In a February 2009 Internal Technical Interpretation, CRA notes that a per kilometre reasonable allowance received by an employee for the use of his/her personal motor vehicle in connection with employment duties may be excluded from employment income.
Generally the CRA considers the allowance reasonable, if it does not exceed the rate set annually by the government. For 2009, the rate is 52 cents/km for the first 5,000 km of business travel and 46¢ per kilometre thereafter.
Any allowance not calculated wholly on a reasonable “per kilometre” basis is normally considered taxable by the CRA. This is the case, for example, if you received a flat dollar amount per month.
Additional information is available at the here.