For 2026, the CRA mileage rate (the per-kilometre limit on tax-exempt automobile allowances) is 73 cents per kilometre for the first 5,000 business kilometres and 67 cents for each kilometre after that in the provinces. In the Yukon, the Northwest Territories and Nunavut it is 77 cents and 71 cents. Both are one cent higher than 2025.
With the fourth quarter under way, this is the number employers check when they settle year-end mileage claims, and the number owner-managers check before their corporation pays them for driving their own car. The rate is only half the story: whether the payment stays tax-free depends on how the allowance is structured.
What changed in 2026 and who it affects
- The change: The Department of Finance raised the tax-exempt allowance limit by one cent, to 73¢/67¢ in the provinces and 77¢/71¢ in the territories.
- When it applies: To kilometres driven in the 2026 calendar year.
- Who it affects: Employers (including owner-managed corporations) that pay employees or shareholder-employees a per-kilometre allowance for business use of a personal vehicle.
- Who it does not cover: Self-employed people. A sole proprietor cannot deduct a cents-per-kilometre amount; they deduct the business-use share of actual vehicle costs (see below).
The same release also raised the capital cost allowance ceiling for Class 10.1 passenger vehicles to $39,000, and left the leasing, interest and operating-benefit limits unchanged.
Source: Department of Finance Canada: 2026 automobile deduction limits and expense benefit rates.
CRA mileage rate 2026 and prior years
| Year | Provinces: first 5,000 km | Provinces: each km after | Territories: first 5,000 km | Territories: each km after |
|---|---|---|---|---|
| 2024 | 70¢ | 64¢ | 74¢ | 68¢ |
| 2025 | 72¢ | 66¢ | 76¢ | 70¢ |
| 2026 | 73¢ | 67¢ | 77¢ | 71¢ |
The 5,000 km tier counts per employee per year, across all business driving that employee does for you.
A worked example: an employee in one of the provinces drives 8,000 business kilometres in 2026. The maximum the employer can pay and deduct as a tax-exempt allowance at the prescribed rate is 5,000 × $0.73 + 3,000 × $0.67 = $5,660.
Sources: Department of Finance Canada: 2025 limits and 2024 limits.
The other 2026 automobile limits in the same release
| Limit | 2025 | 2026 | Applies to |
|---|---|---|---|
| CCA ceiling, Class 10.1 passenger vehicles | $38,000 | $39,000 | Vehicles acquired on or after January 1, 2026 (before GST/HST and PST) |
| CCA ceiling, zero-emission passenger vehicles (Class 54) | $61,000 | $61,000 | Vehicles acquired in 2026 |
| Deductible leasing costs | $1,100/month | $1,100/month | New leases entered into in 2026 |
| Deductible interest on a car loan | $350/month | $350/month | New loans entered into in 2026 |
| Operating cost benefit, employer-provided car | 34¢/km | 34¢/km | Personal driving in 2026 |
| Operating cost benefit, employees selling or leasing cars | 31¢/km | 31¢/km | Personal driving in 2026 |
The operating cost benefit applies the other way round: it is the taxable benefit when the employer owns or leases the car and pays its running costs, and the employee drives it personally.
When a mileage allowance is tax-free
The CRA treats a vehicle allowance as reasonable, and therefore not taxable to the employee, only when all of these are true:
- It is based only on business kilometres driven in the year.
- The per-kilometre rate is reasonable. The prescribed rates above are generally accepted as reasonable.
- You did not also reimburse expenses for the same use of the vehicle. Reimbursing tolls, ferry charges or supplementary business insurance is an exception, provided the allowance was set without them.
Fail any one of these and the allowance is a taxable benefit: it is added to the employee's employment income and payroll deductions apply to it. See our source deductions employer guide for how that runs through payroll.
Source: CRA: Automobile and motor vehicle allowances and CRA Employers' Guide T4130.
Edge cases employers get wrong
Flat monthly car allowances. A fixed amount per month, such as $500 for "car use", is not based on kilometres and is taxable, however reasonable the amount looks.
Flat amount plus per-km rate. If you pay a flat allowance and a per-kilometre allowance for the same vehicle use, the CRA treats them as one allowance. The combined allowance is taxable even if the per-kilometre part is at or below 73 cents.
Averaging at year-end. You cannot pay a flat allowance during the year and then divide by the kilometres driven in December to show it worked out to a reasonable rate.
Paying above the prescribed rate. A rate above 73¢ is not automatically taxable if it is reasonable for the actual cost of driving, but the employer's deduction for a tax-exempt allowance is capped at the prescribed rates. Paying more without support invites a reassessment.
Owner-managers paid by their own corporation. A shareholder-employee can receive a reasonable per-kilometre allowance from their corporation on the same terms as any employee. The corporation needs the same records it would ask of any staff member: a log of business trips with date, destination and distance. An allowance paid without a log is hard to defend. If you are weighing how the allowance fits with salary and dividends, see salary vs dividends in Canada.
Employees who also want to deduct their car costs. An employee who receives a non-taxable allowance generally cannot also deduct motor vehicle expenses on their return. The exception: if their actual employment driving costs exceed the allowance, they can include the allowance in income and claim actual expenses, provided they meet the other conditions, including a signed Form T2200 from the employer.
Source: CRA: Employment Expenses guide (T4044).
The government travel rates are a different table. The CRA also publishes kilometric rates for public servants on government travel, which vary by province. They are not the tax-exempt allowance limits for private employers. Use the 73¢/67¢ figures above.
Self-employed: no per-km rate, use actual costs
A sole proprietor or partner cannot use the CRA mileage rate. You deduct the business-use percentage of your actual vehicle costs: fuel, insurance, maintenance, licence and registration, interest or leasing costs (within the limits above) and capital cost allowance.
The business-use percentage comes from a logbook showing the date, destination and distance of each business trip. The CRA's simplified method lets you keep a full logbook for one base year, then a three-month sample logbook in later years, as long as the sample stays within 10% of the base-year result.
Sources: CRA: Motor vehicle expenses and CRA: Motor vehicle records. For other deductible costs, see our small business tax deductions guide.
What is not published yet
As of October 12, 2026, the 2027 automobile limits have not been announced. The last three sets were released in December 2023, December 2024 and January 2026. Until the 2027 release, keep using the 2026 rates for 2026 driving, and do not apply any 2027 figure you see online.
What to do before December 31, 2026
- Check your policy pays per kilometre, not a flat amount, if you want the allowance to stay tax-free.
- Apply the 5,000 km tier per employee for the calendar year, and switch to 67¢ once an employee passes it.
- Collect the trip logs now for every employee, including yourself if your corporation pays you an allowance.
- Move any flat or mixed allowance onto payroll as a taxable benefit for 2026 if it does not meet the three conditions.
Key takeaways
- The CRA mileage rate for 2026 is 73¢/km for the first 5,000 km and 67¢/km after, in the provinces; 77¢ and 71¢ in the territories.
- The allowance is tax-free only if it is based solely on business kilometres, at a reasonable rate, with no separate reimbursement for the same use.
- Flat and mixed allowances are taxable.
- Self-employed people cannot use the per-km rate; they deduct actual costs backed by a logbook.
- The 2027 rates are not out yet.
RN Canada runs payroll and prepares personal and corporate tax returns for owner-managed businesses. If you want your vehicle allowance policy, or the allowance your corporation pays you, checked before year-end, our bookkeeping and payroll team can review it.