Does a business have to reimburse all expenses? Travel allowance explained
Do you, an employer, have to pay for your employee’s late night soirée while he or she is away on work for you? If that was the case, hotel minibars would be a lot emptier after a night of stay than they are currently.
So, do you have to reimburse your employees with all travelling expenses? The short answer – no.
Most often a company’s policy about reimbursing out-of-pocket expenses incurred by an employee in the course of employment is worded like so:
“expenses that are legitimate, reasonable and appropriate”
That is business policy, decided by each individual business; it is not mandated by the Employment Standards Act. That means how and what business expenses a company pays is open to a subjective assessment.
Note allowances and travel expenses are not the same as pay for work. That is a calculation of the wages an employee is due for the ‘work time’ they have put in.
There is no standard ‘policy’ for what travel-related expenses and allowances an employer has to reimburse, which is why every employer has a different policy. If you feel your employer
Do you have to compensate for commuting time? No, commuting does not constitute ‘work time’ for the ESA.
Filing your taxes?
Types of travel allowances
There are many different types of expenses that can be claimed as allowances. However, these must all be reasonable and must not constitute an attempt to evade tax. We are listing a few different types of travel expenses that an employer does not have to tax.
- License and registration fees
- Cost of fuel
- Entertainment expenses
- Leasing/Financing cost
- Maintenance of vehicle
- Parking fees
- Cost of lodging (hotel)
- Automobile expenses (Capital Cost Allowance)
Travel allowance and expenses for part time employees
A part-time employee can be paid a reasonable sum for travelling to and fro a part-time workplace. This amount does not have to be included as part of the employee’s income. The CRA makes special mention of teachers and professors who live more than 80 kilometres from the workplace, who too can receive a reasonable allowance.
What is the CRA mileage rate?
The CRA sets an annual mileage rate for automobiles. In 2020, the CRA mileage rates in Ontario are:
- 59¢ per km up to 5000 km
- 53¢ per km driven over 5000 km
In Yukon, Nunavut and the Northwest Territories, an addition 4¢ per km are allotted.
As an employer you are allowed to pay different rates to your employees. However, the rates prescribed by the CRA are the maximum that can be paid to an employee without having to deduct CPP, EI and income tax.
Are expense reimbursements considered income?
The Canada Revenue Agency suggests comparing reasonable expenses incurred by the employee with a reasonable allowance. If the allowance you are paying your employee exceeds, or far exceeds, the expenses incurred it constitute income and be taxable.
In considering the reasonableness of an allowance, the CRA assesses if:
- The allowance is based on the number of business kilometres driven in the year
- The per-km rate is reasonable (depends on vehicle)
- The employee is not reimbursed for the same