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CFS Annual Report - 2018

Reimbursement for
Business Use of Personal Vehicles
Model Year 2018

 Study prepared for
The Treasury Board of Canada Secretariat

 by
Corporate Fleet Services

  November 2017

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 2018 model year vehicles and accounts for all of the following:

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 2018 for:

These rates are given on a straight 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 $0.530 per kilometre versus $0.515 in the previous Fuel Update (for publication on October 1st 2017) and $0.510 in the previous year Annual Report (for publication on January 1st 2017). The slight overall increase in operating costs was primarily due to increased costs of fuel and ownership.

The following table indicates Canadian average expenses by cost component as calculated in the current study, in dollars per kilometre:

Cost components

Cost (dollars/km)

Depreciation

$0.179

Interest

$0.008

Sales tax

$0.038

Registration

$0.008

Insurance

$0.090

Fuel

$0.109

Preventative maintenance

$0.053

Repairs

$0.021

Tires

$0.016

Miscellaneous

$0.008

Total

$0.530

 

The largest component of vehicle operating expenses is depreciation, which accounts for 33.77% of total costs, followed by fuel expenses at 20.57% and insurance premium expenses at 16.98%.

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 employed in the previous Annual Report (for publication on January 1st 2017). The analysis is deemed to accurately reflect costs in the current Canadian automotive marketplace and is described in detail in Sections 3 through 6.

2.2     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 and 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
  1. Variable 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, consistent with the parameters used in the previous year study:

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

Expense Cost Proportion
Depreciation 33.77%
Fuel 20.57%
Insurance 16.98%
Interest 1.51%
Preventative maintenance 10.00%
Registration 1.51%
Repairs 3.96%
Sales tax 7.17%
Tires 3.02%
Miscellaneous 1.51%

3.2     Vehicle selection

In order to be reflective of the Canadian marketplace, the same approach as last year was taken. Therefore the current study focused on 53 vehicle models (nameplates) grouped under five vehicle classes for the Provinces, with one extra class for the Territories (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:

Make

Model

Class

Weight for Provinces
(rounded)

