Paying a Car Allowance

Objective

You must pay a car allowance to an employee. There are several ways to handle this issue depending on whether the car is supplied by the employer or whether the employee uses his personal vehicle for business purposes.

 

prerequisites

• Employee Management
• Enter Taxable Benefits
• Define Earning/Deduction Codes

 

Summary

• Determine the Type of Allowance to be Paid According to the Tax Implications
  • Vehicle Provided by Employer
    • Lump Sum Paid Weekly for the Use of a Vehicle
    • Amount Entered as Taxable Benefits at the End of the Year for the Use of a Vehicle
  • Use of a Personal Vehicle for Professional Activities
    • Mileage Reimbursement
    • Lump Sum Paid to the Employee for Reimbursement of Travel Expenses

 

Steps

Determine the Type of Allowance to be Paid According to the Tax Implications

To pay a car allowance, you must determine the type of allowance to be paid according to the tax implications:

Check with your tax adviser about the preferred reimbursement method depending on your business and income tax deductions to be considered based on the preferred method.

For each vehicle type, choose the type of allowance that is relevant. Click on a hyperlink to access a specific section:

Vehicle Type	Allowance Type	Activities/Repercussions
Vehicle Provided by Employer	Lump Sum Paid Weekly for the Use of a Vehicle	Setting up a taxable benefit in Employee Management for the use of a vehicle. NOTE: Income tax is affected immediately and the taxable benefit is included on the T4 and RL-1 slips.
	Amount Entered as Taxable Benefits at the End of the Year for the Use of a Vehicle	Entry of an amount applicable to the use of a vehicle in the Enter Taxable Benefits option. NOTE: Income tax will only be affected when the employee prepares a tax return.
Use of a Personal Vehicle for Professional Activities	Mileage Reimbursement	Creating an Expense Reimbursement bonus type to reimburse mileage. NOTE: No impact on the employee’s T4 or RL-1 slips.
	Lump Sum Paid to the Employee for Reimbursement of Travel Expenses	Creating a Bonus bonus type for which the user must specify the payroll calculation required on this bonus. NOTE: When the T4 and RL-1 slips are prepared, a box redefinition is required to include this taxable amount on the slips.

 

Vehicle Provided by Employer

In this situation, the vehicle is provided by the employer. The employee uses the vehicle for business and personal reasons.

The employer may apply the taxable benefit for use of the vehicle on a weekly basis to affect the employee’s income tax immediately or wait until the end of the year when the ratio of expenses and mileage used for business purposes are known. You can use one of the two methods, or both.

Lump Sum Paid Weekly for the Use of a Vehicle

This method involves defining the amount of taxable benefits related to the use of a vehicle in the employee’s record.

The table below outlines the repercussions if this method is used:

Repercussion on maestro*	Repercussions for the employee
The taxable benefit is calculated when calculating the payroll. Affects the employee’s T4 and RL-1 slips.	The income tax and deductions on taxable benefits are applied immediately and the employee’s income is affected.

 

maestro* > Time Management > Payroll > Employees > Employee Management

1. Select an employee, then click the Income Taxes tab.
2. Enter the amount of taxable benefit for use of a vehicle for the two levels of government, if applicable.
3. Click Save and then Quit.

During payroll calculation, the taxable benefits will be applied and the employee’s income will be affected. The amount of taxable benefits will be updated in the employee’s cumulative amounts when the printing of the pay cheque is accepted.

Amount Entered as Taxable Benefits at the End of the Year for the Use of a Vehicle

This method is generally used at the end of the year. This involves specifying the amount of taxable benefit related to the use of a vehicle provided by the employer at the end of the year using the Enter Taxable Benefits option.

The table below outlines the repercussions if this method is used:

Repercussion on maestro*	Repercussions for the employee
No income tax is deducted from the amount entered at the end of the year. Affects the employee’s T4 and RL-1 slips.	Income tax on taxable benefits is payable when the employee produces the Income Tax Return.

 

maestro* > Time Management > Payroll > Employees > Enter Taxable Benefits

1. Complete the information below:

Field	Description
Employee	Select the employee.
Beginning Pay Period	Identify the pay period in which the taxable benefit adjustment should apply.
Province	Identify the employee’s province of work.

