What are employee expenses?

Allan Madan, CA
 Jun 11, 2014
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Are you an employee looking to save on taxes? Did you know there are deductions that might be available to you? As far as deductions go, you have probably about small businesses and corporations. A business owner or corporation can deduct any reasonable expense incurred in the when earning income. 

Unfortunately, there is not as much leeway with employee deductions. The types and amounts of expenses available to employees limited, and there are specific rules surrounding them. In this article, I will explain these rules. It is my hope that you would take this information and maximize your eligibility for deductions.

All employment expenses are governed by a general rule. The CRA does not allow any employment deductions outside those mentioned in the Income Tax Act. This is a significantly different from business owners and corporations, who can deduct any expense that meets the general conditions.

Employee expenses don’t have to be difficult. Let Madan Chartered Accountant show you how to make the most of your tax bill.

Employment agreements require employees are to incur and pay for their own expenses. This authorization from employers is presented in the T2200 Form. Though the CRA does not obligate you to submit this form, you should hold it on file. This is because the form will come in handy should the CRA audit your employment expenses. If you receive a travel allowance from your employer, be sure to visit our website on: Is an employer provided travel allowance a taxable benefit to an employee?

What are employee expenses? – Employees on Commission

If you are an employee that earns commission-based income, the rules for expenses are more tolerant. Employees on commission can deduct the expenses in the Income Tax Act and a broad range of other costs. To qualify, however, these expenses must be directly related to earning commission. Commission employees must also fulfill the following conditions:

  • These employees must pay for their own expenses as per their employment agreement.
  • They must be required to carry employment duties away from their employer’s place of business.
  • They must not be receiving a tax-free allowance.

If an employee meets these conditions, the expenses are deductible to the extent of commission income. If the expenses exceed income, you lose the excess and cannot carry it forward. Below, I have included a table to help you understand what expenses are available to employees. For more information, please visit the CRA’s website on commission employees.

Expenses allowed

Expense  Regular Employee Commission employee
Advertising  NO YES  
Promotion  NO  YES  
Telephone  NO  YES  
Parking NO  YES   
Automobile YES    YES  
Supplies NO  YES   
 Professional fees NO YES 
 Home office(1) YES   YES 
Meals and entertainment  NO  YES  
Professional dues   YES   YES   
Union dues  YES   YES  
Supplies consumed  YES   YES  
 Travel YES    YES   

(1) mortgage interest is not allowed

Do you receive a car allowance from your employer? Please visit our resource: Do I have to include a car allowance that I receive from my employer in my income?

Home office expenses

You can deduct home office expenses if your employer required you to provide your own workspace in your home, and you pass one of the following tests.

  • Your workspace in your home is the principal place of your employment (i.e. you work more than 50% of the time from your home office).
  • You use the workspace in your home only for employment purposes. You use it on a regular or continuous basis for meeting clients (i.e. the workspace is not for personal use).

If you meet the rules to deduct home office expenses, you must prorate the expenses related to your home office between the use for employment and personal purposes. You will need to find out the total square footage of the home, and the square footage of the home office, and use this ratio to prorate the expenses. There is a difference in which expenses you can deduct, depending on your employment status. See the chart below for details.

Expense Regular Employee Commission employee
Utilities YES  YES 
Repairs and maintenance YES  YES
Insurance NO YES 
Property taxes NO  YES
Mortgage interest NO  NO 
CCA depreciation NO  NO 

As an employee, you work hard for your money. Let us show you how to save.

This ends our discussion on the nature of employee expenses and their deductibility under the Income Tax Act. Because this topic is beyond the scope of one article, I suggest you speak to a qualified taxation expert to discuss tax planning tactics that you can use in your specific situation. For more information on employee expenses, please visit TaxTips: Employment Expenses or the CRA: Line 229 – Other employment expenses

Disclaimer

The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.

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