This is one of four tax rate pages. Each page has compliance rates that would be of interest to Canadian small business owners and bookkeepers working from a home office.
You may want to exhale and take a tea break so you can look through all of my notes on this subject.
You may also be interested in "The Deadlines" page which discusses tax compliance filing deadlines by tax type.
Notice to Site Visitor
I developed this tax rates page as a handy reference for myself. While I do my best to ensure it is accurate and complete, I make it available for your use with the understanding that I cannot be held liable for errors and/or omissions.
Tax information is subject to frequent change so professional advice should be sought prior to acting on any of this information. Please make yourself familiar with my site policies prior torelying on any of the information on this site.
Updated January 3, 2018
With the simplified method, you do not need to keep receipts ... BUT CRA may ask for some documentation to support your claim.
The simplified method can be used for trips relating to:
NOTE: if you live more than 40 kilometers away from medical facilities, keep a travel log ... as you can claim dentist, optometrist, and doctor trips under medical expenses on your personal tax return.
The simplified meal rate is a flat rate - $17 per meal or $51 per day. These amounts include sales tax.
Small businesses are not allowed to use the simplified method for their vehicle expenses at this time (see this note) ... but I keep hoping soon. It would reduce paperwork!
To claim the simplified travel mileage, you must track the mileage of your trips and prorate it.
Mileage rates for the 2018 tax year are not released until early 2019. Here are the 2017 mileage rates that were released early in 2018.
|2016||Province / Territory||2017|
|53.0||Newfoundland & Labrador||54.0|
|47.5||Prince Edward Island||49.0|
Released December 15, 2017
Please note that CRA will release 2019 auto allowances in mid-December 2018.
If your employees use their personal vehicle for business purposes, these are the published tax rate deduction limits for the tax-exempt portion of allowances that CRA considers reasonable. Any amount paid over these rates is considered a taxable benefit that must be reported on the employee's T4 slip.
Reimbursement of toll or ferry charges or supplementary business insurance is acceptable provided you did not calculate your allowance to include these reimbursements.
The allowance should only be paid on the business kilometers and the employee should NOT be reimbursed for expenses related to operating the vehicle as this allowance is meant to cover those costs.
It is recommended you have employees keep an auto log as proof of the number of kilometres driven for business use.
As a Canadian sole proprietor, you are NOT eligible for a per kilometre allowance. You must use the detailed method. This allowance is for employees only. See my note under simplified mileage rates (above) for CRA's policy.
The rules are different for a U.S. sole proprietor.
If you are incorporated and work in your business, you are an employee and eligible to use these rates ... but you also have another option.
These tax rates are reviewed annually and announced each year-end ... and include GST and HST excluding any point of sale rebates.
For example, that means if you are in a GST province, divide the rate by 1.05 to get the mileage rate excluding GST. The GST on mileage would be mileage allowance times 5 divided by 105.
If you live in an HST province, divide the rate by 1.13 where 13 equals the HST rate to get the mileage rate excluding HST. The HST on mileage would be mileage allowance times 13 divided by 113 where 13 equals the HST rate.
When HST was in effect In B.C. the provincial portion was rebated at the point of sale, therefore you could only claim 5% not 12%.
