Employment Expenses – What’s Eligible and What’s Not

By Gwyneth James MBA CPA CGA, Senior Partner

When you are employed by an organization that requires you to use your car to do your job or needs you to provide your own tools, our tax system allows a deduction for those expenses from your taxable income. However, your employer must provide you with a signed document T2200 – Declaration of Conditions of Employment.

Other examples of deductible employment expenses are a home office, meals and lodging, professional membership dues, cost of an assistant, and sales expenses. Most have restrictions tied to them depending on the nature of the position.

There are many misinterpreted areas of this particular piece of the Income Tax Act which have tripped up employers and employees. Unfortunately it is also one of their favourite areas to audit. Here are a few examples:

  • Motor vehicle expenses cannot be deducted if you received ANY amount of non-taxable reimbursement from your employer, no matter how paltry. You would be better to request that the reimbursement was added to your taxable income then deduct the actual expenses incurred.
  • Also for vehicle expenses, you must keep a trip log and track your vehicle expenses for the entire year. Travel from home to work usually constitutes personal use, but between an employer’s locations may be deductible.
  • The cost of a home office can only be deducted if the employee mainly works at home or exclusively uses it for job-related meetings. The types of expenses that can be deducted are different depending if the employee is a commissioned salesperson or not.
  • If you are a commissioned salesperson you can only deduct expenses up to the amount of your commission income.

The schedule you complete with your tax return is T777 – Statement of Employment Expenses. CRA has a guide T4044 – Employment Expenses which covers all the various types of deductible employment expenses.

If you’re remotely unsure or doubtful if an expense is eligible, it is safer to confirm first rather than beg for forgiveness after the fact!

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