The complete guide to corporate mileage reimbursement


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Mileage reimbursement policy

An effective policy is the cornerstone of any mileage reimbursement scheme. A clear, well-structured policy will help remove any doubts and/or delays when it comes time for your employees to file their travel expenses, and ensure your company receives the full tax-deduction benefits on offer.

Some countries have actually made the mileage reimbursement policy a formal obligation, but this is not the case in Canada. However, it is common practice for employers to reimburse employees. 

But even if the Canadian Revenue Agency doesn’t have this requirement, you should still ensure that your mileage reimbursement and wider workplace travel policy is well-defined for your people. There are all kinds of potential pitfalls when it comes to business travel expenses, and you owe it to your employees to clarify as much as possible to eliminate any doubts they might have. 

In this guide, we’re going to explain how to write a full and effective mileage reimbursement policy document, so that your employees know exactly how to claim the use of their personal vehicle. We’ll also include some samples at the end, so you have templates if needed. 

1. Introduction to mileage reimbursement

Your introduction should set out the core principles of mileage reimbursementand make the following points clear:

  1. That mileage reimbursement extends the benefits of business travel compensation to employees who use their private vehicles for business purposes.
  2. That the term ‘personal vehicle’ can include cars, vans and bikes - as long as they are registered to the individual making the claim (the term does not include company cars or vehicles for hire).

It is also worth noting, clarifying, right at the outset, exactly what constitutes a business trip when using a personal car or other vehicle. You can make the following points in your definition:

  • The normal commute (the journey between home and work) does not count.
  • The journey must be useful to the business and its everyday activities.
  • Trips must have a primarily business purpose. If an employee has simply bolted a business errand onto a personal trip, that doesn’t qualify for reimbursement.

Top Tip: Use the definitions provided by the Canadian  Revenue Agency to determine this. The CRA has issued a clear definition on what constitutes reimbursements,  stating that the amount must be fully accounted for by the person receiving the payment.

2. Provide specific examples

Ok, so you’ve given your employees a broad overview of what constitutes a tax-deductible trip. Now let’s go a bit further and provide specific examples of exactly what constitutes business travel.

Below is a list of some of the trips which meet the criteria. 

  • Visits to client sites
  • Meetings with both current and prospective clients
  • Meetings with the company’s equipment, furnishing or software suppliers
  • Visits to the homes of company executives for meetings
  • Trips to buy essential supplies for the business

You can include this list in your own policy document, or tailor it to suit your company’s circumstances. For example, you might want to name some of the client sites that your staff might visit).

It’s also worth providing real-world examples to show employees what they can claim, and how to deduct things like commuting. Here’s a very simple example:

An employee drives to and from a conference and the distance is 80 kilometres each way.. The employee’s normal commute is 20 kilometres each way, so 40 kilometres  must be deducted from the reimbursement claim. In this case, a total of 120 kilometres can be claimed. Top Tip: The more examples you can provide, the better. People often respond better to anecdotal examples than they do to theoretical ideas, especially when discussing a subject as complex as reimbursable business expenses!

3. How the rate is calculated

Once you’ve set out the general terms of your mileage reimbursement scheme, it’s important to tell your employees how their compensation will be calculated.

Most companies use an approved per-kilometre rate from their national revenue agency, which takes into account all the costs involved in running a car – both fixed and variable. This is often called the standard mileage rate. In Canada, for example, the CRA rate is currently 61 cents per kilometre for the first 5,000 kilometres. 

In the U.S. you can use what is known as the Fixed and Variable Rate Allowance (Favr), which provides a core monthly allowance supplemented by variable payments which are tailored to the actual costs in the driver’s local area (the price of fuel, the cost of repairs etc). Canada doesn’t have this clause in their tax laws, however, so you can’t offer this to your employees.  

As an added bonus for your employees, you may wish to include sample calculations in your policy document. If you’re based in Canada, an example would be:

If you travel 1,000 kilometres in the (financial) year, multiply 1,000 by $0.61

So the total claim is $610

Remember: you can set your own mileage reimbursement rate if you wish. However if you decide to exceed the standard mileage rate, you should let your employees know that the payments will be classified as taxable income and thus will no longer be deductible. If you go below the approved rate, your employees may be able to claim the difference in their personal tax return. Your policy should provide instructions on how to do this.

Top Tip: If you’re using the standard mileage rate, think about those related expenses which aren’t included, such as parking tickets and the proposed congestion charges that will be rolled out in Vancouver in 2025. Give your employees clear and specific information on whether these costs are reimbursable and, if so, how to file the expenses.

4. How to submit mileage reimbursement claims

Ok, now that your employees know their rights and responsibilities, you can show them how to file their business mileage claims.

We recommend asking your people to keep a detailed mileage log to keep track of business journeys made using their own vehicle, which they can use when filing their expense reports. The CRA requires four key details from mileage reimbursement claims, and it’s good practice for employees to guard this information. 

  • The date of each journey.
  • Number of kilometres driven Destination
  • The purpose of the journey.
  • Odometre readings at the start and end of each year

Canada has two methods for mileage logs – the full logbook method and the simplified logbook method. In the first, you need to keep a mileage log for each year of driving in order to claim a deduction for your car expenses. In the second, you can use a base year of your driving as a sample for other years. You can a 3-month sample to forecast your business usage for an entire year.  

Top Tip: Create a standard mileage reimbursement form for your employees to fill out when claiming their business miles expenses. That way all the claims will be filed the same way.

Some examples

Before we finish up, here are a couple of useful mileage reimbursement policy templates to help you formulate your own document.

This policy, from The Salvation Army (from 6.2–6.5)  provides guidelines on expense reporting, and gives a couple of very clear examples of what constitutes a reimbursable expense, especially with regards to maintenance costs. Then there’s this one from the government of New Brunswick website, which details who can authorise such trips, who is eligible to make claims, and which types of journeys apply.

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