Reimbursement for Business Use of Personal Vehicles
Model Year 2012 Update

A Study prepared exclusively for

The National Joint Council of the Public Service of Canada

by PHH Strategic Consulting

December 2011

Operating Cost Update

Executive Summary

PHH is pleased to assist in the evaluation of driver reimbursement rates by the National Joint Council. This update evaluates vehicle operating expenses within the framework of our initial study, "Reimbursement for Business Use of Personal Vehicles," dated January 1999. Highlights of this update include:

This report summarizes key assumptions and values, and presents recommended levels of reimbursement for consideration by the National Joint Council. Our intent is to provide the most up-to-date expense data so that reimbursement rates for 2012 can be appropriately established.


We continue to present our findings in a reimbursement schedule by Province that reflects the operating costs on a straight per-kilometer basis.

The recommendations are developed by deriving costs for three vehicle classes: compact, mid-size, and crossover. Costs are developed assuming an annual driving distance of 20,000 kilometers and for ownership terms of both four and five years. Fixed costs include depreciation, taxes, financing, insurance, licensing and registration, and miscellaneous items. Variable costs cover fuel, oil, tires, and maintenance. Cost variations between Provinces are recognized, including adjustments that recognize the severe weather conditions in the Territories.


When compared to last year, the nationwide cost to operate an automobile is essentially unchanged at $0.518 per kilometer on average. The principal factors impacting rates this year are reduced depreciation and financing costs being almost entirely offset with increased fuel prices, with only minimal changes in other cost categories.

This year, there was significant change in fuel pump prices, which has previously been a factor among running expenses. Fuel costs accounted for approximately 25% of total costs. Gasoline prices were, on average, $0.196 per litre higher for this study than when reviewed for the 2011 update. This is mainly due to increased demand caused by worldwide economic recovery and reduced supply from ongoing disruption in oil producing nations since last year. Pump pricing used in the study reflects averages in each location from September through November and ranges from $1.092 to $1.397 per litre.

Among fixed costs, depreciation costs are down by $0.013 per kilometer, a decrease of approximately 6.7% from the 2011 update. This reflects the effect of lower overall prices for new vehicles and better residual values in a stronger-than-normal used vehicle sales market. License and insurance costs, oil changes, and tire costs all increased from last year's levels, while taxes and maintenance saw modest reductions.

The National Joint Council has utilized an approach with reimbursement based on a kilometric rate depending upon whether the employer or employee requested that the employee's vehicle be used. Employee-requested rates, referred to as the Commuting rate in this report, increased from $0.005 to $0.020 per kilometer in all Provinces. Employer-requested rates, referred to as Travel rates in this report, ranged between $0.010 less and no change per kilometer in the Provinces. Higher rates are recommended in the Territories owing to the added costs attributed to the severe weather conditions.

Introduction to Study

This study updates the vehicle operating costs within the same framework presented in our initial study for the National Joint Council, "Reimbursement for Business Use of Personal Vehicles," dated January 1999. That initial study included:

This cost and reimbursement recommendation update utilizes the methodology developed in our initial study. Specifically, we have developed costs for the various components of expense categories that are applicable to the ownership of personal automobiles. Certain costs are considered "fixed" – they are incurred regardless of whether or (within limits) how much a vehicle is driven. These costs include: depreciation (the loss in value of a vehicle over time), financing, insurance, taxes, registration and licensing fees, and other small miscellaneous costs. Other costs are tied to the use of the vehicle. These "variable" costs are primarily for fuel and various maintenance items (preventive and unscheduled maintenance, and tires).

In developing an operating expense analysis, variable expenses are typically calculated on a dollar per kilometer basis reflecting the activity base driving this cost. Fixed expenses are appropriately measured as a monthly or annual expense since these costs are incurred regardless of distance driven. In general, fixed expenses are approximately two-thirds of the total operating cost.

Where applicable, differences in these expenses between individual Provinces and Territories are recognized. Through each step, we have used information available in the public domain as well as internal PHH data, expertise, and procedures. Our results are presented in a straight per-kilometer reimbursement recommendation.

