CFS Annual Report - 2019

Reimbursement for
Business Use of Personal Vehicles
Model Year 2019

 Study prepared for
The Treasury Board of Canada Secretariat

 by
Corporate Fleet Services

  November 2018

1       Executive Summary

Corporate Fleet Services (CFS) has been mandated by the Treasury Board of Canada Secretariat to perform the annual evaluation of per-kilometre reimbursement rates for government employees required to use their personal vehicles while performing government business. This study assesses all vehicle operating expenses and provides recommendations for reimbursement rates for each Canadian Province and Territory.

The present study is based on 2019 model year vehicles and accounts for all of the following:

• 2019 model year vehicle prices for six different vehicle classes (compact, mid-size, minivan, small crossover/SUV, medium crossover/SUV and electric vehicles – which include Battery Electric and Plug-in Hybrid Electric vehicles)
• additionally, a light-duty truck class was used for the evaluation in the Territories
• prevalent manufacturer rebates, interest rates and residual values
• top-selling vehicle models by 2018 Canadian sales (September year-to-date) in each class studied, for a total of 60 vehicles
• cash purchases, financing and lease contracts, according to their respective share of the market
• updated vehicle insurance premium rates
• updated vehicle registration and licensing rates
• updated fuel price data and fuel consumption parameters
• updated preventative maintenance, repairs, tires and miscellaneous expenses

This report summarizes all assumptions, methodology, values and findings. It presents up-to-date recommended rates of reimbursement for consideration by the Treasury Board of Canada Secretariat.

1.1     Methodology and evaluation

The recommendations are given for the year of 2019 for:

• travel rates (government-requested use for business of a personal vehicle by government employees)
• commuting rates (employee-requested and government-approved use of a personal vehicle)

These rates are given on a per-kilometre basis, for each Province and Territory. This is intended to accurately account for differences in vehicle operating costs across Canada.

The recommendations are based on total costs of operating privately owned or leased vehicles. In order to reflect realistic conditions, the study assumes an annual driving distance of 20,000 kilometres and ownership terms of both four and five years. Fixed costs include ownership expenses consisting of depreciation, financing or leasing interest and taxes, as well as vehicle insurance and registration. Variable costs cover fuel, preventative maintenance, repairs, tires and miscellaneous items. All cost variations between the Provinces and Territories are accounted for, as well as the special driving conditions in the three Territories.

Weighted average nationwide costs of operating personally owned or leased vehicles were determined to be $0.545 per kilometre, the same as in the previous Fuel Update (for publication on October 1^st 2018) as compared to $0.530 in the previous year Annual Report (for publication on January 1^st 2018). A slight overall increase in ownership costs was generally counterbalanced by a decrease in fuel prices.

The following table indicates Canadian average expenses by cost component as calculated in the current study, in dollars per kilometre, before rounding up to the nearest half-cent:

Cost component	Cost (dollars/km)
Depreciation	$0.188
Interest	$0.017
Acquisition Sales Tax	$0.039
Registration	$0.007
Insurance	$0.082
Fuel	$0.111
Preventative Maintenance	$0.049
Repairs	$0.018
Tires	$0.013
Miscellaneous	$0.007
Maintenance Sales Tax	$0.011
Total	$0.542

 

The largest component of vehicle operating expenses is ownership, which accounts for 44.9% of total costs, followed by fuel expenses at 20.6%

2       Preamble

Corporate Fleet Services (CFS) has been mandated by the Treasury Board of Canada Secretariat to calculate reimbursement rates for business use of personal vehicles by government employees according to the parameters listed in a Statement of Work issued through a competitive RFP process.

CFS is therefore pleased to present this study with its findings and recommendations, based on extensive research performed on behalf of the Treasury Board of Canada Secretariat.

2.1     Note on methodology

The current study follows strictly the methodology exemplified in the Statement of Work. The analysis is deemed to accurately reflect costs in the current Canadian automotive marketplace and is described in detail in Sections 3 through 6. 

2.1.1     Changes to Methodology

As compared to the last year’s report, the methodology to determine the prevalent insurance premiums by Province and Territory was updated to improve accuracy. The following two adjustments were made:

• An assumption was added to the study, that an individual would tend to obtain and compare several insurance quotes, choosing from the least expensive ones available, all other things being equal. This assumption was implemented by introducing a maximum insurance premium threshold for each province that effectively eliminates insurance quotes that are considerably more expensive than the average. Refer to Section 4.3. for more details.
• Through consultations with industry professionals, it was determined that a person who is 45 years old has, on average, a driving experience of 20 years or more. This has been reflected in the average government employee profile and subsequently used when obtaining insurance quotes.

Additionally, due to the rapid introduction of alternative fuel vehicles employing clean technologies (e.g. Battery Electric and Plug-in Hybrid) in the market we have added an additional ‘green’ class of vehicles. For this class, non-luxury models were considered, factoring in all available governmental incentives programs. Although sales of Battery Electric and Plug-in Hybrid vehicles are significantly lower at this point in time than their gasoline counterparts, we believe that this is an important addition to the analysis, since sales are expected to rise significantly in the next three to five years. For instance, Canadian sales of electric vehicles have increased by 68% in 2017 versus the previous year and this trend is expected to continue. We believe that this approach better reflects the Federal Government’s commitment to promoting clean energy and sustainability.

2.2     Policy recommendations

It is our opinion that public employees continue to be reimbursed for government business use of personal vehicles on a cents per kilometre basis, reflective of the practice that has been in use since 1999. This is deemed to be consistent with current public and private sector practices as well as it accounts for a fair and simple reimbursement method in line with accepted reimbursement policies across Canada.

However, since there are substantial differences among the ten Canadian Provinces and three Territories, these rates are calculated separately for each Province and Territory in order to account for differences in vehicle operating costs.

3       Methodology And Cost Component Determination

3.1     Assumptions

The present study’s objective is to determine reimbursement rates for business use of personal vehicles by government employees, as accurately as possible, in order to reflect current Canadian automotive market conditions. In order to accomplish this, an in-depth analysis was performed on all components of the total cost of operating a vehicle.

The methodology employed follows all the elements listed in the Statement of Work that were similarly used in the previous annual study. The purpose was to calculate the different rates of reimbursement, in cents per kilometre, separately for all ten Canadian Provinces as well as the three Territories. In light of this, we performed research and data analysis to calculate costs for the following components, which represent the total costs of running a personal vehicle:

1. Fixed expenses

• Ownership
  • depreciation
  • prevalent retail rebates
  • financing methods
  • prevalent interest rates
  • applicable sales taxes
  • projected resale values
• Registration and licensing
• Insurance 

2. Variable expenses

• Fuel
• Vehicle maintenance
  • Preventative maintenance
  • Projected costs of repairs beyond manufacturer warranty
  • Tires
  • Miscellaneous expenses

All calculations assumed four and five year retention periods as well as considered all vehicles to run an average of 20,000 kilometres per year.

In addition, in order to assess current prevalent insurance premiums by Province and Territory, the study used a certain demographic range to reflect the average government employee. The demographics are based on data available from the Treasury Board of Canada Secretariat as well as Statistics Canada. The following characteristics were used:

• DRIVER: 45 year old, both male and female, married, with more than 20 years of driving experience, a clean driving record (no accidents in the last 5 years), employed full-time, with post-secondary education
• VEHICLE: 2019 Honda CR-V LX AWD, with a total cost of $31,885 plus applicable taxes, financed by Honda Canada Finance Inc., driven a projected 20,000 kilometres per year, having 15% business use and driving an average of 15 km to work every day
• COVERAGE: Third-party liability ($1,000,000 for all Provinces and Territories, comprehensive and collision coverage included with a deductible between $250 and $500, based on individual insurance company offerings)

The following table gives an overview of the cost proportion of the components involved in total expenses of operating a vehicle:

Expense	Cost Proportion
Acquisition Sales tax	7.1%
Depreciation	34.6%
Fuel	20.6%
Insurance	15.2%
Interest	3.1%
Maintenance Sales Tax	2.0%
Preventative Maintenance	9.1%
Registration	1.3%
Repairs	3.3%
Tires	2.3%
Miscellaneous	1.2%

3.2     Vehicle selection

In order to be reflective of the Canadian marketplace we have performed a thorough study throughout all provinces and territories, focusing on 60 vehicle models (nameplates) grouped under six vehicle classes for the Provinces, and three classes for the Territories (crossovers, SUVs and pick-up trucks). The models studied account for a significant portion of the Canadian vehicle market and they were deemed representative for the types of vehicles used by government employees.

