How shlould an Employer reimburse an Employee who works and lives in Canda in regards to Mileage rates the IRS rates are $0.56 and Canda Rates are 0.54¢

If all of the travel is in Canada and your tax returns are in the US, you have your choice. The rate you pay can always be less than the IRS rate, but if you file a return in Canada and have this employees expenses in your return, you need to pay the Canadian rate our the difference in expense will be disallowed in Canada.

In our experience, your likely more material issue is whether Employer (presumably a US legal entity) has a taxable presence (Permanent Establishment) in Canada. Hopefully you have that situation already worked out. If Employer is a LLC, then based on the tightening of the residency rules you may not get Treaty benefits. [See 2007 Treaty protocol.] (Regarding the specific expense, if you are filing a Canada tax return you must follow the Canada rules.)