The employment expenses tax deduction in Canada is very necessary for working Canadians. The COVID-19 pandemic made working from home a reality for many people. While the benefits of working from home provide convenience, we must understand this pushes some business costs onto the employee. Check out our blogs about home office expenses and vehicle expenses for more details.
This post looks at less common expenses that an employee might be able to claim. As your virtual tax accountant, we want you to get the most tax deductions every year.
There are two types of employment that the Government of Canada considers to be able to deduct employment expenses. We’re only looking at situations where the employee gets a T4 from their employer. We won’t be discussing self-employed individuals in this post. For more information about self-employment, please contact us.
Conditions to Deduct Employment Expenses
If the company pays you back for expenses, you can’t claim them on your T1 personal tax return. There are a few exceptions for vehicle expenses that we will go over in this blog post.
T2200 Declaration of Conditions of Employment
Employment expenses can be claimed when your employer provides you with a signed T2200. This form needs to be provided to the Canada Revenue Agency (CRA) if they select you for review. Without it, all employment expenses will be denied.
Employees Earning a Salary
These employees may be eligible to deduct several different types of employment expenses.
Accounting and Legal Fees
Fees paid directly related to your job may be deductible. For instance, if an accountant prepares your taxes because of employment expenses, you can deduct their fee.
Food and Beverages
These are only 50% deductible. You need to record who you met with and why on the receipt in case of a CRA review. As such, these must be incurred while performing your job duties. Do not claim family dinners at restaurants or your morning coffe run. Large dollar amounts in these claims can often trigger a CRA review.
If you’re required to stay overnight away from home for a work trip, these are deductible.
Parking fees that you pay while fulfilling your job duties are deductible.
Office supplies such as postage, toner, paper, envelopes, etc. for work are deductible.
Salary Paid to an Assistant
If your job requires you to hire an assistant, the cost of paying them is deductible.
Any internet or phone bills directly related to your job are tax deductible. Be smart, and prorate for the amount that is directly related to your work if this is part of a family bill. Don’t include cable or streaming services, or set-up costs.
If your job requires you to rent an office or storage space, the rent is deductible.
There may be other expenses you incur that aren’t covered by the previous nine categories, which might be deductible. Are they directly related to your work? Can they be justified? Some examples may include client gifts, safety supplies, tools or COVID related supplies.
Remember, if you were reimbursed for these items, you should not be claiming them on your tax return. However, if you were only partially reimbursed, you can claim the portion you paid out of pocket.
Employees Earning Commission Income
To qualify for commission-related expenses, you must have an amount in Box 42 of your T4. If you don’t have any amount in Box 42, your expenses will be denied.
Commission income is usually related to sales activities. In addition to the expenses above, there may be additional deductible expenses such as:
- Bonding premiums
- Leasing costs for equipment
- Training costs
- Travel fare
Keep in mind, if you have been reimbursed for an expense, you cannot claim it on your taxes.
In general, your expenses cannot outweigh your commission.
Who Qualifies to Deduct Employment Expenses
COVID-19 has really expanded who can qualify for employment expenses. For years, specific types of jobs have had claims that are specific to their situation. This may include:
- Transport employees
- Forestry operations
- Employed artists
- Employed tradespersons
- Apprentice mechanics
CRA’s Position on Employment Expenses
CRA doesn’t keep their position and expectations secret. If you aren’t sure, check out the official page about employment expenses. In addition, eligibility and rules change all the time, so it’s a really good idea to review this page every year before you prepare your own tax return. Or better yet, reach out to a qualified virtual tax accountant for guidance.