The following list describes the parameters used:

• The study covers the following categories of vehicles, prevalent in the Canadian automotive landscape:
  • Compact sedans
  • Mid-size sedans
  • Minivans
  • Small crossovers/SUVs
  • Medium crossovers/SUVs
  • Electric vehicles (both Battery Electric and Plug-in Hybrids)
  • Light duty pick-up trucks (for the Territories only)

• For each of these categories, ten vehicle models from the most relevant manufacturers (according to sales in Canada) were studied, covering approximately 76% of the Canadian market for their respective classes. The Minivan and Pick-up Truck classes only contain five nameplates each, due to the lower number of available models on the Canadian market. However, consistent with the past approach, no luxury or executive vehicles have been considered in this study, as it is our opinion they do not reflect the typical vehicle choice of the average government employee.
• In order to accurately account for costs of all the nameplates studied, each vehicle was assigned a percentage weight directly proportional to total year-to-date sales as of September 2018. Subsequently, all costs, both fixed and variable, were averaged per Province or Territory according to the weight assigned to each vehicle.
• Following is a table listing the vehicles studied, as well as the class they belong to and the weight assigned to each according to recent Canadian sales for the ten Provinces:

Make	Model	Class	Weight for Provinces	2019 Model Year Pricing*
Honda	Civic	Compact	7.9%	$23,645
Toyota	Corolla	Compact	5.4%	$23,655
Hyundai	Elantra	Compact	4.7%	$22,154
Chevrolet	Cruze	Compact	3.1%	$23,895
Mazda	3	Compact	3.0%	$23,395*
Volkswagen	Golf	Compact	2.5%	$28,685
Kia	Forte	Compact	1.5%	$22,680
Volkswagen	Jetta	Compact	1.5%	$24,080
Nissan	Sentra	Compact	1.4%	$22,608
Ford	Focus	Compact	1.2%	$23,398*
Honda	CR-V	Small Crossover/SUV	6.0%	$31,885*
Toyota	RAV4	Small Crossover/SUV	5.8%	$31,830*
Ford	Escape	Small Crossover/SUV	4.9%	$32,539
Nissan	Rogue	Small Crossover/SUV	4.6%	$30,793
Hyundai	Tucson	Small Crossover/SUV	3.1%	$28,804*
Mazda	CX-5	Small Crossover/SUV	2.9%	$29,195*
Jeep	Cherokee	Small Crossover/SUV	2.6%	$34,390
Chevrolet	Equinox	Small Crossover/SUV	2.4%	$30,895
Ford	Edge	Small Crossover/SUV	2.1%	$37,789
Nissan	Qashqai	Small Crossover/SUV	2.1%	$26,848
Toyota	Camry	Mid-Size	1.6%	$28,135
Honda	Accord	Mid-Size	1.5%	$29,545*
Ford	Fusion	Mid-Size	0.9%	$29,740
Chevrolet	Malibu	Mid-Size	0.8%	$26,895
Nissan	Altima	Mid-Size	0.6%	$29,793
Hyundai	Sonata	Mid-Size	0.6%	$26,704
Kia	Optima	Mid-Size	0.4%	$26,480
Volkswagen	Passat	Mid-Size	0.4%	$27,920*
Mazda	6	Mid-Size	0.3%	$29,045*
Subaru	Legacy	Mid-Size	0.2%	$26,645
Dodge	Grand Caravan	Minivan	3.9%	$33,140
Toyota	Sienna	Minivan	1.6%	$36,960
Honda	Odyssey	Minivan	1.3%	$37,085
Kia	Sedona	Minivan	0.6%	$30,280
Chrysler	Pacifica	Minivan	0.6%	$38,640
Jeep	Wrangler	Medium Crossover/SUV	3.0%	$38,435
Ford	Explorer	Medium Crossover/SUV	2.1%	$44,789
Toyota	Highlander	Medium Crossover/SUV	1.6%	$41,310
Jeep	Grand Cherokee	Medium Crossover/SUV	1.4%	$47,290
Toyota	4Runner	Medium Crossover/SUV	0.9%	$47,970
Honda	Pilot	Medium Crossover/SUV	0.8%	$42,885
Dodge	Durango	Medium Crossover/SUV	0.8%	$47,040
Nissan	Pathfinder	Medium Crossover/SUV	0.8%	$37,993
Chevrolet	Traverse	Medium Crossover/SUV	0.7%	$40,695
Hyundai	Santa Fe XL	Medium Crossover/SUV	0.7%	$36,504
Nissan	Leaf	Battery Electric/Plug-in Hybrid	0.6%	$38,748
Mitsubishi	Outlander PHEV	Battery Electric/Plug-in Hybrid	0.6%	$44,448*
Chevrolet	Volt	Battery Electric/Plug-in Hybrid	0.5%	$41,895
Toyota	Prius Prime	Battery Electric/Plug-in Hybrid	0.4%	$34,735*
Chevrolet	Bolt	Battery Electric/Plug-in Hybrid	0.3%	$46,595
Ford	Fusion Energi	Battery Electric/Plug-in Hybrid	0.2%	$38,340
Hyundai	Ioniq PHEV	Battery Electric/Plug-in Hybrid	0.1%	$34,004
Volkswagen	e-Golf	Battery Electric/Plug-in Hybrid	0.1%	$38,405
Kia	Soul Electric	Battery Electric/Plug-in Hybrid	0.1%	$37,680
Honda	Clarity PHEV	Battery Electric/Plug-in Hybrid	0.1%	$41,555*

 

* Note: The current study used 2018 pricing for vehicles for which prices were not yet available for 2019. All prices are given before applicable taxes.

• Following are two tables showing the weight of each class as well as that of each brand name, for all vehicles studied, relative to their respective Canadian sales:

Distribution of vehicles studied by class

Vehicle Class	Distribution
Battery Electric/Plug-in Hybrid	3%
Compact	32%
Medium Crossover/SUV	13%
Mid-size	7%
Minivan	8%
Small Crossover/SUV	37%

 

Distribution of vehicles studied by brand name

Brand Name	Distribution
Chevrolet	7.8%
Chrysler	0.6%
Dodge	4.7%
Ford	11.4%
Honda	17.7%
Hyundai	9.2%
Jeep	7.1%
Kia	2.7%
Mazda	6.2%
Mitsubishi	0.6%
Nissan	10.1%
Subaru	0.2%
Toyota	17.2%
Volkswagen	4.5%

• ­For the three Territories, a different sample range of vehicles was studied to account for their particularities, as described in Section 6: Operational Costs in the Territories.

• All costs have been calculated separately for:

  • each Province or Territory
  • each vehicle studied
  • each cost component (fixed and variable expenses)

3.3     Data sources

The present study used information available in the public domain, data from previous studies that we have performed, as well as new research and consultations with specialized professionals and agencies. For each element studied we confirmed the accuracy of the data by consulting additional data sources and cross-referencing the findings. All data sources were assessed for reliability and were thoroughly documented.

3.4     Use of weighted averages

In order to accurately reflect current market conditions, consistent with the methodology employed in the previous year’s report, the present study follows a weighted average approach instead of a simple average, by employing weighted arithmetic means where relevant. This was deemed necessary because not all elements calculated contribute the same amount to the total. For example, according to the most recent information published by Statistics Canada, there were a total of 8,199,865 light duty vehicles registered in Ontario in 2018, whereas in the Yukon there were only 33,795 vehicles registered, and thus the two regions contribute significantly different amounts to the overall Canadian average. This method was employed throughout the study to better reflect the reality of the Canadian market.

In the same manner, certain vehicle models sell significantly more units on the Canadian market than others and therefore contribute more to the overall weighted average. For example, the Honda Civic sells considerably more units in Canada than a Volkswagen Golf, more than triple the amount, and therefore the operating costs for the Honda Civic should reflect proportionately in the total calculated weighted average for each component of the cost. See Section 3.2 - Vehicle selection for details.

