What Are the CRA Mileage Rates in 2026? Updated Rates Explained

The Canada Revenue Agency (CRA) mileage rate is the tax-free, per-kilometre allowance used to reimburse employees who drive their personal vehicles for business. It is intended to reflect the average cost of driving for work across Canada, including fuel, maintenance, insurance, and depreciation.

The CRA updates their mileage rates every year to keep pace with changes in vehicle ownership and operating costs. These rates matter because they set the amount that employers can reimburse employees without creating a taxable benefit, as long as the allowance is based solely on business driving and meets CRA documentation requirements.

On January 14, 2026, the Department of Finance Canada announced the updated automobile income tax deduction limits and expense benefit rates for the 2026 tax year. These changes took effect on January 1, 2026.

If you are an employer reimbursing employees for business driving, or an employee who uses a personal vehicle for work, these updates are important. CRA rates establish the benchmark for what can be reimbursed tax-free and what must be treated as a taxable benefit.

Read on to learn what the 2026 CRA mileage rates are, what’s changed, what’s stayed the same, and how these updates affect reimbursement programs across Canada.

The 2026 CRA Mileage Rates

For 2026, the CRA mileage rates increased slightly for both provinces and territories. 

For travel in the provinces, the 2026 CRA mileage rate is set at 73 cents per kilometre for the first 5,000 business kilometres driven, and 67 cents per kilometre for each additional kilometre. 

This represents a one cent increase compared to the 2025 rates.

For travel in the Northwest Territories, Yukon, and Nunavut, the CRA applies higher rates to account for increased operating costs. In 2026, the territorial mileage rate is 77 cents per kilometre for the first 5,000 business kilometres and 71 cents per kilometre for each additional kilometre. These rates also increased by one cent year over year.

The higher territorial rates reflect factors such as fuel pricing, access to maintenance services, and longer travel distances that differ from those in the provinces.

Curious about how the CRA mileage rate has changed over the years? 

This chart shows how the rate for provincial travel has evolved over the past four years, reflecting the CRA’s practice of adjusting rates over time to account for inflation and rising vehicle operating costs such as fuel, insurance, and maintenance.

What’s Changed for 2026

In addition to the mileage rate increase, the Department of Finance made a targeted adjustment to passenger vehicle cost limits for 2026. 

The capital cost allowance ceiling for Class 10.1 passenger vehicles increased from $38,000 to $39,000, before tax, for vehicles acquired on or after January 1, 2026.

Class 10.1 applies to most passenger vehicles that cost more than the general CCA threshold and are used for business or employment purposes. 

The CCA limit sets the maximum vehicle cost that can be used when calculating depreciation for tax purposes, regardless of the actual purchase price of the vehicle. Any amount paid above the limit is not eligible for depreciation deductions.

This increase slightly raises the portion of a vehicle’s cost that employers and self-employed individuals can depreciate over time when the vehicle is used for business. 

While a $1,000 adjustment may appear modest, it can affect long-term tax deductions, particularly for organizations with multiple vehicles or individuals purchasing higher-priced passenger vehicles for work use.

The updated limit applies to both new and used vehicles and aligns with the CRA’s broader approach of periodically adjusting automobile thresholds to reflect changes in vehicle pricing and ownership costs.

What Stayed the Same in 2026

Several important CRA automobile limits and benefit rates did not change for 2026.

1. Leasing Cost Deduction Limit

• The maximum deductible lease cost remains $1,100 per month, before tax.
• This applies to new leases entered into on or after January 1, 2026.

2. Automobile Taxable Benefit Rate

• The general prescribed rate for calculating the taxable benefit on employer paid automobile expenses remains 34 cents per kilometre.
• For employees principally engaged in selling or leasing automobiles, the rate remains 31 cents per kilometre.

3. Zero Emission Vehicle CCA Limit

• The Class 54 CCA ceiling for zero emission passenger vehicles remains $61,000, before tax.
• This applies to new and used qualifying vehicles.

4. Interest Deduction Limit

• The maximum allowable interest deduction remains $350 per month.
• This applies to new automobile loans entered into on or after January 1, 2026.

When the CRA Mileage Rate Can Be Paid Tax-Free

The CRA mileage rate is considered a reasonable allowance when certain conditions are met. 

To remain non-taxable, the reimbursement must be calculated solely on business kilometres driven, the per-kilometre rate must not exceed the CRA prescribed rate, and no additional automobile allowance can be paid for the same vehicle.

When these requirements are satisfied, the reimbursement is generally excluded from the employee’s income. 

This is why per-kilometre reimbursement programs continue to be one of the simplest and most reliable ways for employers to reimburse business driving while staying compliant with CRA rules.

What the CRA Considers Business Related Driving

Only business related driving qualifies for reimbursement under CRA rules. Business driving typically includes:

• Travel between job sites or client locations
• Trips required to perform job duties during the workday
• Driving to temporary work locations

Commuting between home and a regular workplace is not considered business travel, even if the employee uses their personal vehicle.

Employers should clearly define business use in their company vehicle and reimbursement policies to avoid errors and audit risk.

Combining Flat Allowances and Per-Kilometre Rates

The CRA treats a combination of flat automobile allowances and per-kilometre reimbursements as a taxable benefit in most cases.

When both a flat automobile allowance and a per-kilometre reimbursement are provided for the same vehicle, the combined amount is generally treated as taxable income. 

In these cases, employers are required to withhold or charge back for income tax, CPP, and EI, and employees may need to claim any eligible vehicle expense deductions when filing their personal tax return.

This rule is often overlooked and can create unexpected tax exposure for both employers and drivers.

How Flat Rate Automobile Allowances Are Treated

Flat rate automobile allowances are generally treated as taxable income by the CRA. Because these allowances are paid as a fixed amount and are not directly tied to documented business kilometres, they typically do not meet the CRA’s definition of a reasonable per-kilometre allowance. As a result, the full amount of a flat rate allowance is usually included in the employee’s income.

When a flat automobile allowance is considered taxable, employers are required to withhold and remit income tax, CPP, and EI on the payment, just as they would for regular wages. 

Employees, in turn, must account for the allowance on their personal tax return and may need to separately track and substantiate their business driving in order to claim any eligible vehicle expense deductions.

This disconnect between how flat allowances are paid and how business driving must be documented often creates additional administrative work and tax exposure. 

If your organization currently uses a flat rate car allowance, it may be worth reassessing whether that approach still makes sense. Alternative reimbursement structures can better align with CRA requirements and more accurately reflect the true cost of business driving, while reducing tax exposure and administrative complexity.

Why CRA Rate Updates Matter

CRA mileage rate updates affect more than just how much employees are reimbursed. They influence payroll tax exposure, reimbursement fairness across regions, budget planning for mobile teams, and overall compliance and audit risk. 

Even small annual adjustments can have a meaningful financial impact when applied across large field teams or high-mileage roles, which is why employers should review their vehicle programs each year to stay aligned with CRA standards.

For 2026, the CRA mileage rates increased modestly, while most automobile deduction limits remained unchanged. For both employers and employees, understanding these rates is essential to maintaining compliant, predictable vehicle reimbursement. 

If your organization has employees who drive personal vehicles for work, now is the right time to review your reimbursement approach for the year ahead. 

Cardata helps Canadian businesses design and manage tax-compliant vehicle reimbursement programs that align with CRA rules and real-world driving costs, and our team is available to help you assess your current program or plan next steps for 2026.