2018 Model Year Pricing

Honda

Civic

Compact

8.0%

$22,485

Toyota

Corolla

Compact

5.8%

$23,405

Hyundai

Elantra

Compact

5.1%

$22,054

Mazda

3

Compact

3.1%

$23,295

Chevrolet

Cruze

Compact

3.0%

$23,295

Volkswagen

Golf

Compact

2.7%

$28,140

Volkswagen

Jetta

Compact

2.0%

$22,440*

Kia

Forte

Compact

1.8%

$21,955

Nissan

Sentra

Compact

1.6%

$21,858

Ford

Focus

Compact

1.3%

$23,298

Toyota

Camry

Mid-Size

1.5%

$28,105

Honda

Accord

Mid-Size

1.5%

$29,485

Ford

Fusion

Mid-Size

1.1%

$25,638

Chevrolet

Malibu

Mid-Size

0.9%

$26,245

Hyundai

Sonata

Mid-Size

0.9%

$26,604

Nissan

Altima

Mid-Size

0.8%

$28,048

Kia

Optima

Mid-Size

0.5%

$25,555

Volkswagen

Passat

Mid-Size

0.5%

$27,920

Chrysler

200

Mid-Size

0.4%

$27,640*

Mazda

6

Mid-Size

0.3%

$27,790*

Dodge

Grand Caravan

Minivan

5.1%

$32,390

Toyota

Sienna

Minivan

1.7%

$35,475*

Honda

Odyssey

Minivan

1.3%

$36,615

Chrysler

Pacifica

Minivan

0.6%

$37,890

Kia

Sedona

Minivan

0.6%

$29,735

Mazda

5

Minivan

0.3%

$25,090*

Kia

Rondo

Minivan

0.1%

$24,835*

Chrysler

Town & Country

Minivan

0.0%

$46,990**

Toyota

RAV4

Small Crossover/SUV

5.7%

$31,665

Honda

CR-V

Small Crossover/SUV

5.4%

$31,615

Ford

Escape

Small Crossover/SUV

5.2%

$32,239

Nissan

Rogue

Small Crossover/SUV

4.7%

$30,143

Hyundai

Tucson

Small Crossover/SUV

3.4%

$30,804*

Mazda

CX-5

Small Crossover/SUV

2.7%

$30,195*

Chevrolet

Equinox

Small Crossover/SUV

2.6%

$29,640

Jeep

Cherokee

Small Crossover/SUV

2.5%

$31,940

Hyundai

Santa Fe Sport

Small Crossover/SUV

2.3%

$32,504

Ford

Edge

Small Crossover/SUV

2.2%

$37,189

Ford

Explorer

Medium Crossover/SUV

1.9%

$39,589

Jeep

Wrangler

Medium Crossover/SUV

1.8%

$32,235

Jeep

Grand Cherokee

Medium Crossover/SUV

1.8%

$46,340

Nissan

Pathfinder

Medium Crossover/SUV

1.1%

$37,793

Honda

Pilot

Medium Crossover/SUV

0.9%

$41,815*

Toyota

4Runner

Medium Crossover/SUV

0.8%

$47,225

Hyundai

Santa Fe XL

Medium Crossover/SUV

0.7%

$36,104

Dodge

Durango

Medium Crossover/SUV

0.7%

$46,290

GMC

Acadia

Medium Crossover/SUV

0.5%

$38,690

Chevrolet

Traverse

Medium Crossover/SUV

0.5%

$39,690

* Note: The current study used 2017 pricing for nine vehicles for which prices were not yet available for 2018 and 2016 pricing for one vehicle that was discontinued (**). All prices are given before applicable taxes.-

Distribution of vehicles studied by class

Vehicle Class Distribution
Compact 34%
Medium Crossover/SUV 11%
Mid-size 8%
Minivan 10%
Small Crossover/SUV 37%

 

Distribution of vehicles studied by brand name

Brand Name Distribution
Chevrolet 7.0%
Chrysler 1.0%
Dodge 5.8%
Ford 11.8%
GMC 0.5%
Honda 17.2%
Hyundai 12.5%
Jeep 6.1%
KIA 3.1%
Mazda 6.3%
Nissan 8.1%
Toyota 15.5%
Volkswagen 5.2%

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, same as in the previous year 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 8,037,343 light duty vehicles registered in Ontario in 2016, whereas in the Yukon there were only 32,711 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 the Mazda 3, more than double that 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 2018 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 eleven (11) vehicle models out of a total of 53. For these, 2017 model year values were used, as in our experience these values vary only slightly from year to year and are generally reflective of 2018 values. In one case however (the Chrysler Town & Country minivan), 2016 values were used since the model has been phased out of production although a number of vehicles continued to be sold in Canada.

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 1.3% 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:

All the data obtained was integrated into a 2,067 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 $7,281, depending primarily on each manufacturer’s marketing strategy, with an average of approximately $1,495.

Over the last year, vehicle manufacturer rebates increased on average by $48 or 3.3%.

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:

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

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:

In comparison to the previous year, a slight shift from financing towards leasing was observed, possibly due to the fact that interest rates have increased slightly over the previous year. Please refer to Section 4.1.5 for details.

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:

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:

All these variations were integrated into a 2,756 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 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 7.73% for manufacturers’ subvented rates, while the third-party interest rates were approximated at 8%. The average interest rate for lease contracts was 3.36% while the financing rate was 1.70%. Overall, interest rates increased by an average of 0.48 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:

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

Province

Combined sales taxes

Alberta

5%

British Columbia

12%

Manitoba

13%

New Brunswick

15%

Newfoundland and Labrador

15%

Nova Scotia

15%

Northwest Territories

5%

Nunavut

5%

Ontario

13%

Prince Edward Island

15%

Quebec

14.975%

Saskatchewan

11%

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:

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 anywhere 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

In 2016, three Canadian Provinces increased their HST (Harmonized Sales Tax) to 15%: Newfoundland and Labrador (effective July 1st 2016), New Brunswick (effective July 1st 2016) and Prince Edward Island (effective October 1st 2016). The new HST (15%) is reflected in all calculations for these three Provinces.