4       Fixed Expenses Analysis

4.1     Ownership costs

4.1.1     Current model-year vehicle prices

4.1.1.1       Vehicle pricing

For each vehicle under study, we have extracted 2019 model year MSRP (Manufacturer Suggested Retail Price) values. The main tool employed was AutoQuote, the industry leading software that provides up-to-date detailed pricing for all new vehicles available on the Canadian market. At the time of the current study, pricing was not yet available for twelve (12) vehicle models out of a total of 60. For these, 2018 model year values were used, as in our experience these values vary only slightly from year to year and are generally reflective of 2019 values.

MSRP pricing is established by the manufacturers for the whole model year and is valid across Canada. Variations of the MSRP prices throughout the year are infrequent. Values extracted from AutoQuote were also cross-checked against the information published by vehicle manufacturers. On average, MSRP prices for vehicles studied increased by approximately 2.7% compared to the previous year.

4.1.1.2       Prevalent manufacturer rebates

Vehicle manufacturers usually offer retail rebates for new vehicles in order to promote sales and distinguish themselves from their competition. We have thus performed substantial research to determine prevalent retail rebates for all vehicles studied, for a period of 12 months. A period of one year was used as retail rebates vary from month to month as well as from region to region. Prevalent retail rebates display variation by:

• Vehicle model
• Province or Territory (or region)
• Type of acquisition (cash, finance or lease)
• Model trim

All the data obtained was integrated into a 2,340 data-points matrix and subsequently reflected in the purchase price of each vehicle, by Province. Direct price negotiation between vehicle retailers and buying individuals could not be accounted for in this study.

Rebates range from $0 to $7,139, depending primarily on each manufacturer’s marketing strategy, with an average of approximately $616. In general, rebates have seen a substantial decrease from the previous year, especially for the financing and lease methods of acquisition.

4.1.1.3       Federal and provincial levies

Provincial and federal levies apply to the purchase of new vehicles, and are intended in principle to offset environmental costs such as disposal and recycling of air conditioning fluids or tires. For the vehicles under study the following levies apply:

• Air conditioning - $100 (federal)
• Tire, environmental and other levies - $0-$27 (provincial)

All applicable fees and levies have been factored in the analysis.

4.1.1.4       Provincial rebates for electric vehicles

Two Canadian provinces (British Columbia and Quebec) currently offer additional government-funded rebates for the acquisition of a Battery Electric (BEV) or Plug-in Hybrid vehicle (PHEV). A similar program was discontinued earlier in the year in Ontario and therefore was not included in the study.

Where applicable, provincial rebates vary by a number of factors, such as battery capacity, vehicle size and MSRP cost. All these particular variations were integrated in the study accordingly. The following table lists all applicable provincial ‘green vehicle’ rebates, by model, at the time of the present study:

 

Province of application	Make	Model	Type	Provincial rebate
British Columbia	Nissan	Leaf	BEV	$5,000
	Mitsubishi	Outlander PHEV	PHEV	$2,500
	Chevrolet	Volt	PHEV	$5,000
	Toyota	Prius Prime	PHEV	$2,500
	Chevrolet	Bolt	BEV	$5,000
	Ford	Fusion Energi	PHEV	$2,500
	Hyundai	Ioniq PHEV	PHEV	$2,500
	Volkswagen	e-Golf	BEV	$5,000
	Kia	Soul Electric	BEV	$5,000
	Honda	Clarity PHEV	PHEV	$5,000
Quebec	Nissan	Leaf	BEV	$8,000
	Mitsubishi	Outlander PHEV	PHEV	$4,000
	Chevrolet	Volt	PHEV	$8,000
	Toyota	Prius Prime	PHEV	$4,000
	Chevrolet	Bolt	BEV	$8,000
	Ford	Fusion Energi	PHEV	$4,000
	Hyundai	Ioniq PHEV	PHEV	$4,000
	Volkswagen	e-Golf	BEV	$8,000
	Kia	Soul Electric	BEV	$8,000
	Honda	Clarity PHEV	PHEV	$8,000

4.1.2     Method of vehicle acquisition

We have performed research on the Canadian market to establish which methods of vehicle acquisition are the most prevalent, as well as what market share is held by each. We have therefore come to the conclusion that in Canada the new vehicle market is distributed among the following three forms of acquisition:

• Cash purchases (up-front payment): 10%
• Financing contracts (vehicle loans): 62.5%
• Vehicle leases: 27.5%

Therefore, in order to accurately reflect the reality of the market, we have analysed all three forms of acquisition and subsequently calculated a weighted average for each vehicle under study according to their proportion of the market.

The net cost of vehicle ownership was calculated according to the method of acquisition (cash, financing or leasing). All three vehicle acquisition methods were addressed with their specific particularities, proportionately with their prevalence in the Canadian automotive landscape, as follows:

• Cash purchase: real cost of ownership is the full price paid for the vehicle (including freight and pre-delivery inspection (PDI), all fees and levies as well as sales taxes), less the projected resale value (expected return) after the period of retention (four and five years).
• Financed vehicles: vehicles that are financed through any financial institution (through a vehicle loan) cost more than a cash purchase since interest is added to the actual price of the vehicle. Prevailing interest rates were used for all calculations as published by the different vehicle manufacturers throughout the year. Interest was based on the assumption that upon acquisition of a new vehicle, the old vehicle is traded-in or otherwise sold and the amount applied up-front to reduce interest costs.
• Leased vehicles: personally leased vehicles are usually subject to closed-end lease agreements. Under these circumstances, the term ‘ownership’ does not properly define the acquisition, since the vehicle is owned by the lessor until the end of the lease term. The cost of ‘ownership’ must then be calculated according to the actual monthly payments incurred by drivers for the period of the term plus applicable sales taxes.

4.1.3     Four and five year retention periods

We calculated ownership costs for both four and five-year retention periods, terms that were found to be reflective of average retention periods for the Canadian automotive landscape. All calculations were performed by vehicle and per Province taking into account both retention periods, and the results were averaged to yield one value per vehicle and per Province or Territory.

4.1.4     Vehicles driven 20,000 kilometres annually

All vehicles under study were considered to be driven 20,000 km per year. This is deemed to be a reasonable benchmark to base all reimbursement calculations on, since the average Canadian vehicle is driven between 16,000 and 24,000 km per year. All calculations were made using this benchmark all across Canada.

4.1.5     Financing interest rates

We have performed an in-depth research to determine the prevalent interest rates provided by vehicle manufacturers. The manufacturers offer what is known as subvented rates to promote sales of new vehicles. These rates are typically substantially lower than regular financial institutions’ loans. Since these reduced rates are prevalent on the market, we deemed it reflective of reality to integrate these rates into our calculations.

Interest rates vary considerably by:

• Vehicle manufacturer
• Vehicle model
• Province or Territory (or region)
• Form of financing (financing contract or lease)
• Period of financing or lease (48 and 60 months periods were researched)

All these variations were integrated into a 3,120 data-points matrix and subsequently reflected in the ownership costs of each vehicle, by Province and Territory.

For the current study all vehicle models studied had manufacturer-established interest rates available for 4 and 5 year financing. However, while all the manufacturers studied offered subvented leasing rates, some did not offer them for certain models on 4 and 5-year leasing terms. In these instances, average market (financial institutions or third party leasing company) rates were used.

All interest rates (financing and leasing) varied from 0% to 9.25% for manufacturers’ subvented rates, while the third-party interest rates were approximated at 8.49%. The average interest rate for lease contracts was 4.11% while the financing rate was 2.49%. Overall, interest rates increased by an average of 0.77 percentage points versus the previous year.

4.1.6     Sales taxes

Federal and provincial sales taxes (GST, PST, QST, HST) apply to the full cost of a new vehicle according to the taxation method of each Province or Territory. Sales taxes also apply to:

• interest charged for financing or leasing
• certain fees and levies
• parts and labour for all preventative maintenance, repairs and tires

Whether a vehicle is cash-purchased, financed or leased, taxes apply differently. For both cash purchases and financing contracts, the full price of a new vehicle is subject to sales tax, whereas for leased vehicles sales tax is only applied to monthly lease payments (including tax on interest).