Beginning with the 2003 update, we started to incorporate manufacturers' rebates on new vehicles in order to recognize their wide availability to all purchasers. We continue to track and apply manufacturers' rebates to vehicle suggested retail pricing, an approach that accurately reflects the current marketplace and is a truer benchmark from which to determine market depreciation costs. Note that our approach does not attempt to account for dealer level discounts that might be available or negotiated by individuals.

Periodically, rate updates have been prepared in the past to evaluate the impact of changing pump prices. Such a study was performed last in September 2011. All comparison values in this document refer to the last full update for the 2011 model year.

Cost Component Determination

In this section, we present the assumptions and step through the methodology for determining the costs of the various expense components required to establish a rate of business use reimbursement. Overall, the basic approach is the same as described in our initial study. Here we identify key changes and differences and summarize our results.


The three key factors that drive the ultimate rate of reimbursement are the:

These factors are the main independent drivers of depreciation, the largest component of total operating costs, and establish key driving components in each of the other expense categories. Essentially, vehicle selection determines the initial cost, while the replacement period and distance driven are the key factors in determining the resale value.

Vehicle Selection

The type of vehicle assumed as the basis for determining the reimbursement policy will ultimately drive the level of reimbursement more than any other factor. We continue to evaluate costs for the three vehicle classes included in last year's study: compact, mid-size, and crossover class. Final recommended rates are averages of the expenses for these three vehicle classes.

For the current model year, the table below shows the nameplates and retail pricing that we employed. This pricing includes currently available manufacturer rebates. There has been no change in the manufacturers' product offerings since the 2011 model year update.

Product Class Representative Nameplates

2012 Model Year Pricing

Compact Chevrolet Cruze
Chrysler 200
Dodge Caliber
Ford Focus


Mid-size Chevrolet Malibu
Dodge Avenger
Ford Fusion


Crossover Chevrolet Equinox
Dodge Journey
Ford Escape
Jeep Patriot


While pricing increased for most nameplates individually, strong retail incentives on Dodge and Chrysler vehicles resulted in an overall 3.0% decrease in average pricing from the 2011 model year.

Ownership Replacement Period

We continue to use the average of four- and five-year ownership periods in developing our operating expenses.

Vehicle Utilization

The final key assumption in making operating cost determinations is the number of kilometers driven annually. We continue to assume an annual vehicle usage of 20,000 kilometers. This equates to odometer readings at trade in of 80,000 kilometers at four years and 100,000 kilometers at five years. We make no distinction between personal travel and vehicle use for business purposes in this annual use assumption.


To review and summarize, our methodology involves determining fixed costs and variable costs for several assumed parameters:

In the following sections, we summarize key thoughts for each cost component and review any significant items and/or changes.

Variable Expense Analysis

Variable expenses cover fuel, oil, tires, and maintenance. These expenses generally vary with the number of kilometers driven, and in the case of the Territories, the severity of the climate.


Fuel generally represents the second largest expense of operating an automobile. Direct cost of fuel is determined by the cost per litre and the vehicle fuel efficiency, and the operating expense values vary with changes in both fuel economy and gasoline prices. The approach to determining these costs is unchanged from previous years.

In order to account for the severe operating conditions prevalent in the Territories, we have adjusted the vehicle fuel efficiency in computing fuel expenses for these locations. Our computations continue to reflect an 80% increase in the rate of fuel consumption on a litres-per-100-kilometers basis.

Representative fuel efficiencies for the selected product classes are given on the following table. These values represent fuel economies consistent with changes in motor company product offerings.

Fuel efficiency
(litres per 100 kilometers)

Product Class


Mid Size










Current representative fuel prices by Province are given in dollars per litre in the following table. These represent pump prices for regular gasoline for September, October, and November 2011. For reference, fuel pricing from previous years and the most recent interim fuel price update is also shown.


Current Fuel Price (per litre)

September 2011 Fuel Update price

2011 Update Price

2010 Update Price

2009 Update Price

2008 Update Price








British Columbia














New Brunswick





















Nova Scotia














Prince Edward Is.




























