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Deductions From Employment Income

If you receive a T4 slip and most of your income is from employment, there are few deductions available beyond RRSP’s. If you are using tax software and have employment expenses or have rental or investment income, TurboTax Premier [1] is your best choice.

Businesses are allowed more deductions than employees. This is because businesses incur their expenses to earn income. Few employees are required to incur expenses directly in order to earn employment income and the income tax act places limits on the types of deduction available. However, under certain conditions, some expenses may be deducted from employment income.

Salesperson Expenses

Salespeople who are paid on commission may deduct certain expenses paid to earn commission income, including travel, automobile, and other types of expenses. The expenses claimed must be reasonable but there are no deductions available for capital purchases (equipment or property) with the exception of aircraft and automobiles.

To deduct salesperson expenses you must meet all of the following criteria:

  1. You are required by your employer to pay your own expenses.
  2. You are normally required to work away from your employer’s place of business.
  3. You are paid fully or partially by commission.
  4. You did not receive an expense allowance that was included in your income.
  5. You retain a copy of Form T2200, Declaration of Conditions of Employment, which has been completed and signed by your employer.

Other Limits on Salesperson Expenses

Meals may only be deducted if you were away from your home community or metropolitan area for a period of 12 hours or more.

The Canadian income tax act only allows you claim deductions against commission income and as such a non-capital loss is not allowed and any loss incurred cannot be used to reduce other income. However, there is an alternative if commission expenses exceed commission income: Claim only for automobile expenses and travel under separate provisions of the Canadian income tax act which permit non-capital losses to be deducted against other forms of income.

Expenses Permitted as Salesperson Expenses

Expenses Excluded as Salesperson Expenses

Travel & Meal Expenses

If you are required by your employment contract to travel for business and did not receive a reimbursement from your employer for travel, you can make a claim for travel and meal expenses under this provision of the Canadian income tax act.

If you do receive an allowance that does not cover your travel expenses, you have the option of including the allowance in your income for the year and making a subsequent claim for actual expenses. It is advisable that you contact a financial professional to help you determine the best alternative in your case.

Automobile and Aircraft Expenses

If you are required to work away from your employers place of business, were required to pay your own motor vehicle expenses related to your work, and did not receive a reimbursement or allowance, you may claim these expenses under a separate provision of the Canadian income tax act.

Allowable expenses under this provision of the Canadian income tax act include operating expenses, capital cost allowance (an annual percentage of the vehicle cost with limits), and interest paid on funds borrowed to acquire the automobile.

As with travel and meal expenses, if you do receive an allowance that does not cover your automobile or aircraft expenses, you have the option of including the allowance in your income for the year and making a subsequent claim for actual expenses. It is advisable that you contact a financial professional to help you determine the best alternative in your case.

Home Office Expenses

If you are required by your employer to work from home and cover all of the costs associated with maintaining an office at home, then you may be able to deduct your home office expenses. To claim work at home expenses, the space must be either be:

The total amount of expenses that you can deduct is limited to your employment income. You should also complete a T2200, Declaration of Conditions of Employment [2] and have it signed by your employer.

The expenses allowed under this provision include the proportional cost of utilities, household sundries (i.e. light bulbs & cleaning supplies), rent if the property is rented, property insurance and property tax. However, mortgage interest and capital cost allowance [3] may not be deducted.

You will need to complete a T777, Statement of Employment Expenses [4] to calculate your employment proportion of your home office expenses.

Other Employment Expenses

The Canadian income tax act allows a number of other expenses to be deducted from employment income:

Uniforms & Footwear

These costs are not deductible from employment income. If your employer supplied or reimbursed you for the costs of a special uniform, the cost will not be a taxable benefit if the clothing and footwear is designed to protect you from workplace hazards.

If you were given an allowance to acquire special uniforms and footwear the allowance is not taxable if:

What Tax Software Should You use?

If your primary income is from employment and includes taxable benefits, TurboTax Standard [5] is your best choice. However, if you have rental or investment income, you should be using TurboTax Premier Edition [1].

Looking For Professional Help?

If you’re looking for advice or tax planning services, you can contact me [6] directly through my professional tax practice [6].

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