Your Company Car Is Taxable Income
Employer-Provided Vehicles
Having the Keys Is
What Gets Taxed
If your employer provides a vehicle you can drive outside work, the CRA treats that access as pay. It arrives on your T4 as a taxable benefit, and it is usually larger than people expect — because the bigger half is charged for having the car available, not for driving it.
The benefit comes in two parts, and they are calculated separately. The standby charge covers availability. The operating benefit covers the running costs your employer pays. You can owe the first without owing the second, and the levers that lower them are not the same.
This is the opposite of claiming a vehicle you own. If the car is yours and you are deducting its costs against self-employment income, none of this applies — the self-employed guide covers that calculation instead.
The First Half
The Standby Charge
The standby charge is the price of availability. Where your employer owns the vehicle, it runs at 2% of the original cost for each month the car is available to you. Where your employer leases it, it is two-thirds of the lease payments for those same months. Whether you drive it that month barely matters — the charge accrues while the keys are yours.
There is a reduction, and it is worth understanding because it is the part you can actually move. Three conditions have to hold together: your employer requires you to use the vehicle for your work, you use it more than half the time for work, and your personal driving stays at or under 1,667 kilometres a month. Clear all three and the charge is prorated by how far under that ceiling you land — at half the ceiling, you pay half the charge.
Miss any one and the full charge applies. There is no partial credit for nearly qualifying, which is why the difference between 1,600 and 1,700 personal kilometres in a month is worth more than it looks.
The Second Half
The Operating Benefit
The second part covers the running costs your employer pays on your behalf: fuel, insurance, maintenance, licensing. For 2026 it is charged at 34 cents for every personal kilometre you drive, unchanged from 2025. Drive nothing personally and this half is nil, no matter how expensive the vehicle is.
There is an alternative worth asking about. If your employer pays those operating costs and you use the vehicle more than half the time for work, the operating benefit can instead be calculated as half your standby charge. Which is cheaper depends entirely on your numbers: heavy personal driving in a modest car tends to favour the election, while light personal driving in an expensive one does not. The only way to know is to run both.
Before You File
Four Quick Checks
Keep the log as you drive
Business and personal kilometres, recorded through the year. A log reconstructed the following spring is not a log, and it is the first thing asked for if the benefit is ever questioned.
Personal kilometres move both halves
They set the operating benefit outright, and they decide whether the standby charge reduces at all. It is the one number that changes both sides of the calculation.
Ask payroll about the election
The half-of-standby alternative is a choice, not a default. If nobody raises it, the per-kilometre figure is what goes on your slip.
Run your own numbers
The automobile benefit calculator works out both halves and both elections from your kilometres. Worth doing before the slip arrives, not after.
Common Questions
Three Things People Ask
How is the standby charge calculated?
Where your employer owns the vehicle, it runs at 2% of the original cost for each month the car is available to you. Where your employer leases it, it is two-thirds of the lease payments for those same months. It accrues while the keys are yours, whether or not you drive it that month.
How do I reduce the standby charge?
Three conditions have to hold together: your employer requires you to use the vehicle for your work, you use it more than half the time for work, and your personal driving stays at or under 1,667 kilometres a month. Clear all three and the charge is prorated by how far under that ceiling you land. Miss any one and the full charge applies.
What is the operating cost benefit for 2026?
It is 34 cents for every personal kilometre you drive, unchanged from 2025, and it covers the running costs your employer pays. If your employer pays those costs and you use the vehicle more than half the time for work, it can instead be calculated as half your standby charge. Which is cheaper depends on your numbers, so run both.
Sources: CRA, Automobile provided by the employer · CRA, T4130 Employers' Guide – Taxable Benefits and Allowances · Department of Finance Canada, 2026 automobile deduction limits and expense benefit rates
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