how do I properly set up car allowance

You don't need to set it up as a deduction or a contribution. A deduction reduces the employee's net pay, while a contribution is typically used for employer-paid health benefits.

Since you are paying them a monthly flat rate for their car, it simply gets added to their pay cheque. If their allowance is meant to be non-taxable based on mileage, you may want to use a Reimbursement pay type instead so it doesn't get taxed, but for a standard flat monthly allowance, you can add it using a new pay type.

For specific setup guidelines, I recommend consulting your accountant to determine whether it is taxable under CRA rules.
 

Don’t hesitate to add a comment below if you have additional questions.