How your corporation should pay for your business driving: car allowance or company vehicle

Summary

If you drive for your corporation’s business, there are two ways to be paid for it, and they’re taxed completely differently.

1. You own the vehicle personally, and your corporation pays you an allowance, meaning a set payment you don’t have to account for afterwards. To reach you tax-free, the allowance has to be your business kilometres multiplied by a rate per kilometre, and nothing else. For 2026 the CRA accepts 73 cents a kilometre for your first 5,000 business kilometres in the calendar year, then 67 cents a kilometre after that. In Yukon, the Northwest Territories and Nunavut it’s 77 cents for the first 5,000 and 71 cents after that.¹
2. Your corporation buys or leases the vehicle and makes it available to you. You then pay personal tax on a standby charge, an amount added to your taxable income because a corporate car is there for you to use. For a car the corporation owns, the ordinary full-year charge adds 24% of its purchase price, sales tax included, to your income. A leased car uses two-thirds of the applicable lease costs instead, excluding insurance, and a reduction can apply where business use predominates and personal driving stays below the limit.²

We generally recommend the first route: own the vehicle yourself, take the allowance at the set rate, and have the corporation pay nothing else towards the car. Keep a logbook, and put a copy of it in the corporation’s records. Two things flip that recommendation. Corporate ownership wins where your personal use of the vehicle is genuinely close to nil. It also wins for a pickup or cargo van that tax law counts as a work vehicle rather than an “automobile”, because none of the corporate charges below then apply to it. Our vehicle calculator prices the allowance from the kilometres you drive, and the ceilings if the corporation owns the car.

The per-kilometre allowance, and the conditions attached to it

Two separate rules are at work. Federal regulations cap what your corporation can deduct per kilometre, and for 2026 that cap is the same 73 cents and 67 cents quoted above.³ Anything paid above it isn’t deductible to the corporation, unless the excess is added to your personal income.⁴

The second rule decides your own tax bill: an allowance only reaches you tax-free if it’s reasonable. The CRA treats one paid at the set rate as reasonable in the ordinary case, so the corporation’s deduction cap and your own tax-free rate are the same number. No tolerance above or below it is published, which makes any other rate a judgement call the CRA can attack afterwards, so we pay exactly the set rate.⁵

Three conditions have to hold, and breaking any one of them taxes the whole year’s allowance:

• The payment has to be based only on the business kilometres you actually drove. A flat $600 a month takes no records to pay, and it’s fully taxable employment income whatever the driving turns out to be. A flat allowance can’t be rescued afterwards either: adding up the year’s payments and dividing by the kilometres you drove doesn’t turn them into a tax-free rate per kilometre.⁵
• The rate per kilometre has to be reasonable, which paying at the set rate settles for you.
• Your corporation can’t also reimburse you for costs relating to the same driving (e.g. handing you a company fuel card). The only permitted extras are tolls, ferry charges, and extra insurance you buy because you use the car for work, on top of your ordinary personal policy.

What the allowance costs you is the gap between a flat rate and what your car actually costs to run. Above 73 cents a kilometre you absorb the difference personally, and you can’t top the payment up without breaking that third condition.

A fourth requirement sits underneath all three: the tax-free treatment is written for a person receiving an allowance for travelling in the performance of the duties of an office or employment. An “office” includes a directorship, so an owner who takes only dividends isn’t shut out automatically. What matters is the capacity you’re paid in: an allowance paid to you as a shareholder, rather than for work you do as a director or employee, is taxable to you and gets the corporation no deduction. If you take no salary at all, ask us to record the allowance against your duties as a director before it’s paid.⁴

Business kilometres, and the logbook

Driving between home and a regular place of employment is personal driving, always, even where the corporation makes you take the vehicle home and even when you’re on call.⁶ A regular place of employment is anywhere you report for work or perform your duties regularly (e.g. an office you rent and drive to most mornings), and trips between home and one of those are commuting. Somewhere you go to do the job (e.g. a client’s site or a service call) is a point of call instead. If your home is where you work from, driving to a point of call is business driving from the moment you leave the driveway.