In 2017, Saskatchewan also increased its provincial sales tax to 6% from 5% (effective March 27th 2017), thus effectively bringing the combined GST/PST tax to 11%.   

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 other 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:

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:

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

On average, vehicle resale values were slightly higher than the previous year, by 1% for 4 year-old vehicles and 3% for 5 year-old vehicles. Similarly to last year, the lower Canadian dollar value as compared to the US dollar encouraged remarketers from the USA 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:

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 as well as 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

Weighted average

4 -yr ownership

$0.154

$0.196

$0.204

$0.193

$0.238

$0.188

5 -yr ownership

$0.138

$0.172

$0.187

$0.176

$0.215

$0.169
           

$0.179

---

INTEREST

Compact

Mid-Size

Minivan

Small Crossover/
SUV

Medium Crossover/
SUV

Weighted average

4 -yr ownership

$0.003

$0.006

$0.010

$0.005

$0.010

$0.007

5 -yr ownership

$0.004

$0.007

$0.012

$0.007

$0.013

$0.008
           

$0.008

---

SALES TAX

Compact

Mid-Size

Minivan

Small Crossover/
SUV

Medium Crossover/
SUV

Weighted average*

4 -yr ownership

$0.031

$0.038

$0.045

$0.043

$0.056

$0.042

5 -yr ownership

$0.026

$0.031

$0.037

$0.036

$0.047

$0.034
           

$0.038

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

4.1.9     Costs of ownership changes from the previous year

While an increase in MSRP prices and interest rates lead to an increase in overall ownership costs, higher residual and resale values have the opposite effect, somewhat offsetting the increase in prices. The overall result is that total ownership costs only increased slightly for the ten Canadian Provinces (by approximately 3% on average versus the previous year or $0.006 per kilometre). On the other hand, for the Territories, total ownership costs increased by approximately 2% or $0.005 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:

All these costs have been integrated in the calculations for each Province and Territory. Annual registration costs vary on average between $42 and $265 and contribute an average of $0.008 per kilometre (weighted average 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

$130.00

$0.007

Quebec

$264.84

$0.013

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

In order to maintain consistency with the methodology employed in the previous 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.

Insurance premium costs were assessed based on the average government employee as described in Section 3.1. We requested over 390 quotes based on this established demographic directly from private insurers, provincial insurers as well as insurance brokers. In order to reflect real up-to-date insurance premiums for each Province with private insurance, more than five different data sources were used. For Provinces with public insurance the data available from the governing bodies was used.

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

$1,625

British Columbia

$1,500

$0.075

$1,450

Manitoba

$1,275

$0.064

$1,250

New Brunswick

$1,500

$0.075

$1,425

Newfoundland and Labrador

$2,075

$0.104

$1,900

Nova Scotia

$1,400

$0.070

$1,375

Ontario

$2,575

$0.129

$2,550

Prince Edward Island

$1,175

$0.059

$1,150

Quebec

$1,050

$0.053

$1,025

Saskatchewan

$1,450

$0.073

$1,350

Northwest Territories

$1,775

$0.089

$1,775

Nunavut

$1,775

$0.089

$1,775

Yukon

$2,050

$0.103

$2,025

The values obtained through the present study are deemed to be reflective of the current reality for the established demographic. Insurance rates vary between $1,050 and $2,575, with a Canadian weighted average of $0.090 per kilometre.

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

During the past three months, crude oil prices have been on an upward climb, increasing steadily since the end of August. West Texas Intermediate (WTI) increased from just over $45 USD per barrel to nearly $60 USD per barrel by the end of November, while the Brent price grew from about $50 USD to about $65 USD per barrel during the same time period. As a result, global crude prices have reached levels last seen in mid-2015. The main factor driving the price hike has been an expectation that the OPEC will extend the “production cut agreement” till the end of 2018. This effectively would continue to limit the global supply in order to reduce inventories to obtain a better balance with demand.