Pump prices have increased significantly over the past year due to worldwide economic recovery, increased oil demand from China, instability in supply from oil producing countries, and fiscal issues facing governments. However, prices are down slightly from the September 2011 update due to easing market conditions and Libyan production being introduced slowly back into the market since then. Pump prices are much higher from last year's update in all areas, with differences ranging from $0.134 to $0.250 more per litre, with an average increase of $0.196.

Total fuel expenses averaged $0.109 per kilometer in the Provinces and $0.213 per kilometer in the Territories, an increase from 2011 of $0.006 per kilometer in the Provinces and $0.014 per kilometer in the Territories. The change in contribution of fuel costs to overall reimbursement decreased from between $0.005 to $0.010 per kilometer in the Provinces. In general, fuel prices must change by approximately $0.048 per litre in order to affect a change of $0.005 per kilometer in the reimbursement rate.

Oil Changes

Oil expense is determined on the basis of a service interval of three months or 6,000 kilometers. For the annual usage assumption of 20,000 kilometers, the three-month interval controls. Evaluation of oil change costs across Canada showed a slight increase this year bringing the average price per service to $43.50. Geographic price differences are not considered, as they would not have a material effect on the recommended reimbursement rate. The average per-kilometer rate increased to $0.009 for all vehicle classes due to the per-service increase.


Tire costs continue to be partially based on location as the necessity of utilizing snow tires in the northern climes generally increases tire expenditures in these locations. Under "normal" conditions, we assume a tire replacement interval of 72,500 kilometers. Per-kilometer costs are then increased by 50% in the Territories and by 25% in each of the Provinces. This reflects exclusive use of all-season radials in the heavily-populated southern areas of Canada, while allowing for increased use of snow tires to the north.

Beginning with the 2009 update, we increased the per-kilometer costs for Quebec by 50% to reflect the mandatory winter tire regulation that went into effect in the Province effective December 15, 2008. This regulation mandates that all passenger vehicles' tires need to be replaced with currently available brands of winter tires between December 15 and March 15 from 2008 through 2014. Winter tires purchased by drivers in Quebec under this mandate will most likely be used during the stipulated months and then saved for use over the following year's winter season. Hence, we would not expect this increase to be consistent each year.

Compared to last year's small overall price increase of 2% from 2010, this year's prices saw a moderate increase of 5.3%. Resulting tire expenses (by location) increased slightly over last year with costs ranging from $0.010 to $0.012 per kilometer and do not have a material effect on the overall operating cost recommendation.


We continue to utilize our in-house maintenance database to develop the dollars per kilometer values used in the model. This permits us to develop maintenance costs for the different vehicle classes, and to show how these expenses increase with ownership term. In addition, we are able to make an estimate of the geographic variance in maintenance costs on the basis of the experience of our fleet clients.

The following table shows our experiential costs by product type for four- and five-year ownership periods, as well as the range of per-kilometer costs across the Provinces, used in the analysis.

Maintenance dollars per kilometer

All Canada Average

Provincial Range






4-yr ownership






5-yr ownership






On average, maintenance accounts for approximately $0.030 per kilometer of the total operating cost for this update compared to $0.034 per kilometer for the 2011 update, leading to an overall net impact of $0.004 per kilometer. Unlike tire costs, overall maintenance costs are slightly lower in 2012.

Fixed Expense Analysis

The fixed expense categories (depreciation, taxes, financing, insurance, registration, and miscellaneous) are calculated on the basis of dividing annual costs by 20,000 kilometers per year to get a dollars per kilometer value.


As noted in the Introduction, our approach to calculating depreciation expense reflects changes in the nature of vehicle pricing in the consumer marketplace, which currently is lower than in previous years due to overall lower prices for new vehicles and higher returns on used vehicles. Our approach is summarized as follows:

Vehicle pricing information and resale values are taken from PHH's vehicle pricing application and the November 2011 Canadian Red Book, respectively. Factory suggested retail pricing is used for comparable models year-to-year. Published manufacturer rebates (at the time of the study) have been applied to suggested retail pricing. No attempt is made to quantify any available negotiated discounts.

This approach defines depreciation as "the expected loss in value of a vehicle over its term of ownership." We believe this best captures the actual financial effect of depreciation on the cost of ownership and makes the appropriate distinction of depreciation from the vehicle financing issue. Summary depreciation costs are given in the following table. (For comparison purposes, values from the 2011 update are shown in parentheses.)