Both routes need records of those kilometres, and each needs a different number out of the same log: business kilometres for the allowance, personal kilometres for a corporate car. A full logbook records the date, the destination, the purpose and the number of kilometres for every business trip. The log also needs the odometer reading at the start and the end of your corporation’s financial year.⁷ Note that a corporation’s financial year needn’t run January to December, while the 5,000-kilometre tier always runs on the calendar year. Records have to be kept for six years after the end of the corporation’s tax year they relate to.

The CRA also requires the employer to obtain the employee’s kilometre records, so copy your log into the corporation’s file even when you own it.

Putting the vehicle in the corporation

Corporate ownership buys real things. The corporation pays the car’s costs out of profit before that profit is taxed, so a $1,000 repair costs it $1,000, where paying for it yourself means first earning enough salary to have $1,000 left after your own tax. Depreciation (i.e. capital cost allowance, which spreads the vehicle’s cost over several years of returns), interest and running costs all come off the corporation’s income too.

What corporate ownership costs is the standby charge, at 2% of the vehicle’s full cost including sales tax for every 30-day period it’s available to you.² Available means the car is at your disposal whether or not you drive it, so one parked in your driveway is available all year, and leaving it at the office overnight doesn’t stop the clock. Twelve 30-day periods make up a year, so a full year adds 24% of the purchase price to your taxable income, not 24% of tax. On a $50,000 car that’s $12,000 on your T4, the slip that reports your employment income, every year you have it.

The charge is reduced only where three conditions all hold. The corporation has to require you to use the vehicle for your work, and more than half the distance driven in the year has to be business. Your total personal driving must also stay within the limit for the time the car was available: 1,667 kilometres multiplied by the number of 30-day periods, or 20,004 kilometres for a full year. Miss any one of the three and the full 24% of the price goes onto your income. Meet all three and the charge shrinks in proportion to your personal driving: multiply the full charge by your personal kilometres and divide by 20,004. On that $50,000 car, 5,000 personal kilometres gives $12,000 x 5,000 / 20,004, or roughly $3,000 of income rather than $12,000.²

Where the corporation also pays the running costs, a second amount called an operating expense benefit goes onto your income, at 34 cents for every personal kilometre you drove in 2026.⁸ Deductions also get capped once the vehicle is an expensive one: for a car bought in 2026 the corporation can only write it off as though it had cost $39,000 plus sales tax, however much it actually paid, and a lease has its own monthly ceiling on the deductible payment.⁹¹⁰ The standby charge is still calculated on the full price, so the more the car costs, the worse corporate ownership gets.

Pickups and cargo vans

A pickup or cargo van can sit outside the tax definition of an “automobile” altogether, on tests that turn on its seating and on how much of its first-year driving carries goods, equipment or passengers.¹¹ A vehicle outside that definition escapes the standby charge, the $39,000 depreciation ceiling and the lease cap at once, so for a contractor the usual answer is a work truck inside the corporation and a car owned personally for everything else. Personal use of that truck is still a taxable benefit valued on a reasonable basis, so the logbook obligation stays even where the standby charge goes.¹²

How often this changes

The Department of Finance announces next year’s per-kilometre rates in one release, which also sets the depreciation ceiling, the lease-payment cap, the operating expense benefit rate and the limit on deductible interest. The release usually lands in late December or early January, effective January 1, and for 2026 it arrived on January 14.¹ Check the rate you’re paying every January, because one set and left alone goes stale quickly.

Re-run the whole question, rather than only the rate, when your personal driving in a corporate vehicle approaches 20,004 kilometres a year, when business use of it drifts towards half the distance driven, or when you’re about to buy a vehicle costing well over $39,000.

Closing thoughts

Vehicles are one of the few parts of a corporate return where the outcome turns on a record rather than a judgement, and everybody drives, so everybody arrives with a view already formed. Whether your allowance reaches you tax-free, and whether a corporate car costs you a quarter of its price in income or a fraction of that, is settled by a logbook you either kept or you didn’t.

How we handle it

We set the per-kilometre rate at the start of the year, and pay it as a separate non-taxable item on your regular payroll run, kept apart from your salary, so nothing about the car reaches your T4. Your logbook goes into the corporation’s file alongside the year-end accounting file we prepare. If you’re weighing up a work truck, we run the standby charge and the depreciation cap against the allowance on your own kilometres before you sign anything.