Similarly to crude oil, gasoline prices have been on the rise.  While the price of crude has been fuelling the hike, the shutdown of refineries in Texas due to Hurricane Harvey at the end of August had a severe effect on gas prices across Canada, particularly in the Eastern provinces.  While prices returned to previous levels by mid-October, as the refineries came online and gasoline supply normalized, a second price increase was observed in early November, which this time was more pronounced in the Prairies and Western provinces. As a result, the three-month average price for gasoline has risen across Canada by 6.84%.

5.1.1.1       Global Crude Oil Demand

According to the World Economic Outlook (WEO) published by the International Monetary Fund (IMF) in October 2017 global economic activity continues to strengthen with accelerating growth in Europe, China and the United States. In a year-to-year perspective, the growth rate projections have improved by 0.1% since the July 2017 update, reaching 3.6% in 2017 and 3.7% in 2018.

In advanced economies, the growth rate estimates increased from 2.0% to 2.2% in 2017 and settling at 2.0% for 2018. The U.S. household consumption in the Second Quarter of the year increased considerably. Accompanied by the continued recovery of investments in the energy sector, the economic growth forecasts have been increased and are now estimated at 2.2% in 2017 and 2.3% in 2018 (an improvement of 0.1% and 0.2% respectively as compared to the July 2017 update).

The Canadian market has been very robust in 2017, with unexpectedly strong household consumption and business investments in the second quarter, which has resulted in increased growth rate projections. The Bank of Canada Monetary Policy Review from October 2017 indicates that that the real GDP growth rate will reach 3.1% this year, which is a notably high rate particularly among advanced economies. In the following years, however, a shift towards a more sustainable growth path led by increased exports and business investments as well as reduced contribution from consumption and residential investment is anticipated. As a result the growth is projected to return to more moderate levels of 2.1% in 2018 and 1.5% in 2019.

Emerging and developing economies are also exhibiting a continued strengthening with the projected growth rate reaching 4.6% in 2017 and 4.9% in 2018. China has set a target to double its real GDP between 2010 and 2020 and thus far has delivered significant policy changes and increased government expenditures in order to reach that goal. As a result, the economic growth has been strong and the projected rate for 2017 is at 6.8%, an increase of 0.1% since July 2017.  Russia’s recovery from the economic recession in 2015 and 2016 has been swift and the growth rate estimate for 2017 has increased by 0.4% reaching 1.8%.  

While overall economic development indicators are currently strong, the medium and long-term global outlook remains subject to substantial uncertainty, particularly around U.S. trade policy and potential tax reforms as well as geopolitical developments.

The latest OPEC Monthly Oil Market Report published in November 2017 indicates that the global demand for oil remains robust and is currently projected to be 96.94 million barrels per day (mb/d) in 2017. The demand is projected to continue the hike further in 2018, averaging 98.45 mb/d, a further increase of 1.56% over 2017 levels.

The OPEC's reference basket price (calculated as a weighted average of prices of crude oil produced by OPEC countries) averaged $55.50 USD per barrel in October as compared to $46.93 USD per barrel in July. This represents an increase of average crude price by 18.26% over the three-month period.

5.1.1.2       Global Crude Oil Supply

Global oil prices have been rising since late August. The main driver for the upswing has been the successful implementation of the OPEC production cut agreement. The agreement has been signed by most OPEC countries as well as Russia with a goal to limit crude oil production by about 1.8 mb/d below October 2016 production levels. The compliance to the agreement has been strong, reaching a reported 92% in October 2017. The current agreement is in effect until the end of March 2018. Since September all participating countries, including Russia, have been expressing support for the Agreement’s extension until the end of 2018 therefore fuelling the price hike in recent months. During the OPEC meeting in Vienna on November 30th, 2017 the participants reached an initial agreement of extension although conditional on continued participation by all parties.

