Providing an Employee With a Company Vehicle: What Should You Know?

A company vehicle can make your employee’s job easier, support reliable service, and be a valuable part of their compensation.

But before handing over the keys, it is worth discussing more than the make, model, and monthly payment.

Where will the vehicle stay overnight? Can the employee use it personally? Who pays for fuel? And how will the arrangement affect their take-home pay?

Getting these details right from the beginning helps both sides understand what they are agreeing to.

Is It a Work Tool, an Employee Perk, or Both?

Start by deciding what the vehicle is intended to provide.

A shared service van that stays at your shop is different from a vehicle an employee takes home and uses on weekends.

A vehicle used only for work can help your business control equipment, scheduling, and transportation without providing a personal perk.

A vehicle available for personal use can be valuable compensation, but it introduces taxable benefits and additional payroll administration.

For the purchase decision itself, our Buying or Leasing a Vehicle article explains the financing, deduction, and cash-flow considerations.

Should the Vehicle Stay at Work or Go Home?

Leaving It at the Workplace

A vehicle used exclusively for business and returned to your premises at the end of the workday does not create a personal-use taxable benefit.

For example, an employee arrives in their own car, uses the company van for service calls, and leaves the van and keys at the shop before heading home.

This can be a straightforward arrangement when employees do not need the vehicle outside working hours.

Taking It Home

Taking a company vehicle home does not automatically make every trip business travel.

Driving between home and a regular workplace is personal driving, even if you require the employee to take the vehicle home or they are on call.

For example, driving from home to your shop each morning is commuting. Driving from the shop to a customer’s property is business travel.

The important question is how the vehicle is actually used, rather than simply where it is parked overnight.

What If It Is a Work Truck or Service Van?

Not every vehicle follows the same benefit calculation.

Certain trucks, vans, and specialized vehicles can fall outside CRA’s definition of an “automobile.” Their configuration and actual use matter. A pickup truck is not automatically exempt just because it carries tools or has your company logo on it.

CRA also has a specific policy for qualifying work vehicles taken home at night. This can change how the commuting benefit is calculated when all conditions are met. It does not automatically make commuting tax-free.

Have the vehicle and working arrangement reviewed before promising an employee that there will be no taxable benefit.

How Does a Taxable Vehicle Benefit Work?

When an employee receives personal use of a company vehicle, a taxable amount is added to their employment income.

For an automobile, there are usually two components:

• Standby charge: Reflects the vehicle being available for personal use.

• Operating expense benefit: Applies when the employer also covers operating costs associated with personal driving.

The calculation considers the vehicle’s cost or lease payments, its availability, and personal driving. Qualifying reductions and employee reimbursements can affect the result.

It is not simply the personal percentage of fuel receipts. A more expensive vehicle can also mean a larger benefit, even if the employee’s driving habits stay the same.

Paying for personal fuel does not, on its own, eliminate the standby charge. Review the full arrangement before deciding how the employee should contribute.

How Will This Affect the Employee’s Pay?

This is the conversation to have before the employee accepts the vehicle.

A taxable benefit appears on their T4 and may increase payroll deductions, reducing the cash they take home. They are receiving the use of a vehicle rather than additional cash wages.

A helpful explanation is:

“The company will cover the agreed vehicle costs. Because you can also use it personally, CRA requires us to report a taxable benefit. That amount is added to your taxable income; it does not mean you pay the entire benefit amount in tax. We’ll estimate how it affects your pay before you accept the arrangement.”

An employee who can avoid paying for their own vehicle may see substantial value in the arrangement. Someone who already owns a vehicle and will mainly use the company vehicle for commuting may view it differently.

An estimate helps them make an informed decision. Explain that the final benefit can change with actual use.

If the employee keeps the vehicle during time away from work, tell payroll. A vehicle sitting unused in their driveway should not automatically be treated as having been returned to the employer.

What Could This Look Like in Dollars?

Suppose your company purchases an automobile for $50,000, including tax, and provides it to an employee for the full year. The company pays the operating costs, and the employee drives:

• 4,000 kilometers for business.

• 6,000 kilometers personally, including commuting.

Assuming no employee reimbursements, the standard 2026 calculation would be:

Component	Calculation	Annual benefit
Standby charge	$50,000 × 2% × 12 months	$12,000
Operating expense benefit	6,000 personal kilometres × $0.34	$2,040
Total added to employment income		$14,040

The employee does not pay $14,040 in tax. That amount is added to their taxable income. The additional tax depends on their individual circumstances.

The employee receives valuable transportation, but there can still be a meaningful personal tax cost. That is why it helps to estimate the benefit before offering the vehicle.

What if the vehicle is mainly used for work? A reduced standby charge may be available when business driving exceeds 50%, personal kilometers stay within the applicable limit, and the other requirements are met. An alternative operating expense calculation may also be available.

This example uses the standard calculation because the driving is mainly personal. Leased vehicles have a different calculation. Your accountant or payroll team should calculate the benefit for your actual arrangement.

What Records Are Needed?

The employer needs records supporting the benefit calculation. The employee should maintain a log showing:

• Dates, destinations, and purposes of business trips.

• Business kilometers.

• Total kilometers, allowing personal driving to be identified.

Also track when the vehicle was available to the employee, when it was returned, and any employee reimbursements. The business should retain its vehicle expense records.

A mileage app can help, but someone still needs to review the trips. Agree on a regular submission schedule so payroll receives current information throughout the year.

Put the Arrangement in Writing

A clear vehicle agreement helps prevent misunderstandings. It should address:

• Permitted use: Commuting, errands, weekends, vacations, and other drivers.

• Costs: Fuel cards, personal fuel, parking, tolls, and employee contributions.

• Care: Maintenance, servicing, damage, accidents, and reporting responsibilities.

• Records: Who tracks kilometers, when reports are due, and who reviews them.

• Return arrangements: What happens during leave, vacation, a role change, or termination.

Confirm the intended use and permitted drivers with your insurer as well.

If the employee keeps the vehicle during time away from work, tell payroll. A vehicle sitting unused in their driveway should not automatically be treated as having been returned to the employer.

Would Kilometer Payments Be a Better Fit?

A company vehicle is not the only way to support business travel.

Where employees can reasonably use their own vehicles, a properly structured allowance based on documented business kilometers may be simpler.

For 2026, CRA’s prescribed reasonable rates applicable in New Brunswick are 73 cents per kilometer for the first 5,000 business kilometers and 67 cents thereafter. A qualifying allowance is tax-free to the employee.

Compare that option with the cost of providing, insuring, maintaining, and administering a company vehicle.

Make the Decision Before Handing Over the Keys

A company vehicle can be a useful business tool and a meaningful employee benefit. The strongest arrangements are clear about its purpose, permitted use, costs, and effect on the employee’s pay.