Sales taxes have been factored into all calculations as to accurately reflect the direct costs to the end user of a vehicle. Following is a table listing the combined GST/PST/QST/HST applicable for each Province and Territory for the period relevant to the current study:

Sales taxes in Canada by Province	Combined sales taxes November 2018
Alberta	5%
British Columbia	12%
Manitoba	13%
New Brunswick	15%
Newfoundland and Labrador	15%
Nova Scotia	15%
Ontario	13%
Prince Edward Island	15%
Quebec	14.975%
Saskatchewan	11%
Northwest Territories	5%
Nunavut	5%
Yukon	5%

 

4.1.6.1       Taxes on fuel

Fuel prices listed at the pump have all taxes included, as is the standard throughout Canada. Fuel is usually taxed federally, provincially as well as regionally. Approximately a third of the price paid at the pump is made up of the following:

• Federal excise tax
• GST/HST/PST/QST
• Provincial fuel tax
• Carbon tax (in some Provinces)
• Transit tax (in some Provinces)

All fuel prices given in the present study have all taxes included.

4.1.6.2       Taxes on insurance premiums

Regular sales tax (GST/PST/QST/HST) does not apply to insurance premiums in Canada. However, a tax on insurance premiums of 9% applies to automobile insurance in the Province of Quebec, 4% in Nova Scotia and 15% in Newfoundland and Labrador, charged to consumers similarly to sales taxes. Insurance premiums given in the present study have these taxes included.

4.1.6.3       Recent and upcoming tax rate changes

We have consulted directly with all relevant public sources in order to determine if there are any impending tax rate changes across Canada in the near future. At this time, no changes in sales taxes are foreseen anywhere in Canada.

For each subsequent update of the present study, research will be performed again for all Canadian Provinces and Territories to determine if tax amounts have changed or if any changes are foreseen in the future.

4.1.7     Resale values (vehicle remarketing)

In order to accurately assess total costs of vehicle ownership an analysis was performed, for each vehicle under study, to project resale values for retention periods of four and five years, based on historic patterns. Resale values were extracted from resale market data for the same or similar vehicle model. The research was based on:

• Four year old vehicles with approximately 80,000 km
• Five year old vehicles with approximately 100,000 km

The values were extracted from the Canadian Black Book, an industry standard for establishing values for used cars and were supported through consultation with specialized vehicle resellers, as well as employing other relevant tools. Final values were projected for:

• Four and five year retention periods
• Every Canadian Province and Territory
• Each vehicle under study, assuming an average vehicle condition

Resale values were integrated into the depreciation analysis differently depending on the type of acquisition, as follows:

• For cash purchases resale values were subtracted from the initial total cost of a new car
• For financing contacts, we used the assumption that vehicle owners either trade in their old vehicle or otherwise sell it and put the amount down to offset part of the payment for the new vehicle and therefore reduce the total cost of interest.
• On vehicle leases however, the actual resale value of the vehicle is virtually irrelevant. Lessors typically base their depreciation calculations on projected residual values that are established directly by manufacturers. We have performed a complete research to determine these residual values for all vehicles under study, by compiling a 1,560 data-points matrix to accurately calculate total leasing costs. Over the previous year, average residual values decreased slightly by approximately 1.44 percentage points. Residual values show variations by:
  • Vehicle model
  • Retention periods (four and five years)
  • Model trim

On average, vehicle resale values were approximately 5% higher than the previous year, for both 4 and 5-year retention periods. Similarly to last year, the lower Canadian dollar value as compared to the U.S. dollar encouraged remarketers from the U.S. to purchase used Canadian vehicles, increasing the demand and, as a result, driving resale values higher.

4.1.8     Total cost of ownership calculations

For each Province and Territory, total costs of ownership were calculated for:

• each vehicle under study
• all three acquisition methods (cash purchase, financing contract and leasing)
• four and five-year retention periods

A weighted average was then performed for all vehicles under study to yield a final cost-of-ownership figure per Province and Territory. All figures were converted and expressed in dollars per kilometre.

The following three tables give a detailed break-down of vehicle ownership costs in Canada in dollars per kilometre, by vehicle class, four and five year retention periods, split by depreciation costs, financing costs (interest) and sales taxes, as well as a weighted average according to vehicle sales figures:

DEPRECIATION	Compact	Mid-Size	Minivan	Small Crossover/ SUV	Medium Crossover/ SUV	Battery Electric/ Plug-in Hybrids	Weighted average
4-yr ownership	$0.164	$0.207	$0.205	$0.205	$0.244	$0.257	$0.198
5-yr ownership	$0.146	$0.182	$0.182	$0.182	$0.219	$0.230	$0.177
							$0.188

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INTEREST	Compact	Mid-Size	Minivan	Small Crossover/ SUV	Medium Crossover/ SUV	Battery Electric/ Plug-in Hybrids	Weighted average
4-yr ownership	$0.010	$0.015	$0.021	$0.014	$0.027	$0.028	$0.015
5-yr ownership	$0.012	$0.018	$0.024	$0.017	$0.033	$0.030	$0.019
							$0.017

---

SALES TAX	Compact	Mid-Size	Minivan	Small Crossover/ SUV	Medium Crossover/ SUV	Battery Electric/ Plug-in Hybrids	Weighted average*
4-yr ownership	$0.033	$0.040	$0.046	$0.043	$0.059	$0.055	$0.042
5-yr ownership	$0.027	$0.033	$0.038	$0.036	$0.050	$0.045	$0.035
							$0.039

* Note: total weighted averages are rounded to 3 decimals.

4.1.9     Costs of ownership changes from the previous year

A general increase in MSRP prices as well as interest rates led to rising overall ownership costs, while lower rebates offered by manufacturers had a similar effect. The overall result is that total ownership costs increased for the ten Canadian Provinces by approximately $0.017 per kilometre. On the other hand, for the Territories, total ownership costs increased by approximately $0.012 per kilometre.

4.2     Vehicle registration and licensing costs

Vehicle registration, licensing and plating is regulated at the provincial level. Each Canadian Province and Territory has its own regulatory body governing the rules and costs of vehicle licensing. Registration costs are typically charged annually in the form of a registration renewal. In some Provinces there are certain one-time up-front costs that are charged only at the time of the initial vehicle registration.

We have performed a complete study of these costs by contacting all Provincial and Territorial authorities. Registration costs do not have additional taxes applied to them as payment is made directly to the respective governmental agencies. The terms registration and licensing are used interchangeably in this study.

Registration costs vary by:

• Province or Territory
• Vehicle class
• Certain other parameters (vehicle weight, cylinder capacity, excessive fuel consumption, etc.)

All these costs have been integrated in the calculations for each Province and Territory. Annual registration costs vary between $42 and $245 and contribute a weighted average of $0.007 per kilometre for all of Canada.

The following table lists annual registration costs for all the Provinces and three Territories:

Province/Territory	Annual registration costs	Registration costs in $/km
Alberta	$84.45	$0.004
British Columbia	$61.00	$0.003
Manitoba	$161.00	$0.008
New Brunswick	$108.00	$0.005
Newfoundland and Labrador	$180.00	$0.009
Nova Scotia	$122.51	$0.006
Ontario	$120.00	$0.006
Prince Edward Island	$134.00	$0.007
Quebec	$244.44	$0.012
Saskatchewan	$68.00	$0.003
Northwest Territories	$83.00	$0.004
Nunavut	$68.40	$0.003
Yukon	$42.00	$0.002

 

4.2.1     Note on the Province of Quebec

It must be noted that in Quebec, provincially-regulated bodily injury insurance must be purchased through the annual vehicle registration process. This is the reason why registration costs in Quebec are generally higher than the other Provinces or Territories.

