The Canada Revenue Agency (CRA), which is the Canadian equivalent to the IRS, recently announced its 2020 income tax deduction limits and expense benefit rates that will apply when using an automobile for business purposes. Referred to as the Automobile Allowance Rate, this rate is not a fixed value, and just as the U.S. Standard Mileage Rate, it can change slightly year over year.
What are the 2020 CRA Mileage Rates and Tax Deduction Limits?
The 2020 CRA Mileage Rate has increased by one cent to 59 cents per kilometer for the first 5,000 kilometers driven, and to 53 cents per kilometer for each additional kilometer.
The rates above apply to all Canadian provinces, except for the Northwest Territories, Nunavut, and Yukon. For those provinces, the 2020 tax-exempt allowance is four cents higher, making it 63 cents per kilometer for the first 5,000 kilometers driven, and 57 cents per kilometer for each additional kilometer.
The differences in these allowances are intended to reflect the costs of owning and operating an automobile, such as depreciation, financing, insurance, maintenance, and fuel.
How does the 2020 CRA Mileage Rate compare to previous years’ rates?
Looking back at the rates from 2014 to 2019, the CRA Mileage Rate has either gone up or down by a few cents or stayed the same from one year to next. The rates for Northwest Territories, Nunavut, and Yukon have remained consistent at being $0.04 higher than the other provinces, per kilometer.
CRA Rules for Deducting Business Mileage
- You're required as part of your job to work away from the office regularly. This is to make sure that you’re not deducting your commute from your home to your office. If you live in the suburbs and your regular place of business is in the city, you cannot claim mileage deductions for this drive.
- You pay for your own work-related travel. Your employer would need to sign a T2200 form confirming that you pay out-of-pocket for your business travel expenses. If your employer reimburses you for your travel expenses, then you cannot deduct your business mileage. If fact, if the reimbursement (or allowance) is above what the CRA deems acceptable, then your employer would be required to report the extra amount as part of your income.
Why you should use a mileage tracker to stay CRA compliant
The CRA suggests that every employee who deducts their allowance, keep a detailed and accurate log of the business mileage they drive. This is essential, as the CRA can decline mileage logs due to it containing incomplete or inaccurate information.
Using a mileage tracker app, such as Everlance, can help you keep your mileage logs compliant with CRA & IRS Mileage requirements. With the Everlance app, your business mileage is automatically recorded as you’re driving, and you can easily download detailed reports when it’s time to prepare your taxes.
This time-saving app also keeps records of other business travel expenses, including parking, tolls, meals while traveling, and more. You can take photos of receipts with your smartphone, enter in amounts manually, or link your credit card or bank account, so each deductible expense is captured, recorded, and stored into a report which can be downloaded when needed. The data can then be uploaded to your tax software or given to your accountant.
Everlance makes tax reporting less burdensome for businesses and employees, with its detailed record keeping of all your deductible expenses. For you, this means fewer headaches when tax time rolls around.