|2018||First 5,000 km - 55.0 Then 49.0||First 5,000 km - 59.0 Then 53.0|
|2016 and 2017||First 5,000 km - 54.0 Then 48.0||First 5,000 km - 58.0 Then 52.0|
|2015||First 5,000 km - 55.0 Then 49.0||First 5,000 km - 59.0 Then 53.0|
|2013 and 2014||First 5,000 km - 54.0 Then 48.0||First 5,000 km - 58.0 Then 52.0|
|2012||First 5,000 km - 53.0 Then 47.0||First 5,000 km - 57.0 Then 51.0|
|2011||First 5,000 km - 52.0 Then 46.0||First 5,000 km - 56.0 Then 50.0|
|2010||First 5,000 km - 52.0 Then 46.0||First 5,000 km - 56.0 Then 50.0|
|2009||First 5,000 km - 52.0 Then 46.0||First 5,000 km - 56.0 Then 50.0|
|2008||First 5,000 km - 52.0 Then 46.0||First 5,000 km - 56.0 Then 50.0|
|2007||First 5,000 km - 50.0 Then 44.0||First 5,000 km - 54.0 Then 48.0|
|2006||First 5,000 km - 50.0 Then 44.0||First 5,000 km - 54.0 Then 48.0|
Flat allowances paid that are not based on kilometres driven are fully taxable; report them in box 14 and code 40 of the T4. If the auto expenses exceed the allowance, the difference may be deductible ... check with your accountant.
CRA's publication T4130 Employers' Guide - Taxable Benefits and Allowances has a benefits chart which shows that you CANNOT include GST/HST on this allowance.
Released December 22, 2017
The taxable benefit (means this is reported on the T4 as employment income) relating to the personal portion of automobile operating expenses paid by employers are:
|Year||Operating Expense Benefit**||Selling / Leasing Benefit***|
Operating cost benefit** (taxable benefit-see table above) are now 26 cents per kilometer PLUS standby charge (taxable benefit). You MAY be eligible for an operating cost benefit reduction IF the vehicle was used at least 50% for business (i.e. your personal use of the company car is less than 50%).
CRA defines personal driving use to include (excerpted from their website):
*At year-end, you can claim the lesser of the actual interest paid or $10 per day times the number of days interest was paid.
**If employer pays the operating cost of the vehicle, defined as gas and oil, maintenance and repairs (less insurance proceeds), insurance and licence. It does not include interest, CCA, lease costs, or parking costs.
***Used if you are employed in selling or leasing vehicles and excludes the standby charges which are applicable.
Need more information, read more here ...
These tax rates are deduction limits for the "passenger vehicle category" and used on Form T2125 Page 5 in Charts B and C. They are reviewed and revised annually each December. The Department of Finance announced on December 22, 2017 that there is no change from 2017 for 2018 rates.
Historical Tax Rates - Maximum Class 10.1 Capital Cost Restrictions
Jan 1, 2001 to present -- $30,000 plus taxes
Jan 1, 2000 to Dec 31, 2000 -- $27,000 plus taxes
Jan 1, 1998 to Dec 31, 1999 -- $26,000 plus taxes
Jan 1, 1997 to Dec 31, 1997 -- $25,000 plus taxes
Jan 1, 1991 to Dec 31, 1996 -- $24,000 plus taxes
Sep 1, 1989 to Dec 31, 1990 -- $24,000
Jun 17, 1987 to Aug 31, 1989 -- $20,000
Source of Historical Rates: CCH publication 'Preparing Your Income Tax Returns' 810a
Historical Tax Rates - Monthly Lease Limits
Jan 1, 2001 to present -- $800 plus taxes
Jan 1, 2000 to Dec 31, 2000 -- $700 plus taxes
Jan 1, 1998 to Dec 31, 1999 -- $650 plus taxes
Jan 1, 1997 to Dec 31, 1997 -- $550 plus taxes
Jan 1, 1991 to Dec 31, 1996 -- $650 plus taxes
Sep 1, 1989 to Dec 31, 1990 -- $650
Jun 17, 1987 to Aug 31, 1989 -- $600
Source of Historical Rates: CCH publication 'Preparing Your Income Tax Returns' 738
Historical Tax Rates - Daily Interest Limits
Jan 1, 2001 to present -- $10.00
Jan 1, 1997 to Dec 31, 2000 -- $8.33
Sep 1, 1989 to Dec 31, 1996 -- $10.00
Jun 17, 1987 to Aug 31, 1989 -- $8.33
Source of Historical Rates: CCH publication 'Preparing Your Income Tax Returns' 738
Looking for personal tax information? Personal taxes is outside the theme of this website (except for pieces and parts that relate to your home based business) as its niche is bookkeeping for the work from home business owner. But ...