4.3     Vehicle insurance costs

4.3.1     Regulation of vehicle insurance

Insurance rates vary greatly across Canada, primarily due to different provincial laws determining vehicle accident fault, subrogation or no-fault policies. Vehicle insurance is offered by private insurers in Alberta, Ontario, Quebec as well as the four Atlantic Provinces and the three Territories. Quebec however has a hybrid system where bodily injury insurance is provided by the Province through its vehicle registration process, while third-party liability is provided by private insurers. On the other hand, the Provinces of British Columbia, Manitoba and Saskatchewan have mandatory public vehicle insurance. Insurance in these three Provinces is offered exclusively by the provincial governmental bodies that also regulate vehicle registration.

4.3.2     Variability of insurance premiums

Insurance premium rates vary considerably not only from Province to Province, but also according to a substantial number of other parameters related to the insured driver’s personal characteristics as well as to the vehicle being insured. Where insurance is offered privately, insurance premiums also vary considerably from one insurer to another.

4.3.3     Analysis of prevalent insurance premiums

The methodology to calculate prevalent insurance premiums has been updated to improve accuracy, and thus displays some variances from the methodology employed in last year’s study. We have performed a thorough research into current prevalent insurance premium rates for the average government employee to keep these figures in line with current market conditions as well as recent industry publications. The steps taken to determine the insurance rates used in the present study were as follows:

1. Insurance premium costs were assessed based on the average government employeeas described in Section 3.1. We requested over 400 quotes based on this established demographic directly from private insurers, provincial insurers as well as insurance brokers. For Provinces with public insurance the data available from the governing bodies was used.
2. A thorough research of publicly available information on average insurance premiums across Canada was performed. A publication by the Insurance Board of Canada was identified as a reliable source to benchmark current average insurance premiums in all Canadian Provinces and Territories, also substantiated by data from other publications.
3. Using the figures provided by the Insurance Board of Canada (IBC), a variability factor was added to establish the maximum threshold for individual quotes obtained for the average government employee. The variability factor represents the following:
   1. The differences between the average driver/vehicle in Canada and the average government employee.
   2. The assumption that an individual would make a choice towards the most affordable insurance option available.
4. Prevalent insurance premiums were determined by averaging the quotes that fall below the established reasonable threshold for each Province and Territory.

Following is a table listing average insurance premiums for the ten Provinces and three Territories as well as a comparison with the insurance premiums published in the previous year study, for direct comparison (averaged annual premiums have been rounded up to the nearest $25):

Province/Territory	Current insurance premiums	Insurance costs in $/km	Previous year report insurance premiums
Alberta	$1,600	$0.080	$1,600
British Columbia	$1,525	$0.076	$1,500
Manitoba	$1,325	$0.066	$1,275
New Brunswick	$1,275	$0.064	$1,500
Newfoundland and Labrador	$1,950	$0.098	$2,075
Nova Scotia	$1,225	$0.061	$1,400
Ontario	$2,225	$0.111	$2,575
Prince Edward Island	$1,050	$0.053	$1,175
Quebec	$1,000	$0.050	$1,050
Saskatchewan	$1,400	$0.070	$1,450
Northwest Territories	$1,775	$0.089	$1,775
Nunavut	$1,750	$0.088	$1,775
Yukon	$1,450	$0.073	$2,050

The values obtained through the present study are deemed to be reflective of the current reality for the established demographic. Insurance rates vary between $1,000 and $2,225, with a Canadian weighted average of $0.082 per kilometre.

Using the present methodology, the most notable change in average insurance premiums in the Provinces was observed in Ontario, where the rate decreased by $350. The current premium rate was established by 230 insurance quotes, out of which 130 were below the established maximum threshold for Ontario. In the Territories, the Yukon saw the largest downwards adjustment of $600.

5       Variable Expenses Analysis

5.1     Fuel expenses

Fuel expenses are directly related to three main factors: buying location, fuel consumption of the vehicle and time of the year. The current study focuses on gasoline prices across Canada, which are strongly related to variations in the world energy market.

5.1.1     Energy Market Context

Although the crude prices were exhibiting an upward trend in September, since early October they have been on a steep and steady downward slide losing about a third of their value in the two-month period. The West Texas Intermediate (WTI) decreased from just over $76 USD per barrel in early October to just above $50 USD per barrel by the end of November. During the same time period, the Brent price fell from $86 USD to about $60 USD per barrel. As a result, global crude prices have declined to levels not seen for more than a year.

The reversal of the trend to lower prices in early October was largely due to the increased volatility and selling pressures across the equity markets, which lead to a drop in crude oil prices. Since then, several factors contributed to the continued downward trend, most notably the robust global production.

Gasoline prices closely followed the crude oil, exhibiting a significant drop since early October 2018. The gasoline price in Canada over the three-month period from September to November declined, on average, by 7.6 cents or 5.6% as compared to the previous Fuel Update (August 2018 for publication on October 1^st, 2018). In a year-to-year perspective, however, the average gasoline prices were 8.3% higher than in the fall of 2017.

5.1.1.1       Global Crude Oil Demand

The global economy is continuing a steady expansion that began in mid-2016. According to the World Economic Outlook (WEO) published by the International Monetary Fund (IMF) in October 2018, overall, the global growth rate is expected to remain at 2017 levels until 2019, averaging 3.7% per year. Nevertheless, as noted in the previous reports, significant differences are still observed between advanced economies and emerging markets, as well as among countries in each group. Generally speaking, the growth appears to have peaked in several major economies resulting in reduced growth projections, while the developing economies exhibit more robust growth patterns.

In advanced economies, the growth rate estimate has remained the same at 2.4% for 2018, but is expected to decline to 2.1% next year. In the current economic cycle, the Euro Area reached its peak growth in 2017, estimated at 2.4%, whereas the U.S. economy is expected to expand by 2.9% in 2018 before slowing down in 2019. The recently announced trade measures, including the tariffs imposed on $200 billion of U.S. imports from China is likely to have a significant impact on the U.S. economy, which has been reflected in the downward adjustment of growth projections, now estimated at 2.5% for 2019.

The Bank of Canada Monetary Policy Review from October 2018 indicates that that the growth rate of the Canadian economy is projected at 2.1% this year as compared to 3.0% last year, which at that time was a particularly high rate among advanced economies. The Bank of Canada projects the grown rate to remain at 2.1% for 2019, adjusting slightly downward in 2020. The expected steady growth of around 2% in the next two years is an indication of an adjustment towards a more balanced and sustainable growth path. The growth has shifted from consumption and housing to business investments and exports.

The Canadian business sector is continuing to expand its capacity in response to strong domestic and foreign demand. Furthermore, the completion of negotiations of the United States-Mexico-Canada Agreement (USMCA) has reduced trade policy uncertainty that was previously limiting business expansion. The only economic sector lagging in growth is the oil and gas sector, where transportation constraints are an ongoing challenge.

On the other hand, households have been adjusting their spending in response to higher interest rates and changes to the housing market, which have lead to higher mortgage rates, new mortgage finance guidelines, and new provincial and municipal housing market policies. While these policy changes led to sharp declines in real estate sales earlier this year, by fall housing sales have begun to recover.

Emerging and developing economies are also exhibiting a robust growth with a projected growth rate averaging 4.8% in 2018 and 2019. As before, growth prospects vary from country to country with oil prices affecting both producers as well as importers, albeit in a reverse relationship. China, along with a number of other Asian economies, are expected to experience a somewhat weaker growth in 2019 in the aftermath of the recently announced trade tariffs which are expected to lead to reduced business investments and exports.

The IMF indicates that the main risk to the global economic development remains the escalating trade tensions and policy uncertainty, which in some cases have already materialized. In addition, the U.S. economic expansion and full employment has not resulted in as steep interest rate rise as was originally anticipated. All this has been leading to increased risks, including sharp exchange rate movements and disruptive investment portfolio adjustments.

The latest OPEC Monthly Oil Market Report published in November 2018 indicates that the global demand for oil is currently projected to average 98.79 million barrels per day (mb/d) in 2018, a slight adjustment down from 98.83 mb/d projected in August 2018. The demand is projected to increase further, reaching 100.08 mb/d in 2019.

The OPEC's reference basket price (calculated as a weighted average of prices of crude oil produced by OPEC countries) averaged $79.39 USD per barrel in October 2018, the highest monthly average since October 2014. However, given the recent reversal of the price trend, this figure is expected to decrease significantly for the month of November 2018.

