month sample in later years to confirm your business-use percentage hasn't changed. If that sample shows a significant shift from your base year, for example a jump from 60% to 75% business use, the CRA expects a full logbook again for that year.

What matters most is when you fill it in. A log kept as you go protects you far better than one reconstructed from memory at year-end, which is much harder to defend during an audit. This is where mileage tracking apps like MileIQ, Driversnote, or TripLog make a real difference: automatic GPS tracking removes that risk entirely, unlike a paper log, which is still accepted but demands more discipline.

What common mistakes should businesses avoid?

The costliest mistakes around mileage reimbursement tend to come down to the same few causes:

• using the per-kilometre rate for a self-employed individual, when only the actual expense method is allowed,
• reimbursing the commute between home and work, always considered personal by the CRA,
• paying a flat allowance instead of a rate based on actual kilometres, which makes it taxable by default,
• not requiring a mileage log, which makes the allowance hard to defend during an audit,
• mixing personal and business kilometres without clearly separating them,
• letting an internal policy go stale, while CRA rates change every year.

If a mistake goes unnoticed, the business can also face penalties, such as those tied to late-filed corporate tax returns.

How do you build a compliant mileage policy?

Staying compliant comes down to four habits: using the right rate for your status, keeping an up-to-date mileage log, avoiding flat allowances, and reviewing your internal policy every year to match the CRA's new rates. Since these rates are part of the automobile deduction limits and expense benefit rates the Department of Finance Canada announces every January, that annual review is worth putting on a recurring calendar reminder rather than leaving to chance.

For incorporated businesses, the distinction between employee, shareholder-employee, and non-employee shareholder is the point most often overlooked, and the one that costs the most during an audit. The choice between per-kilometre reimbursement and the actual expense method ultimately depends on your status and your tax objectives, not personal preference.

If you'd like help filing your corporate tax return in full compliance, our corporate tax experts can prepare your corporate tax return and make sure the applicable mileage rate is correctly reflected in your file.

This article is provided for informational purposes only. It doesn't replace tax or accounting advice. We recommend consulting a CPA for guidance tailored to your situation.

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