As the tax-filing deadline closes in on us (it's April 30), the scramble to find tax breaks, deductions, credits – anything really – to cut the tax bill begins. Last time, I covered a few tax-saving tips for investors. But there are plenty of lucrative deductions available for everyone else as well. Here the most important ones for employees.
Home office expenses
The deduction applies to situations where the office is either the principal place where the employee's employment duties are performed (which may not always be the case) or that is used exclusively for employment purposes and on a regular and continuous basis for meeting customers or others in the course of performing employment-related duties.
If you rent your home, you can claim a prorated portion of rent expenses. If you own your home, the Canada Revenue Agency's position is that only certain expenses can be claimed. Generally, these are maintenance expenses such as fuel, electricity, cleaning, minor repairs, and the like. Expenses such as depreciation, taxes, insurance, and mortgage interest will not be allowed (special rules apply to commission sales employees).
Business expense. By the way, home office writeoffs can also be claimed against business and professional income. Canada Revenue Agency technicals released in the early 2000s have indicated that the writeoff might be claimed against rental income and possibly other types of investment income, if justifiable.
Auto expenses
Employees who receive mileage allowances will have the option of adding these amounts to their taxable income and claiming actual motor vehicle expenses (in some cases, the add back will be mandatory). To be eligible to claim motor vehicle travelling expenses, an employee must ordinarily be required to carry on employment duties away from the employer's place of business or in different places.
Supplies/salaries to an "assistant"
A deduction is allowed for supplies that are required to be furnished under your employment agreement. These must be items that are "used up" or "consumed." Potentially, this could include stationery, pens, pencils, tape, computer paper supplies, ink cartridges, or electronic media that can't be reused. The CRA also allows long-distance telephone calls and cellular telephone airtime that relates to the earning of employment income, but not monthly basic telephone charges or hook-up costs, or special clothing or books. Also deductible are salaries to an assistant, which may include the cost of stenographic and secretarial assistance.
To claim these writeoffs, you must complete Form T2200 and have your employer sign it. This form certifies that as part of your employment agreement, you are required to maintain a home office and/or pay part or all of these expenses. Form T2200 does not actually have to be filed with your return, but you must keep a signed copy in your files as it is possible that Canada Revenue Agency might call you up to verify that you have a signed copy in our possession.
Legal fees
Employees may deduct legal expenses for collecting salary or wages from an employer or former employer. This includes legal fees for collecting amounts owing and establishing your legal right to the salary or wages to begin with.
A related rule allows a deduction for legal expenses for most pension benefits and most job severance payments (" retiring allowances"). However, in this case, the deduction available in any year is limited to the amounts on which you pay tax – that is, the original sum minus amounts "rolled over" into an RRSP or registered pension plan. (This tax break is available for employment prior to 1996.) Any excess legal expenses can be deducted against taxable retiring allowances and pension benefits received in subsequent years, for up to seven years in the future.
Previously published in The Fund Library on Thursday, February 25, 2016.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