5.1.1.2       Global Crude Oil Supply

During the three-month period ending at the end of November, global crude prices had followed two distinct trends: increasing until the beginning of October and registering a steady decline ever since then. The market factors at play during the first phase were different to those that followed once the price had peaked.

In September, markets were already anticipating Iranian oil to come off the market in November when the full set of sanctions were to be implemented in regards to the U.S. withdrawing from the Iran Nuclear Deal. Analysts were estimating that this could result in a reduction of about 1% of the global oil supply, which in turn would push crude prices further up. In response to these expectations, the OPEC agreement that was signed in the fall of 2016 and that had been limiting crude production in 2017, was being eased so that enough crude would be supplied to the market once the sanctions took hold. As oil prices were rising rapidly, Saudi Arabia was not only increasing its own production, reaching 10.7 million barrels per day (mb/d), which was near a record high for the country, but also claimed to have enough spare capacity to offset the decrease in Iran's production. Despite these efforts, the bullish trends persisted resulting in a crude price rally. The prices reached levels that had not been seen since 2014 – the WTI exceeded $75 USD per barrel and the Brent went over $85 USD per barrel.

In early October, however, a sudden shift in the global price trend took place due to two coinciding factors. Firstly, there was a sharp decline in the value of technology stocks. On October 10^th, 2018, the Dow Jones Industrial Average plunged more than 800 points, while the Nasdaq fell 4% in a single day. Additional sell-offs and high volatility continued throughout October and November. As oil prices are closely tied to equity markets, inevitably the price of crude also followed, heading in downward direction. Secondly, around the same time, the U.S. was actively considering issuing wavers on the Iran Oil Ban to several countries and this turned the market concerns of oil shortage into a fear of oversupply, further fuelling the drop in crude prices. On November 2^nd, 2018, three days before the date when full sanctions against Iran took effect, the U.S. issued waivers to eight countries, thus allowing them for a limited time to continue purchasing Iranian oil. Given that those eight countries account for the majority of all Iranian oil exports, the concerns of oversupply materialized, adding to the already bearish market sentiments.

Despite the rising and falling oil prices during the last three months, a number of countries, including the U.S., Russia, Canada and Saudi Arabia, were increasing crude production. The U.S. oil supply continued to increase rapidly, reaching 11.7mb/d by mid-November, an increase of 6.5% since the end of August 2018. Russia’s production reached its highest level since the collapse of the USSR – pumping roughly 11.3 mb/d in September 2018. Canadian Heavy Crude extraction has been steadily rising during this period and is expected to reach 2.48 mb/d in December, an increase of nearly 14% since January 2018 (according to the Canadian Energy Board).

The global oil supply also reached new record highs - the International Energy Agency (IEA) reported that the global supply and demand surpassed 100 mb/d in September 2018 for the very first time. According to the OPEC report from November 2018, the global non-OPEC oil supply is projected to grow by 4.0% this year as compared to 2017, averaging 59.86 mb/d in 2018. Moreover, the growth is expected to continue in 2019 with a further projected rise of 3.7% reaching 62.09 mb/d. As reported by the International Energy Agency, OPEC produced 32.99 mb/d in October, an increase of 0.7% from a year ago.

In the light of the expected global crude oil oversupply, Saudi Arabia has once again initiated discussions of a potential OPEC production cut, this time by as much 1.4 mb/d. The next OPEC meeting will take place in December, at which time it should become evident if OPEC will reestablish production limits in an effort to balance the global oil supply and demand in 2019.

Since July 2018 the spread between the Western Canada Select (WCS) — the main blend sold by Alberta’s oil sands — and the Western Texas Intermediate (WTI) has been widening rapidly. Typically, WCS sells at a $15 to $25 USD discount to WTI to compensate for the elevated transportation and refining costs. However, by mid-November, the WCS sold at a historically large discount of $51 USD to the WTI, closing at $14 USD per barrel, its lowest price in a decade. The rapid drop of the WCS has been, in large part, due to the rising oil production exceeding pipeline transportation capacity. In addition, the demand for Canadian crude was reduced further in September and October due to scheduled maintenances in the U.S. Midwest refineries that are the largest refiners of Canadian bitumen. The low price of Alberta’s crude oil has had several negative effects on its economy, including lost revenues from royalties that are based on the price of the WCS. Furthermore, oil companies are likely to lay off workers in attempts to reduce costs.

5.1.2     Gasoline prices across Canada

Gasoline prices in Canada over the past several months have been affected by two main factors: the sharp downturn in the price of crude which has pulled the prices down and, on the other hand, the annual refinery maintenances as well as the high demand for gasoline in the U.S. which has exerted an opposite and somewhat stabilizing effect. The demand for gasoline in the U.S. has a direct effect on gas prices in Canada since large part of gasoline consumed here is refined in the U.S. Midwest. During the last week of August, gasoline in the U.S. posted its largest weekly demand on record – 9.899 mb/d, thus pushing the gas prices higher.

In the three-month period between September and November, the average fuel prices decreased in all Canadian provinces, with the largest drop observed in Manitoba (11.0 cents) and Ontario (10.6 cents). A slight increase of 1.7 cents was recorded in the Northwest Territories as well as Nunavut, where an updated price for gasoline took effect on November 1^st, 2018.

Prices of gasoline, in Canada, include all applicable taxes. Prices vary significantly across Canada, mainly due to the difference in the types and amounts of taxes being charged on fuel in different Provinces and Territories. We have therefore researched the average prices of regular gasoline charged at the pump. The fuel price data was primarily obtained from Natural Resources Canada via Kent Marketing, based on daily published fuel prices for 78 locations across Canada. This data was verified against additional databases that similarly track fuel prices all across Canada.

According to Natural Resources Canada, over 90% of light duty vehicles on Canadian roads run on gasoline. A number of these vehicles are also equipped to be able to run on E85 (ethanol 85%), but for the purpose of the present study all vehicles were considered to run on regular gasoline, as E85 is not readily available at retail outlets.

Consistent with the methodology of the previous study, when determining average gasoline prices per Province or Territory, we have used a weighted average according to population in order to better conform to reality. In this manner, metropolitan population centers account for a greater portion of the total than smaller municipalities. Prices were tracked daily across Canada (except for Saturdays, Sundays and holidays).

Fuel price data was extracted for a period of three months (August 29^th to November 21^st 2018) in order to better reflect current prices. Gasoline prices in Canada varied during this period between $0.989 in Winnipeg, MB to $1.621 in Vancouver, BC, with a national average of $1.286. Subsequent Fuel Update reports will focus on three-month periods following the period covered in the present study.

The following is a table with three-month average regular gasoline prices for all Canadian Provinces and Territories, in dollars per litre, as well as gasoline prices from previous reports, for comparison:

Province/Territory	Current average fuel price ($/litre)	Current average fuel cost ($/km)	1 Oct 2018 update ($/litre)	1 Jul 2018 update ($/litre)	1 Apr 2018 update ($/litre)	1 Jan 2018 (Annual Report) ($/litre)
Alberta	$1.213	$0.106	$1.286	$1.215	$1.075	$1.041
British Columbia	$1.476	$0.129	$1.508	$1.508	$1.364	$1.350
Manitoba	$1.116	$0.098	$1.226	$1.170	$1.051	$1.028
New Brunswick	$1.240	$0.109	$1.269	$1.213	$1.138	$1.127
Newfoundland and Labrador	$1.302	$0.114	$1.359	$1.309	$1.221	$1.255
Nova Scotia	$1.201	$0.105	$1.260	$1.225	$1.141	$1.126
Ontario	$1.228	$0.107	$1.334	$1.311	$1.223	$1.176
Prince Edward Island	$1.225	$0.107	$1.289	$1.232	$1.142	$1.122
Quebec	$1.303	$0.114	$1.365	$1.343	$1.233	$1.215
Saskatchewan	$1.199	$0.105	$1.234	$1.160	$1.050	$1.029
Northwest Territories	$1.453	$0.186	$1.436	$1.290	$1.228	$1.172
Nunavut	$1.097	$0.140	$1.080	$1.080	$1.080	$1.080
Yukon	$1.438	$0.184	$1.449	$1.307	$1.228	$1.183

 

Gas prices in Nunavut are typically set for a full calendar year and rarely exhibit any changes. The change occurred on November 1^st 2018 and therefore prices were recalibrated from $1.080 up to $1.144 starting with that date, bringing the Territorial average to $1.097.

