# GST/HST on Canadian mileage allowances: the input tax credit most SMEs miss > Mileage reimbursements can generate a GST/HST Input Tax Credit. How to claim it correctly. **Author:** Emily Thompson — Canadian Tax Specialist (CRA) **Published:** 2026-04-28 **Updated:** 2026-04-28 **URL:** https://quilometragem.com/blog/gst-hst-on-canadian-mileage-allowances-the-input-tax-credit-most-smes-miss **TL;DR:** Canadian employers can claim a GST/HST Input Tax Credit on mileage allowances paid to employees — most SMEs don't. - Section 174 ETA + RC18 - ITC = 13/113 (ON), 15/115 (NB/NL/NS/PE), 5/105 (rest) - Allowance must be within CRA reasonable rate - Retroactive recovery up to 4 years ## The mechanic most controllers miss When a Canadian employer pays a per-km allowance to an employee for business use of their personal vehicle, the employer can claim a GST/HST Input Tax Credit (ITC) on a *deemed* portion of the allowance — even though no GST/HST invoice exists in the employer's name. The CRA recognizes this under Section 174 of the Excise Tax Act and the *Reasonable Allowance for Travel Expenses* (RC18) rules. Most SMEs miss this because the standard accounting workflow treats mileage allowances as a simple expense, not as a tax-credit source. On a fleet of 30 drivers averaging 1,500 km/month, the missed ITC compounds to CAD 35,000-50,000/year. ## When the ITC applies Three conditions must hold for the deemed ITC to be available: 1. The allowance is *reasonable* per the CRA standard mileage rate (CAD 0.72/km for the first 5,000 km, CAD 0.66/km thereafter in 2025; the 2026 rate updates in early January). 2. The employee is required to use the vehicle for the employer's business — i.e., it's part of the role. 3. The employer is GST/HST registered and the activity that the trip supports is itself a taxable supply (most commercial activity qualifies). If the allowance exceeds the CRA's reasonable rate, the *whole* allowance is treated as taxable benefit to the employee, and the ITC is denied. ## How the ITC is calculated The ITC equals the GST/HST fraction of the allowance based on the province where the employee primarily performs work: - 5/105 in GST-only provinces (AB, BC*, MB, NT, NU, QC*, SK, YT — *BC and QC have separate provincial taxes that don't enter this calculation). - 13/113 in HST 13% provinces (ON). - 15/115 in HST 15% provinces (NB, NL, NS, PE). Example: an Ontario employer pays a CAD 1,080 monthly allowance to a rep (1,500 km × 0.72). The deemed ITC is 1,080 × 13/113 = CAD 124.25. ## What documentation supports the ITC For the ITC to survive a CRA review: - Trip log per employee showing date, origin, destination, purpose, kilometers (or app export equivalent). - Allowance rate documented in the employee policy at the published CRA rate or below. - Payment trace (payroll line item or separate transfer). - T2200 on file when relevant (the T2200 itself doesn't drive the ITC, but it documents the requirement to use the vehicle). The CRA does not require a fuel-station GST receipt because the ITC is on the deemed allowance, not on the underlying fuel — that's the elegance of the rule. ## When the ITC does not apply - Allowance paid to a contractor (T4A or invoice basis): no employee relationship, no Section 174 deeming. The contractor invoices their services with GST/HST, and the company claims the regular ITC on that invoice. - Allowance paid above the CRA reasonable rate: whole allowance becomes a taxable benefit to the employee; no ITC. - Personal commute: not deductible for the employee, not eligible for ITC for the employer. - Tax-exempt employer (registered charity that is not GST/HST registered, etc.): no ITC anywhere in the system. ## The reverse-engineering check If finance is unsure whether the company is claiming the deemed ITC today, run this check: 1. Pull total mileage allowances paid to employees over the last 12 months. 2. Multiply by 13/113 (Ontario), 15/115 (Atlantic), or 5/105 (rest). 3. Compare to the GST/HST return ITC line for vehicle-related allowances. 4. If the return ITC is materially below the calculated number, file a *Form GST189 General Rebate Application* for the missed period (limit: 4 years prior). ## Quebec note Quebec is a special case: the 5/105 deeming applies to GST only. The QST analogue (Article 211 of the Loi sur la taxe de vente du Québec) provides a parallel deemed input tax refund of QST/(100+QST) on the same allowance. In 2026, that's 9.975/109.975. The two refunds stack. ## Year-end coordination At year-end, make sure: 1. The mileage allowance is reported on the T4 in the appropriate box (Box 40 for taxable benefits if any portion is over the reasonable rate; otherwise no T4 reporting). 2. The ITC reconciliation matches the GST34/RC59 filed for each period. 3. The trip log archive is hashed and immutable for the 6-year CRA retention window. ## The bottom line The deemed ITC on mileage allowances is a clean, low-risk credit available to most Canadian SMEs. The annualized recovery on a mid-sized field-rep team easily covers the cost of switching from a manual log to a GPS app — and the same digital trail makes the ITC defensible under audit. ## Frequently asked questions ### Do I need a fuel invoice to claim the ITC? No. The ITC is on the deemed allowance value, not on the underlying fuel. ### Can I recover 4 years back? Yes — via Form GST189 General Rebate Application, with a 4-year limit. ### What about Quebec? GST 5/105 plus a parallel QST 9.975/109.975 — they stack. ## Sources - [Excise Tax Act Section 174 — Allowances](https://laws-lois.justice.gc.ca/eng/acts/E-15/) — Government of Canada (2026-04-28) - [CRA — RC18 Reasonable allowance for travel expenses](https://www.canada.ca/en/revenue-agency.html) — Canada Revenue Agency (2026-04-28) - [CRA — Claiming Input Tax Credits](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/input-tax-credits.html) — Canada Revenue Agency (2026-04-28)