As OPEC limits production and the crude prices rise, non-participating countries have continued to increase their oil extraction rates. The U.S. Energy Information Agency forecasts the total U.S. crude oil production to average 9.2 million b/d in 2017 and 9.9 million b/d in 2018. This means that the U.S. is on track to surpass the previous record of extraction set in 1970 when 9.6 million b/d were produced. The Canadian oil fields continue to exhibit a significant recovery this year. According to the government of Alberta, the crude production increased by 11.1% in the first 9 months of the year as compared to the same time period the previous year. In addition, the average number of active drilling rigs in the province between January and October has increased more than two-fold from 2016. According to the OPEC report, from November 2017, the global non-OPEC oil supply is projected to grow by 1.14% this year, averaging 57.67 mb/d and by a further 1.51% next year averaging 58.54 mb/d.

5.1.2     Gasoline prices across Canada

The Canadian gasoline prices over the past several months have been affected by two main factors – the increasing price of crude oil as well as hurricanes in the Gulf of Mexico. At the end of August, Category 4 Hurricane Harvey made landfall in Houston, Texas, the largest hub of oil refining in the U.S. focused on converting crude oil into gasoline, diesel, jet fuel, and other products. Overall, Texas has roughly 5.7 mb/d of refining capacity. At its peak, Hurricane Harvey had taken offline roughly 5.0 mb/d of refining capacity – nearly 90% of the fuel production capacity of Texas or a quarter of the entire U.S. The interruption of refining as well as the transportation process of final products led to a shortage of gasoline in the market, which spiked the prices across North America.

As indicated in the previous report, the impact of Hurricane Harvey onto gasoline prices in Canada, particularly in the Eastern provinces, was significant, even more severe than anticipated. While it was predicted that Montreal might see a hike of up to 15 cents per litre, information collected saw an actual increase of at least 20 cents per litre for several days, with prices in Labrador City, NL increasing by as much as 41.6 cents above pre-storm levels. The following downward price adjustment took several weeks and in certain locations the impact was felt up until mid-October.

Another gasoline price peak was seen at the beginning of November but this time it was more pronounced in the Western provinces, particularly in Alberta. The exact cause of the price hike remains unknown but has likely been due to a combination of a several factors: higher than usual demand for gasoline, reduced supply in the U.S., a weak Canadian dollar as well as adjustments to increasing crude prices are all possible causes that could have influenced the sudden price increase. The prices in most locations have since receded. 

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. In total prices were tracked daily (except for Saturdays, Sundays and holidays) for 78 municipalities across Canada.

Fuel price data was extracted for a period of three months (August 28th to November 24th 2017) in order to better reflect current prices. Gasoline prices in Canada varied during this period between $0.886 in Edmonton, AB to $1.458 in Labrador City, NL, with a national average of $1.187. Subsequent fuel update reports will focus on three months periods following the period covered in the present study.

The following is a table with 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 fuel price ($/litre)

Current fuel cost ($/km)

1 Oct 2016 update ($/litre)

1 Jul 2017 update ($/litre)

1 Apr 2017 update ($/litre)

1 Jan 2017 (Annual Report) ($/litre)

Alberta

$1.041

$0.096

$0.962

$0.994

$0.973

$0.913

British Columbia

$1.350

$0.124

$1.289

$1.312

$1.223

$1.205

Manitoba

$1.028

$0.095

$0.903

$0.975

$0.968

$0.942

New Brunswick

$1.127

$0.104

$1.054

$1.076

$1.081

$1.040

Newfoundland and Labrador

$1.255

$0.116

$1.180

$1.329

$1.341

$1.300

Nova Scotia

$1.126

$0.104

$1.050

$1.072

$1.080

$1.040

Ontario

$1.176

$0.108

$1.092

$1.108

$1.078

$1.018

Prince Edward Island

$1.122

$0.103

$1.052

$1.071

$1.082

$1.033

Quebec

$1.215

$0.112

$1.135

$1.158

$1.138

$1.111

Saskatchewan

$1.029

$0.095

$0.945

$0.975

$0.969

$0.945

Northwest Territories

$1.172

$0.145

$1.152

$1.174

$1.180

$1.160

Nunavut

$1.080

$0.134

$1.080

$1.080

$1.114

$1.128

Yukon

$1.183

$0.147

$1.146

$1.180

$1.166

$1.159

 

Gas prices in Nunavut are typically set for a full calendar year and rarely exhibit any changes. There were no price changes for the current Annual report as compared to the previous Fuel Update.