5.1.3     Fuel consumption

For each vehicle under study, fuel consumption figures were extracted from two main sources, namely Natural Resources Canada’s EnerGuide and the industry’s vehicle pricing and specification standard tool, AutoQuote. For models where 2019 model year figures were not available, 2018 figures with similar engine sizes were used. These figures were correlated back to last year’s consumption figures to check for consistency. Fuel consumption figures are determined by vehicle manufacturers, based on standardized tests, and are published for both city driving and highway driving. For Battery-Electric and Plug-in Hybrid vehicles, the EnerGuide provides figures for fuel consumption by using a litre-equivalent (Le/100 km) system, thus facilitating the comparison with conventional fuel vehicles.

In Provinces where the majority of the population lives in large urban centres (e.g. Ontario) vehicles are driven more under city-driving conditions rather than highway-driving conditions. In light of this fact, the percentage of city versus highway driving has been referenced to a 55/45 city/highway split, consistent with the methodology used by the EnerGuide. On the other hand, for the Territories, a reversed 30/70 city/highway split was factored in, due to the predominantly rural character of the Territories and long distances to be covered.

The following table gives average fuel consumption figures by class of vehicle, in litres of gasoline per hundred kilometres:

Combined fuel consumption (l/100 km)	Compact	Mid-Size	Minivan	Small Crossover/ SUV	Medium Crossover/ SUV	Battery Electric/ Plug-in Hybrid	Pick-up Truck	Weighted average
Provinces	7.3	7.8	11.3	9.1	11.5	3.4	-	8.8
Territories	-	-	-	8.6	10.7	-	12.5	10.7

 

5.1.4     Calculation of fuel expenses

Based on an average of 20,000 kilometres per year and following the methodology described above, the study calculated average fuel costs, per Province or Territory, for all vehicles under study. These numbers were weight-averaged according to population to yield individual fuel costs figures for each Province or Territory.

Fuel contributes on average $0.111 per kilometre to total operating costs, ranging from $0.098 in Manitoba to $0.186 in the Northwest Territories. Future changes will be reported in the next Fuel Update report.

5.2     Vehicle maintenance expenses

In order to keep a vehicle in proper running condition and respect all driving safety requirements, a vehicle must be adequately maintained. Vehicle maintenance involves the following:

• preventative maintenance (that has to be performed regularly),
• repairs outside of manufacturer warranty and not caused by accidents,
• additional tires,
• miscellaneous expenses.

5.2.1     Preventative maintenance

Preventative maintenance includes, but is not limited to, the following:

• oil changes,
• regular check-ups,
• tire rotation,
• spark plugs change,
• front and rear brakes cleaning,
• discs and pads replacement,
• wheel alignment,
• battery change,
• cabin filter replacement,
• air-intake filter replacement.

Costs of preventative maintenance were estimated based on consultation with specialized garages and qualified mechanics in order to determine the frequency and costs for parts and labour. Sales taxes apply to all preventative maintenance costs.

Our research regarding costs for vehicle maintenance revealed a general trend in the industry for newer vehicles to have less servicing needs, counterbalanced by a general increase in service costs. In line with the above, the current report adjusted the frequency of key preventative maintenance jobs for specific vehicles (notably for North American manufacturers) to reflect the current reality.

5.2.2     Projected costs of repairs not covered by manufacturer warranty

Since the current study is considering retention periods of four and five years, a certain cost for projected repairs must be taken into account. Repairs due to accidents are covered by insurance and are reflected in insurance premiums costs. Most manufacturers offer warranties of up to 3 years or 60,000 kilometres (with the exception of Kia, Hyundai, Volkswagen and Mazda, which offer longer warranties). Beyond this period or mileage, any mechanical system that breaks down will incur a direct cost to the owner.

5.2.3     Tires

The various vehicles under study have different tire requirements, mostly due to different rim sizes. All new vehicles come with a set of standard all-seasons tires. However, if only one set of tires is used, they wear out and need to be replaced, on average after 60,000 kilometres. This implies that at least one new set of tires must be purchased for both four and five year retention periods.

For the purpose of this study, average quality all-seasons tires were considered. Costs of tires vary between $840 and $1,250 for a set of four with installation included, mainly depending on the type and size, plus applicable taxes.

5.2.3.1       Adjustments for Quebec and British Columbia

The Province of Quebec mandates the use of winter tires for all light duty vehicles, for the period between December 15^th and March 15^th. In order to reflect this requirement a 50% increase in cost of tires was factored into the calculations. This accounts for purchasing an additional set of winter tires while offsetting the need to purchase another set of all-season tires for the four-year retention period studied but not necessarily for the five-year period.

In British Columbia, certain roads, especially in mountainous areas, mandate the use of winter tires, usually between October 1^st and March 31^st. A 25% increase in costs of winter tires was factored in the calculations to account for this requirement, in order to reflect the fact that winter tires are only used by a certain portion of vehicles registered in this Province.

5.2.4     Miscellaneous maintenance expenses

There are other common expenses related to maintaining a vehicle that do not fall under the previous three categories but which are necessary for safety as well as aesthetic reasons. The present study allocated a $130 per year allowance for miscellaneous costs such as windshield washer fluid, occasional car wash and polish, light bulbs etc.

5.2.5     Total costs related to vehicle maintenance

Total maintenance costs were calculated for every Province and Territory. Costs are higher for Quebec mainly due to winter tire regulations. Costs for the three Territories are also higher primarily due to the extra equipment needed to support driving conditions in the North, as detailed in Section 6. Costs are lower for the Province of Alberta due to the fact that there is no provincial sales tax applicable.

The following four tables give a full break-down of vehicle maintenance costs in dollars per kilometre, by vehicle class as well as four and five year retention periods, split by preventative maintenance, repairs, tires and miscellaneous, as well as weighted averages according to vehicle sales:

PREVENTATIVE MAINTENANCE	Compact	Mid-Size	Minivan	Small Crossover/ SUV	Medium Crossover/ SUV	Battery Electric/ Plug-in Hybrid	Weighted Average*
4–yr ownership	$0.046	$0.046	$0.051	$0.047	$0.052	$0.037	$0.047
5–yr ownership	$0.050	$0.050	$0.055	$0.052	$0.056	$0.041	$0.052
							$0.049

 ---

REPAIRS	Compact	Mid-Size	Minivan	Small Crossover/ SUV	Medium Crossover/ SUV	Battery Electric/ Plug-in Hybrid	Weighted average*
4-yr ownership	$0.010	$0.009	$0.011	$0.011	$0.011	$0.007	$0.011
5-yr ownership	$0.023	$0.025	$0.028	$0.027	$0.028	$0.019	$0.026
							$0.018

 ---

TIRES	Compact	Mid-Size	Minivan	Small Crossover/ SUV	Medium Crossover/ SUV	Battery Electric/ Plug-in Hybrid	Weighted average*
4-yr ownership	$0.012	$0.014	$0.015	$0.015	$0.018	$0.014	$0.017
5-yr ownership	$0.010	$0.011	$0.012	$0.012	$0.014	$0.011	$0.011
							$0.013

 ---

MISCELLANEOUS	Compact	Mid-Size	Minivan	Small Crossover/ SUV	Medium Crossover/ SUV	Battery Electric/ Plug-in Hybrid	Weighted average*
4-yr ownership	$0.007	$0.007	$0.007	$0.007	$0.007	$0.007	$0.007
5-yr ownership	$0.007	$0.007	$0.007	$0.007	$0.007	$0.007	$0.007
							$0.007

 ---

MAINTENANCE SALES TAX	Compact	Mid-Size	Minivan	Small Crossover/ SUV	Medium Crossover/ SUV	Battery Electric/ Plug-in Hybrid	Weighted average*
4-yr ownership	$0.009	$0.009	$0.010	$0.010	$0.011	$0.008	$0.010
5-yr ownership	$0.0117	$0.011	$0.013	$0.012	$0.013	$0.010	$0.012
							$0.011

Note that the total weighted averages are rounded to 3 decimals.

