Updated Checked by the Tax-Services.ca editorial team How we check
Are employee expense reimbursements taxable? Usually not. A reimbursement repays a real cost, backed by a receipt, and it isn’t extra pay. An allowance is a set amount handed over without proof of cost, and it’s often taxable. Which one you’re paying decides what goes on the T4 and what you remit.
What is the difference between a reimbursement and an allowance?
The Canada Revenue Agency defines a reimbursement as money paid back to an employee for expenses they incurred doing the job. The employee has to keep proper records and give you a receipt or voucher. An allowance is a periodic or lump sum paid on top of pay to help with expected costs, with no support for the actual amounts. It’s usually an arbitrary figure set in advance.
Picture Sam in Calgary, who buys $48.60 of parking for a client meeting and hands you the receipt. You pay back $48.60. Done, and no tax. Now picture giving Sam $50 a month “for parking” with no questions asked. That’s an allowance, and from a payroll point of view it looks a lot like wages.
Benefits given to employees are generally taxable under the Income Tax Act unless the law or CRA policy excludes them, a point the CRA explains in its employers’ guide to taxable benefits and allowances. That’s why the paperwork matters. A receipt turns a payment into a repayment of cost, and without one you’re closer to paying wages.
How are common payments treated?
| Payment | Usual treatment |
|---|---|
| Expense repaid against a receipt | Reimbursement, record it as a business cost |
| Medical exam required for the job | Not a taxable benefit, per CRA policy |
| Distinctive uniform or protective clothing | Not taxable if conditions are met |
| Own vehicle, paid per kilometre | Not taxable if based only on business kilometres at a reasonable rate |
| Flat vehicle allowance | Taxable, reported as employment income |
| Prescribed rate for 2026, provinces | $0.73 a km for the first 5,000 km, then $0.67 |
| Prescribed rate for 2026, territories | $0.77 a km for the first 5,000 km, then $0.71 |
What does a mileage payment look like next to a flat one?
Start with mileage. An employee drives 6,000 business kilometres in Ontario. The first 5,000 km at $0.73 is $3,650, and the last 1,000 km at $0.67 is $670, so you owe $4,320. Paid on logged kilometres at those rates, that isn’t a taxable allowance.
Now the flat version. You give $300 a month instead, so $3,600 a year, with no link to kilometres driven. That one is a taxable allowance. For an employee on $80,000 in Ontario, the bonus tax calculator shows $1,024.70 of extra income tax and $144.00 of CPP and EI. The employee keeps $2,431.30, or 67.5% of the money. Not a great deal when you think of it as a few bucks for gas.
You owe your own share of CPP and EI on taxable pay as well. Estimate it with the payroll remittance calculator, and see the whole pay cheque in the payroll deductions calculator.
How do you keep employee expense reimbursements clean on the books?
Write a short policy. List what you repay, the limits, the deadline to submit and the proof you need. Ask for receipts with each claim and log the date, the category and the person. Record each repayment in the period it was paid, and match card and bank entries to receipts every month, because an unmatched item is your first sign of a problem.
Keep personal and business spending apart. If an employee pays with a personal card, the claim should show what was bought and why. If the company pays directly, it shouldn’t also repay the same item.
What if an employee loses the receipt?
It happens, usually around tax time when somebody cleans out a glovebox. The cleanest answer is to decide in your policy beforehand. Many small employers ask for a replacement copy from the vendor, a card statement line plus a short note, or nothing at all, and that last choice is a business decision, not a tax rule. What the CRA looks for is proof that a real cost was repaid. If you can’t show that, treat the payment as pay and put it through payroll.
What should you avoid?
- Paying round sums with no receipts and calling them reimbursements.
- Mixing a per-kilometre rate with a flat vehicle amount for the same costs.
- Guessing the tax effect of a taxable payment. Run the numbers in the take-home pay calculator.
- Assuming sales tax is sorted. The GST/HST or provincial sales tax treatment of reimbursed costs, and how long you keep the records, aren’t covered here, so check those with the CRA or an accountant.
- Applying these examples to owner-managers or contractors. They assume an employee, and other rules apply to the rest.
Where the numbers come from
The definitions, the treatment of medical exams, uniforms and vehicle allowances, and the 2026 prescribed kilometre rates come from Canada Revenue Agency payroll pages, read in September 2026. Tax amounts use 2026 federal and Ontario data on this site. No government body is connected to this website.
Frequently asked questions
What is the difference between a reimbursement and an allowance?
A reimbursement repays a real cost backed by a receipt. An allowance is a set amount paid without proof of the actual cost.
Are reimbursements taxable to the employee?
Generally not, when they repay job expenses with receipts. Some payments, such as flat allowances, are taxable.
What are the 2026 per-kilometre rates?
In the provinces it's $0.73 for the first 5,000 km and $0.67 after that. In the territories it's $0.77 and $0.71.
When does a vehicle allowance become taxable?
When it's a flat amount not tied to kilometres, or when the per-kilometre rate is unreasonably high or low.
Do employers owe payroll contributions on a taxable allowance?
Yes. It's employment income, so CPP and EI apply and the employer pays its share too.
- Self-employed taxes in Canada: income, CPP and GST
How tax works when you are self-employed in Canada: reporting income and expenses, paying both halves of CPP, instalments and when to register for GST