Tips and Traps of Claiming Tax-Deductible Expenses by Employees Earning a Salary

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Tips and Traps of Claiming Tax-Deductible Expenses by Employees Earning a Salary

(Last Updated On: September 25, 2017)

 

Employees earning a salary may be able to claim some employment-related expenses if their employment conditions require them to pay for such expenses and in most of the situations is certified as such by the employer in CRA Form T2200 Declaration of Conditions of Employment.

Following employment expenses are deductible by employees earning a salary:

  • Accounting and legal fees: Any legal fee paid for establishing the right or collecting the salary or wages is deductible. Also, fees paid for advice or assistance in preparing and filing the notice of objection or appeal against an assessment of tax is deductible.
  • Allowable motor vehicle allowance including capital cost allowance: Subject to fulfillment of all conditions you can deduct motor vehicle expenses including cost of parking. These conditions include (a) you were required to work away from employer’s place, (b) you had to pay for such expenses, (c) you did not receive non-taxable allowance for motor vehicle expenses, and (d) you have a copy of CRA Form T2200 Declaration of Conditions of Employment completed and signed by your employer.
  • Travelling expenses: Subject to fulfillment of similar conditions of motor vehicle expenses you can deduct travel expenses such as food, beverage and lodging. To be able to claim the deduction of costs of food and beverage you have to stay away of the municipality of your regular employment location for at least 12 consecutive hours. You can deduct only 50% of food and beverage costs. However, there is an exception to this rule for transportation employees.
  • Supplies: Subject to fulfillment of all conditions you can deduct costs of supplies such as stationery, stamps, ink, cartridge, maps and directories. These conditions include (a) you had to pay for supplies, (b) you used supplies for work purposes only, (c) you did not get reimbursement of such expenses from your employer, and (d) you have a copy of CRA Form T2200 Declaration of Conditions of Employment completed and signed by your employer. Deduction of following expenses also have to meet similar conditions as stated above:
  • Long-distance telephone calls: You can deduct the cost of long-distance telephone calls, however, you cannot deduct monthly basic rate of telephone.
  • Computers, cell phone and other equipment: Cost of airtime expenses for your cell phone used to earn employment income is deductible. You cannot deduct the cost of buying or lease of computer and other equipment including capital cost allowance and interest on borrowed funds thereof.
  • Special clothing and tools: If you have to wear special clothing for work you cannot deduct such expense. Also, cost of any tools considered as equipment is not deductible. However, there is an exception to this rule for tradespersons.
  • Salaries to assistant: Subject to fulfillment of similar conditions stated above, you can deduct salaries paid to assistants to perform and earn employment income. However, you have to comply with rules for payroll deductions, remittance and reporting requirements.
  • Office rent: Subject to fulfillment of conditions such as you had to rent an office and pay for the expense, your employer did not reimburse your cost of renting and you have a copy of CRA Form T2200 Declaration of Conditions of Employment completed and signed by your employer, you can deduct the rental expense.
  • Work-space-in-the-home expense: Subject to fulfillment of similar conditions stated above, you can deduct proportionate costs such as electricity, heating and maintenance. If your office space in the rented house you can deduct the proportionate cost of rent and utilities. To be able to claim such deductions your office space in the home must be used to meet customers and others on regular basis and you have to work more than 50% of the time for the purpose of earning employment income.

Records to be kept

CRA requires taxpayers to keep all related records for at least six years from the end of tax year they relate to. In order to claim deductions against your employment income subject to fulfillment of conditions you need to keep records daily as you incur related expenses that, among some others, include:

  • Receipts, invoices, cancelled cheques, stub of tickets for travel
  • Bank/credit card statements
  • Record of motor vehicle use, total mileage drove and total mileage drove for employment purposes
  • Record of a motor vehicle or musical instruments bought and sold or traded during the year to claim capital cost allowance (CCA), as applicable.

Tax Accountants Toronto or Tax Preparation Service Toronto can help you identify the deductions you can claim on your personal tax return.

Tax Tips:

  • Claim GST/HST rebate for employment expenses for which you’ve paid GST/HST.
  • Claim deductions on CRA Form T777 Statement of Employment Expenses.
  • Keep a copy of CRA Form T2200 Declaration of Conditions of Employment completed and signed by your employer so that you can provide it to CRA if asked for.
  • Keep a copy of your complete tax return with all required schedules and supporting documents.

Traps:

  • Do not deduct the cost of travel to and from your regular workplace.
  • Do not deduct the cost of tools and special clothing.
  • Do not deduct the cost of parking at your employer’s location paid for daily or monthly basis or for traffic infractions such as speeding tickets.
  • Do not deduct the cost of items such as a briefcase, calculator.
  • Do not deduct the cost to connect or license cell phone and fees for internet service.
  • Do not deduct the cost of buying or lease of the computer, cell phone set, fax machine and any other equipment. Also, do not claim the deduction of capital cost allowance and interest on borrowed funds.
  • Do not deduct mortgage interest, property taxes, insurance, capital cost allowance as part of a work-space-in-the-home office.

Source: CRA

Disclaimer: The content/information provided on these pages are intended to provide general information only, which is up-to-date as of the date of publishing, and which may not reflect a reader’s specific situation and the latest position/state of the relevant laws/standards/facts/opinions. As such the readers are advised to take an expert opinion or consult related laws before taking any actions in this respect. In case there is any confusion, readers are advised to consult relevant rules and regulations published by the respective government authorities or consult with an appropriate competent professional. MAQCPA Professional Corporation cannot be held liable for reliance on or usage of the general information provided on this page/blog/article, under any situations whatsoever.

Abdul Quddeus, CPA, CGA

Abdul Quddeus is a CPA, CGA and founder of MAQ CPA Professional Corporation. He helps small business owners, professionals and individuals save their hard-earned money on taxes and let them free up their time to concentrate more on core business by providing tax planning and compliance, bookkeeping and accounting services.

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