The math, step by step
For 2026 the Department of Finance set two per-kilometre rates for the provinces. The first 5,000 km in the year get the higher rate; every kilometre after that gets the lower one.
- First 5,000 km × $0.73 = $3,650
- Next 5,000 km × $0.67 = $3,350
- Total: $7,000 (an average of 70¢ per km)
An allowance paid only for the kilometres you drive, at or below these rates, is generally not taxable. You don’t report it, and it doesn’t appear as income on your T4.
Nearby amounts
| Business km in 2026 | Provinces (73¢ / 67¢) | Yukon, NWT, Nunavut (77¢ / 71¢) |
|---|---|---|
| 2,500 | $1,825.00 | $1,925.00 |
| 5,000 | $3,650.00 | $3,850.00 |
| 7,500 | $5,325.00 | $5,625.00 |
| 10,000 | $7,000.00 | $7,400.00 |
| 12,000 | $8,340.00 | $8,820.00 |
| 15,000 | $10,350.00 | $10,950.00 |
| 20,000 | $13,700.00 | $14,500.00 |
| 30,000 | $20,400.00 | $21,600.00 |
What does the driving actually cost you?
The calculator above uses a Toyota Corolla 2.0L (6.7 L/100 km in the NRCan 2026 Fuel Consumption Guide) and regular gas at 183.7¢ a litre (Toronto, September 2026). That is about 12.3¢ per km in fuel, or roughly $1,231 for 10,000 km.
The other $5,769 of the allowance is there to cover everything else: insurance, tires, oil changes, repairs and the car losing value. That is why the rate looks generous compared with the gas price — it is meant to cover the whole cost of owning the car, not just fuel.
Tips for employees and employers
- Keep a log. Date, destination, purpose and kilometres. Your employer needs it to pay a per-km allowance, and CRA may ask for it.
- Driving between home and your regular workplace is personal. It doesn’t count as business km.
- The 5,000 km threshold is per employee, per year. If you change jobs during the year, ask your new employer how they count it.
- Employers can deduct allowances up to these rates. Paying more per km is possible, but the extra is not deductible for the business.
What if my employer pays a different rate?
Your employer doesn’t have to use exactly 73¢ and 67¢. Many pay a round figure like 60¢ or 70¢ for every km. That is fine: a per-km allowance at a reasonable rate stays tax-free. The 2026 rates are simply the most an employer can deduct, and the figure CRA generally treats as reasonable. If your employer pays less than your real costs, you can talk to them about it — or, in some cases, treat the allowance as taxable and claim your actual expenses instead (see the guide on flat vs per-km allowances below).
FAQ
How much tax-free allowance can I get for 10,000 km in 2026?
Up to $7,000 in the provinces: 5,000 km × 73¢ = $3,650 plus 5,000 km × 67¢ = $3,350. In Yukon, the Northwest Territories and Nunavut it is $7,400.
Is a per-km car allowance taxable?
Generally no, if it is based only on the business kilometres you drive and the rate is reasonable, like the 2026 rates of 73¢ and 67¢. A flat monthly allowance that is not based on km is taxable income.
How much of a $7,000 allowance goes to fuel?
For a car using 6.7 L/100 km with gas at 183.7¢ a litre, fuel is about 12.3¢ per km, or about $1,231 for 10,000 km. The remaining $5,769 covers insurance, maintenance and depreciation.
Sources (checked 5 November 2026): Department of Finance Canada, “Government announces the 2026 automobile deduction limits and expense benefit rates for businesses”, January 14, 2026 (canada.ca/en/department-finance/news/2026/01/…); CRA guide T4130, Employers’ Guide – Taxable Benefits and Allowances (standby charge and operating cost rules); Natural Resources Canada, 2026 Fuel Consumption Guide (combined ratings); Statistics Canada monthly average retail price of regular gasoline, Toronto, September 2026 (183.7¢/L, via ycharts).