6       Operational Costs in The Territories

In order to accurately reflect actual costs of operating vehicles in the three Canadian Territories, the analysis required a different approach than for the ten Provinces. The Territories are mostly rural and driving conditions are harsher, especially in the winter-time. This means that prevalently larger vehicles are used with winter-adapted equipment and therefore the costs for maintenance, tires, fuel and specialized equipment are higher.

This section describes the methodology used for the Territories as well as highlights where it differs from the methodology used for the ten Provinces.

6.1     Vehicle selection for the Territories

The nature of the climate and road conditions in the three Territories is considerably different than for the ten Provinces. Due to this fact, as well as the harsh winter driving conditions that drivers face in the North, the automotive landscape has a different make-up, and as a result trucks and crossovers/SUVs are significantly favoured over compact, mid-size sedans or minivans. Following this rationale, the present study selected three vehicle classes that were deemed representative for the Territories, same as in the previous Annual Report:

• Small crossovers/SUVs
• Medium crossovers/SUVs
• Pick-up trucks

The study kept the vehicles studied in the Small and Medium Crossover/SUV categories, added the five most sold pick-up trucks in the Truck category and eliminated the Compact, Mid-size and Electric Vehicle classes.

Following is a table listing the vehicles studied for the Territories, as well as the class they belong to and the weight assigned to each according to recent Canadian sales:

Make	Model	Class	Weight for Territories (rounded)	2019 Model Year Pricing
Honda	CR-V	Small Crossover/SUV	6.7%	$31,885*
Toyota	RAV4	Small Crossover/SUV	6.5%	$31,830
Ford	Escape	Small Crossover/SUV	5.5%	$32,539
Nissan	Rogue	Small Crossover/SUV	5.1%	$30,793
Hyundai	Tucson	Small Crossover/SUV	3.5%	$28,804*
Mazda	CX-5	Small Crossover/SUV	3.3%	$29,195*
Jeep	Cherokee	Small Crossover/SUV	2.9%	$34,390
Chevrolet	Equinox	Small Crossover/SUV	2.7%	$30,895
Ford	Edge	Small Crossover/SUV	2.3%	$37,789
Nissan	Qashqai	Small Crossover/SUV	2.3%	$26,848
Jeep	Wrangler	Medium Crossover/SUV	3.4%	$32,435
Ford	Explorer	Medium Crossover/SUV	2.3%	$44,789
Toyota	Highlander	Medium Crossover/SUV	1.8%	$41,310
Jeep	Grand Cherokee	Medium Crossover/SUV	1.6%	$47,290*
Toyota	4Runner	Medium Crossover/SUV	1.0%	$47,970
Honda	Pilot	Medium Crossover/SUV	0.9%	$42,885
Dodge	Durango	Medium Crossover/SUV	0.9%	$47,040
Nissan	Pathfinder	Medium Crossover/SUV	0.8%	$37,993
Chevrolet	Traverse	Medium Crossover/SUV	0.8%	$40,695
Hyundai	Santa Fe XL	Medium Crossover/SUV	0.8%	$36,504
Ford	F-Series	Pick-up Truck	18.3%	$45,949
Ram	P/U	Pick-up Truck	10.7%	$48,990
GMC	Sierra	Pick-up Truck	7.1%	$47,195
Chevrolet	Silverado	Pick-up Truck	7.1%	$46,495
Toyota	Tacoma	Pick-up Truck	1.7%	$44,725*

* Note: The current study used 2018 pricing for vehicles for which prices were not yet available for 2019.

It should be noted that by using the above vehicle classes and models studied for the Territories, overall ownership costs as well as vehicle maintenance costs are higher than for Provinces.

6.2     Other operating cost adjustments for the Territories

The methodology to calculate fixed and variable expenses for the Territories remained the same as for the Provinces. However, by virtue of using different vehicle classes, total costs are higher than for the Provinces.

The Territories usually display more elevated costs for fuel due to the higher costs of transportation and servicing. At the same time, by adding pick-up trucks and eliminating the more fuel-efficient compact and mid-size classes, overall fuel consumption is also higher than for the ten Provinces.

In terms of vehicle maintenance, adjustments were also made to reflect the extra equipment necessary for safe driving in the North, as well as use of special off-road or winter tires. The extra equipment that most acutely influences total maintenance costs for the Territories includes, but is not limited to, winter preparation packages, specialized tires, off-road survival kits and specialized signalling and communication devices, use of special engine oils and other freeze resistant liquids, as well as increased idling. For this reason, repair costs were increased by 25%, tire costs by 50% and fuel costs by 20% for the Territories.

7       Operating Cost Summary and Recommendations

We recommend continuing the practice of reimbursing government-requested personal vehicle use on the basis of both fixed and variable expenses, referred to as the Travel Rate. At the same time we recommend that reimbursement of employee-requested personal vehicle use be based only on variable expenses, referred to as the Commuting Rate. This is consistent with current practice. All rates have been rounded up to the nearest 0.5 cents.

The following table provides calculated evaluations for both Travel and Commuting Rates, as well as rates determined in the previous Annual Study and the latest Fuel Update, for comparison.

2019 Reimbursement Schedule (in dollars per kilometre)

Province/Territory	Current Annual Travel Rate	1 Oct 2018 Fuel Update Travel Rate	1 Jan 2018 Annual Report Travel Rate	Current Annual Commuting Rate	1 Oct 2018 Fuel Update Commuting Rate	1 Jan 2018 Annual Report Commuting Rate
Alberta	$0.495	$0.485	$0.460	$0.200	$0.205	$0.185
British Columbia	$0.545	$0.530	$0.515	$0.230	$0.235	$0.220
Manitoba	$0.515	$0.505	$0.485	$0.195	$0.205	$0.190
New Brunswick	$0.535	$0.535	$0.520	$0.210	$0.210	$0.200
Newfoundland and Labrador	$0.575	$0.575	$0.565	$0.215	$0.220	$0.210
Nova Scotia	$0.530	$0.525	$0.515	$0.205	$0.210	$0.200
Ontario	$0.570	$0.585	$0.570	$0.205	$0.215	$0.200
Prince Edward Island	$0.525	$0.520	$0.505	$0.210	$0.215	$0.200
Quebec	$0.540	$0.530	$0.520	$0.220	$0.225	$0.215
Saskatchewan	$0.510	$0.500	$0.485	$0.200	$0.205	$0.185
Northwest Territories	$0.660	$0.635	$0.600	$0.300	$0.290	$0.255
Nunavut	$0.610	$0.590	$0.590	$0.255	$0.245	$0.245
Yukon	$0.640	$0.650	$0.615	$0.300	$0.290	$0.255

Note: All figures were rounded up to the nearest half-cent.

The current Travel Rates (for publication on January 1^st 2019) show moderate variations versus the Travel Rates from the previous Fuel Update (for publication on October 1^st 2018), ranging from an increase of 2.5 cents per kilometre in the Northwest Territories to a decrease of 1.5 cents per kilometre in Ontario. On the other hand, as compared to the rates published in the previous Fuel Update, Commuting rates have ranged between an increase of 1.0 cent per kilometre for the three Teritories to a decrease of 1.0 cent per kilometre for Manitoba and Ontario.

Year-over-year, as compared to the previous Annual Report (for publication on January 1^st 2018), Travel Rates varied between no change to an increase of 6.0 cents per kilometre in the Northwest Territories, while the Commuting Rates varied between an increase of 0.5 cents per kilometre to a maximum of 4.5 cents per kilometre in the Northwest Territories and Nunavut.

In conclusion, both the Travel and Commuting Rates have varied slightly across Canada. The main factor that led to a moderate increase in vehicle-related costs for some provinces is the slightly more elevated ownership. On the other hand, insurance premiums pushed the Travel Rates down for Ontario and the Yukon. All other cost components had only a minimal effect on reimbursement rates. All future changes in fuel prices and sales taxes will be reflected in the three subsequent Fuel Updates of 2019.