2. In the Taxable Benefits section, enter the amount of taxable benefit applicable to the use of a vehicle, according to the level of government.
3. Click Save and then Quit.

The transaction does not need to be transferred. The employee’s cumulative amount is affected immediately when the transaction is saved.

 

Use of a Personal Vehicle for Professional Activities

In this situation, the employee uses his own vehicle for travel related to his professional activities. The employer may reimburse the employee’s travel expenses by paying for mileage expenses or give him a fixed taxable amount.

Mileage Reimbursement

This method consists of reimbursing the employee for mileage expenses using a bonus that is paid during the payroll cycle.

The table below outlines the repercussions if this method is used:

Repercussion on maestro*	Repercussions for the employee
The user must enter the mileage bonus in time entry manually. The Expense Reimbursement bonus does not affect the employee’s T4 or RL-1 slips.	The bonus is included on the pay stub.

 

maestro* > Time Management > Maintenance > Payroll > Define Earnings/Deductions Codes

Creating a mileage bonus

Using an example of a bonus mileage for which the employee receives $0.30 per kilometre:

1. Create the bonus paying particular attention to the information in the table below:

Field	Description
Type	Select Expense Reimbursement.
Account	Specify the general ledger account into which the mileage expenses are posted. NOTE: This is usually the accrued expenses account if you use accounting for fringe benefits. Otherwise, enter an expense account.
Hourly Rate	Enter 0.30.
Tax Code / Project Tax Code	Enter the tax codes included to be reimbursed in the mileage expenses based on your business in one of the following fields: If your payroll is processed from the payroll module, enter the taxes in the Tax Code fields. However, if your payroll is processed from time entry in projects, please use the Project Tax fields. NOTE: Please check with your accountant to confirm that tax rate to be entered in this section.
Payroll Calculation tab	Complete this section only if the bonus must affect the payroll calculation. NOTE: Please consult with your accountant to confirm whether the bonus should affect income tax and the various payroll calculations.

2. Click Save and Quit.

Applying the Mileage Bonus

The user must select the MI30 bonus manually when entering hours into maestro* and the number of mileage driven by the employee must be entered in the Hours column.

Continue payroll processing normally.

Lump Sum Paid to the Employee for Reimbursement of Travel Expenses

This method consists of paying a fixed amount every week to an employee for expenses related to the use of his personal vehicle for business travel.

The table below outlines the repercussions if this method is used:

Repercussion on maestro*	Repercussions for the employee
The default bonus can be set in Employee Management. When the T4 and RL-1 slips are printed, you may need to redefine boxes to print this bonus on the government slips.	The bonus is usually taxable. NOTE: Consult with your tax advisor to determine the repercussions on income tax and payroll calculation, if any.

 

Creating a lump sum bonus

maestro* > Time Management > Maintenance > Payroll > Define Earnings/Deductions Codes

1. Create the bonus paying particular attention to the information in the table below:

Field	Description
Type	Select Premium.
Account	Specify the general ledger account into which the travel expenses are posted. NOTE: This is usually an accrued expenses account if you use accounting for fringe benefits. Otherwise, enter an expense account.
Hourly Rate	Enter 1.00. NOTE: If you specify $1.00 in the hourly rate, you can use the same bonus for multiple employees and you can customize the amount of the lump sum in Employee Management.
Payroll Calculation tab	Complete this section if the bonus must affect the payroll calculation. NOTE: Please consult your tax advisor to determine the repercussions of the bonus on the payroll calculation and check the values accordingly.

2. Click Save and Quit.

Specifying the lump sum amount to reimburse the employee

maestro* > Time Management > Maintenance > Payroll > Employee Management

This step is necessary to specify the amount to be reimbursed to the employee.

1. Select an employee, then click the Bonuses and Deductions tab.
2. In the Default Bonuses and Deductions section, select the bonus code and enter the value of the amount to be reimbursed to the employee in the Quantity column.
3. Click Save and then Quit.

The bonus will be added to the pay during payroll calculation. At the end of the year, when processing the T4 and RL 1 slips, box redefinition might be necessary to assign the bonus for travel expenses to one of the boxes on the government forms.

 

See also

• Employee Management
• Enter Taxable Benefits
• Define Earning/Deduction Codes

 

Formerly, How To no. 19

Last modification: December 20, 2024