Employee expense reimbursement policy: a practical checklist

Decide which kind of payment you are making

The CRA treats three payments differently, so a policy should name which one applies to each type of expense. A reimbursement repays an employee for an actual cost they paid while doing their job, and it is supported by receipts. An allowance is a set amount paid on top of pay for an expected cost, and the employee does not have to account for it. An accountable advance is money given up front for business costs, where the employee must provide receipts and return whatever was not spent.

Reimbursements and accountable advances are generally the cleaner choice. Allowances can work, but they are the category where payments most often turn out to be taxable. If you want to pay a flat amount for something such as a phone or home internet, read the rules for that specific item before you promise it in writing.

Write down what is covered and who approves it

A one-page policy is usually enough. List the expense types you will repay, such as travel, supplies, client costs and training, and the ones you will not, such as fines, personal purchases and anything the employee was not asked to buy. State the approval rule: who signs off before large costs, who reviews claims, and who reviews the claims of the person who normally approves.

Set a deadline for submitting claims, for example within 30 days of the expense, and say what happens to late ones. A short deadline keeps costs in the right month and makes the bookkeeping close easier. If you use a corporate card, add that personal charges must be flagged and repaid, because an unrepaid personal charge is a different problem from an expense claim and should be recorded separately.

Require records that support the claim

For the CRA to treat a payment as a reimbursement that is not taxable, the amount must cover actual employment-related costs and the employee must have kept records that you received a copy of. Build that into the form. Ask for the receipt, the date, the amount, the business purpose and, for meals and client costs, who attended.

Keep the approved claim and its support together, in a way you can find later. Whether paper or digital, the same approach should apply to every employee. Your accountant will want the totals by category, not a pile of statements, so ask employees to select a category when they submit. If you are not sure how long to keep the records, ask when you review the policy.

Handle driving, travel and meals deliberately

For employees using their own vehicle, the CRA looks at business kilometres driven. Travel between home and a regular place of employment is generally personal, while travel between work locations or to a client is generally business. The employee should keep a record of business kilometres, and your policy should say how often it is submitted.

A per-kilometre allowance is generally not taxable when the rate is reasonable and the other conditions are met. For 2026 the CRA’s prescribed rates for the provinces are 73 cents per kilometre for the first 5,000 kilometres and 67 cents after that. A different rate can still be reasonable when the facts support it, such as the type of vehicle or local fuel costs, but you should be able to explain why. A flat amount that is not based on kilometres driven, or a flat daily amount combined with a per-kilometre rate for the same use of the vehicle, is generally treated as one taxable allowance.

For business trips, a reimbursement is generally not taxable when the costs are reasonable, you required the employee to be there and the main purpose is business, and more than half the time is spent on business activities. Personal days added to a trip are the employee’s cost. If you pay a meal allowance so an employee can work more efficiently during a shift within the same municipality, the CRA generally treats up to $23 including taxes as reasonable, with higher amounts possible where meals cost more. Ask your accountant how that applies to your situation.

Know where reimbursements become taxable

A reimbursement of a personal expense is a taxable benefit, and so is an allowance that is not reasonable. Cell phones are a common example. An allowance for phone or internet service is always a taxable benefit. A reimbursed phone plan is generally not taxable only if you require the employee to use it for work, the plan has a reasonable fixed cost, and personal use does not add charges. Reimbursing the purchase of an employee’s own phone is taxable. For home internet, the business share is not a benefit but the personal share is.

When a payment is taxable, it generally must be reported on the employee’s T4, and payroll deductions may apply depending on whether it is paid in cash. Write into the policy that anything outside the covered list goes to payroll for review before payment. Employees who work from home may separately need a signed T2200 to claim their own expenses, which is a different process from this policy.

Review the policy with your accountant

Once the draft is done, walk through three real claims with your accountant or payroll provider: a mileage claim, a meal or client expense and a phone or internet claim. See whether each is recorded the way you expected and whether any should have been on a T4. Ask how reimbursements should be coded in the books so they do not end up mixed into wages or personal accounts, and whether any GST/HST on reimbursed costs is recoverable in your situation.

Revisit the policy once a year. Prescribed rates change, and so can the way you work. Tell employees about changes in writing and keep a dated copy of each version.