Per-kilometre allowances vs the logbook: paying for business driving

A per-kilometre allowance is not an alternative to keeping a logbook. It is the thing a logbook makes work. Your corporation can pay you, or an employee, a reasonable allowance for every business kilometre driven in a vehicle owned personally, and at or below the rate the CRA sets and updates each year that payment is deductible to the corporation and not taxable to whoever receives it. Take the record of distance away and the arrangement does not get simpler. It becomes remuneration, on a T4, with source deductions and a penalty attached.

Three arrangements, and the tax lands differently in each

Your corporation can pay a per-kilometre allowance on a vehicle you own. It can reimburse costs you paid on its behalf, against receipts and a business-use share. Or it can buy or lease the vehicle itself. They are not three versions of the same thing, and owners routinely run one while describing another.

The third row is where the money goes sideways. Registering the vehicle to the corporation and making it available to you personally creates two taxable benefits: a standby charge for having it available, and an operating-cost benefit for the running costs the corporation pays. The standby charge is generally computed from what the corporation actually paid rather than from the capped amount a passenger vehicle may depreciate. The ceilings that do the capping are set out in full elsewhere, as are the same mechanics from a realtor’s first year.

Reasonable is a narrower word than it sounds

Three conditions carry a per-kilometre allowance, and all three have to hold.

It has to be computed solely on kilometres driven for business. Not on a month, not on a route, not on someone’s sense of how much driving the job involves. The rate has to be reasonable, which in practice means the per-kilometre rate the CRA publishes and updates each year; that rate steps down after a first block of kilometres, with an additional amount for the territories. And the same costs cannot be covered twice: an allowance plus a company fuel card for the same driving is generally not an allowance at all. Parking, tolls, ferry charges and supplementary business insurance sit outside the distance calculation and can generally be reimbursed on receipts without disturbing it.

The corporation has its own ceiling. Its deduction for a per-kilometre allowance is limited to a prescribed amount, so paying above the year’s rate buys no extra deduction — it only makes the allowance unreasonable.

An unreasonable allowance does not get trimmed. It changes character.

An allowance that fails the reasonableness test is generally taxable in full, not merely to the extent it exceeds the prescribed rate. The whole amount goes into the recipient’s income and onto a T4, which means income tax should have been withheld and CPP contributions taken and matched. Find that out two years later and you are amending slips for a closed calendar year, reassessing a personal return, and paying a remittance penalty charged on the amount you failed to remit rather than on the tax eventually owing.

A flat C$500 a month is the classic version. It is the line that decides the home office: a round number with nothing behind it is an allowance rather than a reimbursement, and an allowance with no measurement behind it is generally taxable. Money leaving the corporation without a name lands in the shareholder loan account, with a deadline of its own.

The rule runs the other way too. Where an allowance is unreasonably low, the recipient can generally include it in income and deduct actual motor-vehicle expenses on their T1 instead, on a signed T2200, the declaration of conditions of employment. That route needs a full year of receipts and the same logbook.

The sales tax follows the same status. Where the corporation is a GST/HST registrant, a reasonable allowance generally carries a notional input tax credit computed by applying a prescribed factor to it, rather than from receipts nobody collected. Lose the allowance’s character and the credit goes with it.

The logbook is the spine, whichever arrangement you pick

Every vehicle number is a percentage, and the percentage is only as good as the record behind it. A usable log holds the date · the destination · the reason for the trip · the odometer out and in, plus the odometer on the first and last day of the year so the business share sits on a real total. An app is fine; so is a notebook in the console. What matters is that it was written while the driving happened.

Driving between home and your own office is generally personal. A trip from home directly to a client’s site generally is not, which is why the destination column earns its place. A full-year log establishes a base year, and once you have one a sample period can generally stand in for later years, so the heaviest version of this is a first-year cost. What has to be kept, and for how long, covers the rest of the file the log sits in.

An illustrative example: 21,000 business kilometres, three ways

Round numbers, December 31 year-end, 2026. An incorporated home inspector drives 30,000 kilometres, 21,000 of them between inspections and client meetings. That is 70% business, per a log kept all year. Running costs come to C$7,900: fuel C$4,200, insurance C$1,900, maintenance and tires C$1,800. The SUV cost C$48,000 and is in her own name.

Paid as an allowance, the corporation pays 21,000 multiplied by the year’s prescribed rate. That is the entire calculation. It deducts the result, issues no slip, nothing reaches her T4, and the only figure anyone can argue about is the 21,000.

Reimbursed instead, the corporation pays 70% of the C$7,900, so C$5,530, against the receipts behind each line. Same log, more paperwork, and a number that moves with what the vehicle costs rather than with a published rate.

Sold into the corporation, everything changes shape. The SUV meets the tax definition of a passenger vehicle, so the capital cost on the books is capped at C$39,000 before tax for a 2026 acquisition. The corporation claims capital cost allowance, the tax version of depreciation, on that capped amount and deducts the full C$7,900 of running costs. Then the benefits arrive on her T4. The standby charge is computed from the C$48,000 the corporation paid, not the C$39,000 it may depreciate. The operating-cost benefit is generally computed at a prescribed rate on her 9,000 personal kilometres, unless she notifies the corporation in writing before year-end that she wants it at half the standby charge, an election available where business use is more than half. Standby relief exists where business use is high enough and personal kilometres stay under an annual limit; whether 9,000 clears it turns on the year’s figures.

Which route leaves the most in the household depends on the vehicle’s price, the personal share and the year’s rate. What does not change is that 21,000 sets the answer every time.

Where the arrangement usually breaks

• The vehicle is registered to the corporation and nobody told the payroll file. The deduction gets claimed; the benefit never does.
• The rate changes in January and the standing monthly payment does not. An allowance that was reasonable in 2025 is a stale number in 2026.
• Ownership moves mid-year and nothing else moves with it. Selling your car to your own corporation is a disposition at a price the CRA can test.

What Cadence does

We settle which arrangement you are actually running, in writing, before the year starts: who owns the vehicle, what the corporation pays and on what basis, and what gets recorded and by whom. When the rate changes, we change the payment. Where the vehicle sits in the corporation’s name, we compute the standby charge and the operating-cost benefit with that year’s T4s rather than in a review letter, and we raise the written election before December rather than in February. That planning sits inside tax planning and advice and is included in the year-round packages; the T4s and benefit reporting it produces are GST/HST and payroll work, included in those packages and available as an add-on to the annual-returns Compliance tier. It comes up most often with construction and trades owners running a truck and a crew, usually in the same conversation as the next vehicle purchase.