The limit on the tax-exempt allowance that employers pay to employees who use their personal vehicles for business purposes has been reduced.

On December 24, federal Finance Minister Bill Morneau announced the income tax deduction limits and expense benefit rates that will apply in 2016, and there are two changes.

First of all, the limit on the deduction for tax-exempt allowances that are paid by employers to employees who use their personal vehicles for business purposes will be reduced by 1 cent to 54 cents per kilometre for the first 5,000 kilometres driven, and to 48 cents per kilometre for each additional kilometre. In the Northwest Territories, Nunavut and Yukon, where the the tax-exempt allowance is 4 cents higher, the limit will be reduced by 1 cent to 58 cents per kilometre for the first 5,000 kilometres driven, and to 52 cents per kilometre for each additional kilometre.

Secondly, the general prescribed rate used to calculate the taxable benefit for the personal portion of automobile operating expenses paid by an employer will be reduced by 1 cent to 26 cents per kilometre. In the case of those who are employed principally in selling or leasing automobiles, the prescribed rate will be reduced by 1 cent to 23 cents per kilometre.

The statement from the Department of Finance also included the following list of limits from 2015 that will remain in place for 2016:

  • The ceiling on the capital cost of passenger vehicles for capital cost allowance (CCA) purposes will remain at $30,000 (plus applicable federal and provincial sales taxes) for purchases after 2015.
     
  • The maximum allowable interest deduction for amounts borrowed to purchase an automobile will remain at $300 per month for loans related to vehicles acquired after 2015.
     
  • The limit on deductible leasing costs will remain at $800 per month (plus applicable federal and provincial sales taxes) for leases entered into after 2015.