Operating expense benefit

What the benefit covers

When an employer provides a car and also pays for fuel, oil, maintenance, repairs, licences or insurance, the share relating to personal driving is a taxable benefit, including the GST/HST and PST on those costs. Interest, capital cost allowance, leasing costs, parking and tolls are not operating expenses for this purpose.

The benefit only applies when there is, or would be, a standby charge. If the employee repays all personal operating costs within 45 days after year-end, there is no operating expense benefit to calculate.

Two ways to calculate it

The general method multiplies personal kilometres by a prescribed rate. For 2026 the rate is 34 cents per kilometre, or 31 cents where the employee’s main employment is selling or leasing automobiles. Repayments made within 45 days after year-end reduce the result.

The optional method is half of the standby charge before repayments. It requires a standby charge in income, more than 50% of use for employment and written notice from the employee to the employer before year-end. It may produce a higher or lower number than the per-kilometre method, so it is worth comparing. If the employee pays operating costs directly to a third party, the personal-use share can reduce the benefit.

An illustrative example

An employee drives 8,000 personal kilometres in 2026 in a car whose running costs the employer pays. Under the per-kilometre method, 8,000 multiplied by $0.34 is $2,720. If the employee repays $400 within 45 days after year-end, the benefit is $2,320. If the employee had given proper written notice and the standby charge before repayments was $6,000, the optional method would give $3,000 less repayments instead. Figures are illustrative.

What to discuss with your accountant

Ask which method fits the employee’s actual use, when written notice must be given, and how personal kilometres are recorded. A reliable logbook supports every calculation. Add the result to the standby charge and report the total automobile benefit in code 34 on the T4. Confirm the rate each year, since it can change.