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 2018 model year figures were not available, 2017 or 2016 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.

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 60/40 city/highway split. 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:

Fuel consumption (l/100 km)

Compact

Mid-Size

Minivan

Small Crossover/
SUV

Medium Crossover/
SUV

Truck

Weighted average

Provinces

7.6

8.2

11.5

9.5

12.1

-

9.2

Territories

-

-

-

9.5

12.1

12.3

11.2

 

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 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 $0.109 per kilometre to total operating costs, ranging from $0.095 in Manitoba and Saskatchewan to $0.147 in the Yukon. 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:

5.2.1     Preventative maintenance

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

Costs of preventative maintenance were estimated based on previous studies as well as through consultation with specialized garages and qualified mechanics in order to update the frequency and costs for parts and labour. Where applicable, the inflation rate has been factored in, as calculated by Statistics Canada. 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. In conclusion, changes in vehicle maintenance and repairs did not result in any significant changes versus the previous year report.

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 $745 and $1,275 for a set of four, 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 15th and March 15th. 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 1st and March 31st. 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 continued along the same lines as the previous year’s study and allocated a $10 per month 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 and British Columbia 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 mainly 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

Weighted Average*

4 –yr ownership

$0.048

$0.049

$0.045

$0.049

$0.048

$0.049

5 –yr ownership

$0.055

$0.057

$0.056

$0.057

$0.058

$0.057
           

$0.053

 ---

REPAIRS

Compact

Mid-Size

Minivan

Small
Crossover/
SUV

Medium
Crossover/
SUV

Weighted
average*

4 -yr ownership

$0.012

$0.012

$0.008

$0.013

$0.010

$0.013

5 -yr ownership

$0.027

$0.028

$0.027

$0.029

$0.027

$0.029
           

$0.021

 ---

TIRES

Compact

Mid-Size

Minivan

Small
Crossover/
SUV

Medium Crossover/
SUV

Weighted average*

4 -yr ownership

$0.013

$0.015

$0.018

$0.016

$0.021

$0.017

5 -yr ownership

$0.011

$0.012

$0.014

$0.013

$0.017

$0.014
           

$0.016

 ---

MISCELLANEOUS

Compact

Mid-Size

Minivan

Small
Crossover/
SUV

Medium Crossover/
SUV

Weighted average*

4 -yr ownership

$0.008

$0.008

$0.008

$0.008

$0.008

$0.008

5 -yr ownership

$0.008

$0.008

$0.008

$0.008

$0.008

$0.008
           

$0.008

* 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:

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 Minivan 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)