Depreciation dollars per kilometer

All Canada Average




4-yr ownership

$0.164 ($0.191)

$0.188 ($0.208)

$0.225 ($0.225)

5-yr ownership

$0.160 ($0.169)

$0.176 ($0.185)

$0.186 ($0.200)

The overall trend this year shows an overall reduction in depreciation costs, with some slight variations across each vehicle class and ownership period. New car prices (including effects of motor company rebates) are lower by approximately 3.0% over the last year, with an average vehicle price decrease of approximately $695. Trade-in values are significantly higher than last year, increasing by about $1,085 on average. The overall result of the combined changes is a significant decrease in the average annual depreciation cost of about $263, equivalent to a decrease of $0.013 per kilometer.

Depreciation costs account for the largest portion of automobile expenses at approximately 35% of the total.

Sales Tax

The sales tax component of vehicle operating costs varies by Province/Territory and depends on the net sale price, the assumed ownership period, and on how the tax rates are applied. While these taxes are paid at time of purchase, they are often rolled into the financing transaction. Our calculation determines the tax on the net purchase price and amortizes the computed sales tax over the total ownership period.

Tax rates are different in the various localities and are applied differently as well. The Federal sales tax (GST) is applied to the net price in all Provinces at the applicable rate. Most Provincial taxes are applied to the price alone; some are stated as individual rates, others as a higher GST rate. Quebec and Prince Edward Island apply their tax rate to the price including the GST. The effective tax rates range from 5.0% to 15.5%. Quebec's QST rate will increase effective January 1, 2012.


Costs to finance are based on the amount financed, rate, and term. As we are considering two ownership terms, the associated financing costs are based on loans of the same duration. Financing costs over the ownership term are summed and then spread evenly over that term. (Actual financing costs decrease over the life of the loan.)

For the amount to finance, we assume that the purchaser finances the difference between the price of the new vehicle and the resale or trade-in value of the replaced vehicle. We also assume an "in-kind" replacement in terms of vehicle class and do not consider geographical differences in financing rates to be significant.

Financing rates are based on an average of nine lenders and offerings from two manufacturers. These current new automobile financing rates average 6.8% for 48-month loans and 7.0% for 60-month loans. These rates are 0.5% lower than rates used in the 2011 update, reflecting the lower interest rate environment in the current marketplace.

Financing contributes approximately $0.030 per kilometer to the total fixed vehicle costs. Overall financing costs decreased due to a slight decline in interest rates for car loans and lower average new vehicle pricing. Compared to the 2011 model year update, financing costs have decreased by $0.004 per kilometer, or 12.7%.


Insurance costs continue to have a fairly significant impact on the reimbursement rates, accounting for the third largest portion after depreciation and fuel. Our approach continues to determine insurance premiums on base rates used in the original 1999 study adjusted for the price changes measured by Canadian Consumer Price Index (CPI) for automotive vehicle insurance premiums from Statistics Canada ( Using this methodology, insurance cost estimates can vary significantly from one year to the next but are believed to track to accurate averages over time.

For the 2012 update, average insurance costs increased slightly from the last update; however, rate changes by location were relatively small with the exception of Ontario where rates increased by $175. Rates in the remaining Provinces either increased by $25, decreased by $25, or stayed the same. Rates did not change in Northwest/Nunavut Territory and increased by $50 in the Yukon Territory.

The following table shows the annual premium rates used by location as the base rates for developing operating costs in this update. The dollar changes over previous rates are noted as well.


Premium / $ change


Premium / $ change


$2675 / -$25

Nova Scotia

$1775 / no change

British Columbia

$1875 / no change


$2925 / +$175


$1575 / no change

Prince Edward Island

$1875 / +$25

New Brunswick

$1850 / +$25


$2800 / +$25


$2125 / -$25


$1250 / +$25

North West / Nunavut

$1625 / no change


$2400 / +$50

Overall, these insurance costs add an average of $0.101 per kilometer to the operating cost which is $0.001 per kilometer higher than the 2011 update. The contribution of insurance to operating costs ranges by Province from $0.061 to $0.144 per kilometer. Where rates changed, the impact was between $0.001 and $0.009 per kilometer.

