It is common knowledge that businesses can deduct any expense incurred in the course of gaining income. Can employees deduct certain expenses? Read on to find out.
Tax-deductible work-related expenses defined
Similar in concept to business expenses, under certain criteria, an employee can deduct certain work-related expenses. The main condition to be able to claim these expenses is that your employer is requiring you to pay expenses out of pocket to earn your employment income.
Expenses you can claim
The types of expenses you can claim as an employee depend on the type of employee that you are considered to be for tax purposes. Are you a salaried or a commission employee? Are you a tradesperson? In either case, to claim the allowable expenses on your tax return, you will need a duly completed T2200 form signed by your employer.
Salaried and commission employees can claim the same expenses, with a few exceptions:
- Accounting and legal fees (help preparing tax documents)
- 50% of food, beverage and entertainment costs (commission employees only)
- Supplies (used directly for employment)
- Motor vehicle expenses (including depreciation)
- Work-from-home expenses (prorated to the portion of the home dedicated to the employment)
- Parking fees (not including fees for parking at the office)
- Cell phone (air time related to employment income)
For work-from-home expenses, eligible amounts are the costs of electricity, heating, and maintenance. Commission employees can also deduct property taxes and home insurance. These expenses must be prorated to the portion of the home dedicated to the employment.
For motor vehicle expenses, eligible amounts are the costs of fuel (gasoline, propane, oil), maintenance and repairs, insurance, licence and registration, depreciation, eligible interest paid on a loan used to buy the motor vehicle, and leasing. These expenses must be prorated to the percentage of use of the vehicle dedicated to the employment, and detailed log books must be kept confirming this use.
The distinguishing factor between salaried and commission employees is that for the latter, expenses are limited to the commission income gained in the year. No such limit exists for salaried employees. Depending on the expenses incurred, it might be more beneficial for a commission employee to choose to be salaried and avoid this limit. However, there is a trade-off in that some expenses would no longer be eligible (food and beverage for example).
A tradesperson can also claim the cost of eligible tools used for their work. The tools must be used exclusively for the job, and the employer has certified that purchasing the eligible tool is a requirement of that job. Apprentice mechanics can claim an additional deduction for tools used in their jobs.
Expenses you can’t claim
… And here comes the downer: Although there is a good list of expenses you can claim (see above), unfortunately the list of deductible expenses related to employment income is not as exhaustive as a business. For one, the purchase of a computer or a cell phone is not deductible and cannot be depreciated either. The purchase of special work clothes is also not deductible, and neither is the purchase of equipment, except for eligible tools used by tradespeople (see above).
Expenses that are unique
The deduction of work-related expenses is not reserved only for salaried and commission employees or tradespeople; it is also available to what the CRA calls “employed artists.” This can be any employee engaged in:
- composing a dramatic, musical, or literary work;
- performing as an actor, dancer, singer, or musician in a dramatic or musical work;
- performing an artistic activity as a member of a professional artists' association that the Minister of Canadian Heritage has certified; or
- creating a painting, print, etching, drawing, sculpture, or similar work of art. For income tax purposes, it is not an artistic activity when you reproduce these items.
General expenses can be deducted off income (see above), but musicians can also deduct certain costs related to their musical instrument. These are:
- maintenance costs;
- rental fees;
- insurance costs; and
- depreciation (if they own the instrument).
Have more questions about claiming work-related expenses? Contact WS Accounting Services Inc. we will be happy to go over what you can and can't deduct, as well as help you prepare the necessary T2200 forms for your employer(s) if necessary.