2018 Model Year Pricing

Toyota

RAV4

Small Crossover/SUV

6.3%

$31,655

Honda

CR-V

Small Crossover/SUV

6.0%

$31,615

Ford

Escape

Small Crossover/SUV

5.8%

$32,239

Nissan

Rogue

Small Crossover/SUV

5.2%

$30,143

Hyundai

Tucson

Small Crossover/SUV

3.8%

$30,804*

Mazda

CX-5

Small Crossover/SUV

3.0%

$30,195*

Chevrolet

Equinox

Small Crossover/SUV

2.9%

$29,640

Jeep

Cherokee

Small Crossover/SUV

2.8%

$31,940

Hyundai

Santa Fe Sport

Small Crossover/SUV

2.6%

$32,504

Ford

Edge

Small Crossover/SUV

2.5%

$39,589

Ford

Explorer

Medium Crossover/SUV

2.1%

$32,235

Jeep

Wrangler

Medium Crossover/SUV

2.0%

$46,340

Jeep

Grand Cherokee

Medium Crossover/SUV

1.9%

$37,793

Nissan

Pathfinder

Medium Crossover/SUV

1.2%

$41,815*

Honda

Pilot

Medium Crossover/SUV

1.0%

$47,225

Toyota

4Runner

Medium Crossover/SUV

0.9%

$36,104

Hyundai

Santa Fe XL

Medium Crossover/SUV

0.8%

$46,290

Dodge

Durango

Medium Crossover/SUV

0.8%

$38,690

GMC

Acadia

Medium Crossover/SUV

0.6%

$39,690

Chevrolet

Traverse

Medium Crossover/SUV

0.5%

$39,695

Ford

F-Series

Truck

18.8%

$44,899

Ram

P/U

Truck

12.2%

$48,990

GMC

Sierra

Truck

7.5%

$46,965

Chevrolet

Silverado

Truck

7.2%

$42,975

Toyota

Tacoma

Truck

1.5%

$42,330*

* Note: The current study used 2017 pricing for vehicles for which prices were not yet available for 2018.

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. For this reason, preventative maintenance and repair costs were increased by 25% and tire costs by 50% 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.

2018 Reimbursement Schedule (in dollars per kilometre)

Province/Territory

Current Annual
Travel Rate

1 Oct 2017
Fuel Update
Travel Rate

1 Jan 2017
Annual Report
Travel Rate

Current
Annual
Commuting
Rate

1 Oct 2017
Fuel Update
Commuting
Rate

1 Jan 2017
Annual Report
Commuting
Rate

Alberta

$0.460

$0.450

$0.445

$0.185

$0.175

$0.170

British Columbia

$0.515

$0.500

$0.495

$0.220

$0.215

$0.205

Manitoba

$0.485

$0.470

$0.470

$0.190

$0.175

$0.180

New Brunswick

$0.520

$0.505

$0.500

$0.200

$0.190

$0.190

Newfoundland
and Labrador

$0.565

$0.540

$0.555

$0.210

$0.205

$0.215

Nova Scotia

$0.515

$0.500

$0.500

$0.200

$0.190

$0.190

Ontario

$0.570

$0.555

$0.545

$0.200

$0.195

$0.185

Prince Edward Island

$0.505

$0.490

$0.490

$0.200

$0.190

$0.190

Quebec

$0.520

$0.505

$0.500

$0.215

$0.205

$0.205

Saskatchewan

$0.485

$0.460

$0.460

$0.185

$0.180

$0.180

Northwest Territories

$0.600

$0.595

$0.595

$0.255

$0.255

$0.255

Nunavut

$0.590

$0.585

$0.590

$0.245

$0.245

$0.250

Yukon

$0.615

$0.605

$0.605

$0.255

$0.250

$0.255

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

The current Travel Rates (for publication on January 1st 2018) show moderate variations versus the Travel Rates from the previous Fuel Update (for publication on October 1st 2017), ranging from an increase of 0.5 cents per kilometre in the Northwest Territories and Nunavut to an increase of 2.5 cents per kilometre in Newfoundland and Labrador and Saskatchewan. On the other hand, as compared to the rates published in the previous Fuel Update, Commuting rates have ranged between no change to an increase of 1.5 cents per kilometre in Manitoba.

Year-over-year, as compared to the previous year Annual Report (for publication on January 1st 2017), Travel Rates varied between no change to an increase of 2.5 cents per kilometre in Ontario and Saskatchewan, while the Commuting Rates varied between a decrease of 0.5 cents per kilometre to an increase of 1.5 cents per kilometre across Canada.

In conclusion, both the Travel and Commuting Rates have increased slightly across Canada. The main factors that led to the moderate increase in vehicle-related costs are higher ownership and fuel costs. All other cost components had only a minimal effect on reimbursement rates. It is also worth mentioning that a hike in the provincial sales tax (PST) for Saskatchewan had a direct effect on the rates for the Province. All future changes in fuel prices will be reflected in the three subsequent Fuel Updates in 2018.