Registration and Licensing Fees

Registration and licensing fees are established by each Province and are readily determined from the annual fees listed in the following table:


Registration Fees


Registration Fees



Nova Scotia


British Columbia






Prince Edward Island


New Brunswick








North West / Nunavut




On average, registration contributes $0.006 per kilometer to the total reimbursement amount, ranging from $0.003 to $0.018 per kilometer by location.


Based on our internal expense reporting data for Canadian fleets, we continue to recommend a monthly allowance of $10 for miscellaneous vehicle expenses. This translates into a cost of $0.0005 per kilometer for each vehicle class, Provincial location, and ownership term. This amount is unchanged from the initial study.

Operating Cost Summary

Our summary findings on operating costs are shown on the following table. Recommendations and discussion are presented in the following section.

Operating Cost (dollars per kilometer)

All Canada Average

Provincial Range






4-yr ownership






5-yr ownership






The variability in ownership term continues to be quite small, and the variation in product classes remains fairly constant. More significant are the cost differences between geographic locations.

Variable expenses are moderately higher than the 2011 update, and fixed expenses saw a moderate decrease. This movement in opposite directions for variable and fixed expenses resulted in overall operating costs that are only slightly lower than the 2011 update, which are reflected in recommended reimbursement rates that increased across the board for the Commuting Rate while the Travel Rate decreased or had no change in almost all areas. Lower depreciation and financing costs that were almost entirely offset by higher fuel costs were the main factors that led to the change in rates.

Insurance, licensing, oil change, and tire costs increased moderately, while costs attributed to maintenance saw a modest decrease from the previous update.

Policy Recommendations

We continue to base our recommended rates on the average operating costs for the compact, mid-size, and crossover product classes and for both four- and five-year ownership periods.

We also continue to recognize the Provincial differences in the operating costs of vehicles. The costs by Province and Territory that we have developed are tabulated below.

The basis of the rates recommended below is an annual driving distance of 20,000 kilometers. The following table lists the per-kilometer reimbursement rates, by Province, that result from our analysis.

We suggest continuing the practice of reimbursing the employee-requested personal vehicle use on the basis of variable expenses only, which is referred to as the Commuting rate in the following table. The Travel rate should be used for employer-requested use of personal vehicle, as it includes both fixed and variable components.

2012 Reimbursement Schedule
(dollars per kilometer)




September 2011 Update Values
Commuting / Travel

2011 Annual Update Values Commuting / Travel




$0.150 / $0.530

$0.135 / $0.510

British Columbia



$0.175 / $0.520

$0.155 / $0.505




$0.150 / $0.490

$0.135 / $0.470

New Brunswick



$0.165 / $0.520

$0.140 / $0.495




$0.180 / $0.550

$0.160 / $0.530




$0.285 / $0.615

$0.245 / $0.575

Nova Scotia



$0.175 / $0.530

$0.155 / $0.510




$0.285 / $0.615

$0.245 / $0.575




$0.175 / $0.570

$0.150 / $0.545

Prince Edward Island



$0.160 / $0.520

$0.145 / $0.500




$0.180 / $0.590

$0.160 / $0.570




$0.160 / $0.475

$0.140 / $0.455




$0.275 / $0.635

$0.245 / $0.605

Recommendation Summary

The Commuting rate covers variable expenses and increased by anywhere from $0.005 to $0.020 per kilometer in all Provinces since the 2011 update. In the Territories, the corresponding rates increased by $0.025 per kilometer in Northwest/Nunavut and by $0.010 in Yukon. Commuting reimbursement rates increased across the board this year mostly due to higher pump prices for fuel.

The Travel rate is derived by adding the fixed costs to the variable expenses. Reimbursement rate changes decreased between $0.005 and $0.010 per kilometer in all Provinces except in New Brunswick and Ontario where there was no change. These rates increased by $0.005 in Northwest and Nunavut Territories and decreased by $0.005 per kilometer in the Yukon Territory. Travel rates ranged from $0.445 to $0.565 per kilometer in the Provinces, with higher rates in the Territories.