... personal tax planning is an important aspect of your overall financial plan that should not be ignored. Soooo ... I am introducing you to my favorite tax site. I found this site quite a few years back and I drop in on a regular basis.
TaxTips.ca is an all Canadian reference site for easy to understand tax, financial and investing information. It also has terrific calculators. The one I like is the Canadian income tax calculator . You input a few key pieces of information and it estimates your taxes - all for free. Now that's easy tax planning! After every federal or provincial budget, the information is updated to reflect the changes.
TaxTips.ca is owned by a small private company located in Cedar, B.C. The web content is prepared by a husband and wife team who are retired from owning and operating a small business, with one being a retired professional accountant.
I just love this site ... and I hope you do too! Make tax planning part of your overall financial plan because you don't want to forget that ... Freedom is the Goal, Right?
How To Figure Out Your Marginal Tax Rate
In Canada we have a progressive tax system based on individual incomes not family incomes. A low rate is imposed on lower incomes and a high rate is imposed on higher incomes. Currently there are four different federal tax brackets.
The federal government has their tax schedule and each province / territory has one as well. So it's tough to know what your combined marginal tax rate is, which is the highest rate at which your last dollar of income is taxed.
If you are in the lowest tax bracket, your income is taxed just on one rate. If you are in the second to fourth tax bracket, you pay tax at different rates.
Capital gains and dividend income attract different marginal tax rates than other income because of special tax rules. Only 50% of capital gains are included in taxable income while dividends are included in taxable income at 125% or 145% with an offsetting deduction from taxes payable.
Have you ever wanted to calculate your marginal tax rate but don't know how? Well here's how to do it.
Get your latest tax return filed with the CRA. Find the Schedule 1 Federal Tax and Your Provincial Tax Schedule in your tax return package. In BC, it's form BC428 British Columbia Tax. Each province has their own tax schedule. The form will start with two letters for your province / territory followed by 428.
On page 2 of both schedules, you will see the four different tax rates imposed on various levels of incomes. Federally, they are 15%, 22%, 26%, and 29%. Provinces set their own rates.
Take your taxable income reported on line 260 of your T1 return and pick the highest tax rate you paid tax on. If you are looking at your filed return, it should be easy to spot as you will see a completed calculation in one of the four columns.
Add the federal rate from your Schedule 1 and the provincial rate from your provincial tax schedule to get your marginal tax rate.
So if you had taxable income of $45,000 in the province of BC, your marginal tax rate would be 22% plus 7.7% = 29.7%. That means on your last dollar earned, you paid 30 cents in tax. Your marginal rate is the highest rate your income is taxed.
But here's the thing. Your marginal tax rate is not your actual tax liability.
To calculate that, you want your average tax rate. Your average tax rate will be lower than your marginal tax rate.
The easiest way to calculate your average tax rate ... take your tax payable from line 435 of your T1 (page 4). Divide it by your taxable income on line 260 of your T1 (page 3).
My favorite tax site has an average tax rate table for every province or territory at varying levels of employment income, showing average tax rates for each. You can also find marginal tax rates by following the links to your province or Canada.
So why do you want to know these rates?
Well, you can calculate what if scenarios (instead of letting the computer software do it for you). Suppose you couldn't decide whether to purchase a $1000 RRSP or donate $1000 to a charity.
With the above information, we can figure out which gives you the most tax savings. Using the $45,000 taxable income again, here's how:
(1) RRSP contribution of $1000 x marginal tax rate of 22% = tax savings of $220 plus future interest/dividends are sheltered.
(2) Charitable contribution of $1000 ... 200 x 15% = $30 + ($1000-$200) x 29% = $232 = tax savings of $262
That's just one example of what you can do when you know your marginal tax rate.
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