Introduction - Employment Expenses as a Condition of Employment
While businesses and the self-employed can deduct a wide range of expenses, salaried employees are significantly more limited in their ability to deduct expenses. Salaried employees are only able to deduct expenses where they are contractually obligated to pay them in order to perform their job duties. For example, musicians may be required to own and maintain their own instruments and tradespersons may be required to own their own tools. An employee may also be required to drive around the city to various locations and pay parking fees. Additionally, an employee may also need to have a home office to perform some of their functions. Speak to one of our top Toronto tax lawyers to learn more about the deduction of employment related expenses.
What is the T2200
Where the employer reimburses an employee for the expenses they incur, there is no problem. However, where an employee is required to pay for expenses necessary for his employment himself, the employer must complete the form T2200 and provide it to the employee, if the employee is to deduct those expenses from his income. Specifically, the T2200 asks a list of questions to confirm that an employee is required by contract to pay their own expenses while carrying out their employment duties as well as further questions that identify exactly what expenses they are expected to pay. The employee can only deduct those expenses that are identified in the T2200. Note that the T2200 does not need to be submitted to the CRA either by the employer or by the employee in their tax return; rather, the employee must keep the form in case they are ever subject to any contacts on it in the future. Where a salaried employee does not have a T2200, the CRA will deny any and all claimed expenses, so it is vital for salaried employees who pay their own expenses to ensure that they are issued a completed T2200 and for them to keep it in a safe location.
Allowable Employment Expenses
The full list of allowable expenses is listed by the CRA here. These expenses can be as broad as "food, beverages, and entertainment expenses" and as narrow as "musical instrument expenses". That said, the ones that are typically most important are the food, beverages, and entertainment expenses, vehicles expenses, travel expenses, and home office expenses as these are typically the largest expenses and apply broadly.
Pro Tax Tips and Common Tax Pitfalls
Notably, only 50% of the food, beverages, and entertainment expenses are deductible. A key tax planning tip is that individuals are expected to keep detailed driving and vehicle usage logs - failure to do so can result in the CRA denying some or all of the vehicle expenses. In addition, there are strict rules that must be followed in order for home office expenses to be deducted; specifically, the home office is expected to be a space in your home that is used primarily or exclusively for work purposes. What that means is that using your living room table for work may not qualify as a home office if you are also using the living room to relax and watch television. That said, home office expenses can be substantial, as you can deduct an amount of any mortgage interest you pay (or rent) and other home related expense proportional to the percentage of your home that is being used as a home office. Note that the CRA has expanded the ability for employees to claim home work space expenses due to COVID-19 - you can learn more about work spaces in the home and the changes due to COVID-19 here. Travel expenses includes food, beverage, lodging, and transportation costs, but is separate from motor vehicle expenses (if you are driving your own vehicle). However, travel expenses can only be claimed if you were normally required to work away from your employer's place of business or in different places, you were under contract of employment which requires you to pay your own travelling expenses, and you did not receive a non-taxable allowance for travelling expenses (generally a travel allowance is non-taxable if it is a reasonable amount given the travel). If the CRA has denied your claimed expenses, our experienced Toronto tax lawyers can help ensure that you are receiving every deduction that you are entitled to.
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.