Section 5 – Employees
Employees can only deduct expenses specified in the Act in computing their employment income. In general, employees may claim expenses if the employment contract requires them to pay their own expenses, if they are usually required to work away from their employer’s place of business, and if they do not receive a non-taxable allowance for travelling expenses. The employer must certify that the employee’s working conditions enable him/her to deduct certain expenses.
Commissioned salespersons may deduct all of their expenses (except capital expenditures, professional dues and memberships in sports or leisure associations) up to the amount of the commissions received. The limit does not apply to depreciation and interest for an automobile.
An employee required to work away from the employer’s establishment may deduct motor vehicle expenses if such expenses have to be paid by him/her under the terms of his/her employment contract and he/she does not receive a non-taxable allowance in respect thereof (see point 3 of this section). Therefore, only the expenses incurred in connection with the employment are deductible. The use of a vehicle to travel from home to work usually constitutes personal use.
Calculation of Deduction
The maximum amounts eligible for capital cost allowance, interest and lease costs are as follows:
|Capital cost||Interest||Monthly leasing costs|
$30,000 + tax18
The lesser of:
The deduction is calculated in the following manner:
((Operating costs19 + Depreciation + Interest) × (Employment km ÷ Total km))
((Operating costs19 + Leasing costs) × (Employment km ÷ Total km))
The capital cost allowance rate for a motor vehicle is 30%. There are also certain specific rules that apply to the capital cost allowance calculation in the first and last years the motor vehicle is used depending on whether the capital cost before taxes is greater than the limit mentioned in the previous table.
If you claim automobile expenses, keep a log for each vehicle used for business.
18 $34,493 in Quebec, $33,900 in Ontario and $34,500 in New Brunswick.
19 Gas, oil, maintenance, repairs, insurance, licence, registration.
Employees who are required to travel in the performance of their duties may deduct reasonable travel expenses (airline, bus, train or taxi fares), lodging (hotel) and food.
However, food costs are only deductible if the employee is required to be away for a period of at least 12 hours from the municipality where he/she normally works. The maximum deduction is equal to 50% of the amount paid or the amount that is considered reasonable under the circumstances. The limitation does not apply if the meals are included in the cost of the ticket (airplane, train and bus). Parking costs, insofar as they are not paid for parking at the employer’s establishment (daily or monthly), are deductible.
Commission employees can deduct the entertainment expenses paid to earn income. In general, the deduction is limited to 50% of the amount paid in this respect (see Section VI). Commission employees in Quebec do not have to respect the requirement of being away for a period of at least 12 hours to be able to deduct the costs of their meals with clients.
Transportation industry employees do not have to comply with the aforementioned 12-hour requirement, as long as they usually travel such a distance and for such a duration that they are required to spend the night away from the municipality.
For purposes of the deduction for meal expenses, a simplified method that requires no receipts is available. Accordingly, such employees can claim a deduction based on a fixed rate of $17 per meal. Employees who travel to the United States can deduct the Canadian dollar equivalent of US$17 per meal. Also, when the employer provides facilities to a work team to cook, for example in a train, each individual can claim $34 maximum per day to purchase provisions.
For federal purposes, the number of meals is limited to one meal every four hours up to a maximum of three meals per day. For Quebec purposes, the number of meals is limited, based on the hours the taxpayer is away:
- From 4 to 10 hours: 1 meal;
- More than 10 hours but less than 12 hours: 2 meals;
- From 12 to 24 hours: 3 meals;
- More than 24 hours: 1 meal every 4 hours, up to a maximum of 3 meals per day.
Taxpayers can still continue to use the detailed method and keep receipts. The employee can deduct 50% of this fixed rate or 50% of the actual costs incurred, depending on the method used. The deductible portion of food and beverages consumed by long-haul truck drivers is 80% (see Section VI).
Employees are allowed to deduct the cost of supplies they are required to pay under their employment contract and that are required for their work and cannot be reused – paper, pencils, pens, paper clips, stamps, telephone directories, listings, fax expenses, long distance calls. Such costs do not include basic telephone service, cellular phone start-up costs, or the costs for computers or similar equipment. Interest on funds borrowed to acquire this type of equipment, depreciation and the cost of uniforms and tools are not deductible.
A deduction is available for leasing costs relating to a computer, cellular telephone, fax machine or other similar equipment, as well as the costs of calls made on a cellular telephone in order to earn commission income.
As a commissioned employee, you should lease computer equipment instead of buying it, since lease expenses are deductible while the depreciation and interest costs are not.
Teachers and Early Childhood Educators
For federal purposes, teachers and early childhood educators are entitled to a 15% refundable tax credit based on an amount of up to $1,000 of expenses incurred during a taxation year for the purchase of eligible teaching supplies, as certified by the employer in a written statement.
For federal purposes, teachers can also deduct the cost of supplies not eligible for the credit that they purchase in connection with their duties to the extent it can be demonstrated that the acquisition of the supplies is an express or implicit condition of their employment contract and that it was understood by the employer and the employee that the employee was required to pay these expenses.
Cost of Tools for Tradespersons
Tradespersons can deduct up to $500 per year for the cost of new tools acquired as a condition of their employment. The first $1,195 ($1,160 in Quebec) of such costs is not deductible.20
A salaried hairdresser can deduct expenses for the use of products (shampoo, conditioner, etc.) insofar as the employment contract requires that he/she provides them. Employees in this industry could also be recognized as tradespeople for the purposes of tradespeople’s tool expenses for the purchase of a hair dryer or curling tongs, for instance.
Employees Working in Forestry Operations
An employee working in a forestry operation may deduct expenses incurred for the use of a power saw or brush cutter, if the conditions of employment require that he/she provides and maintains these tools and is not reimbursed therefor. In general, expenses include the cost of equipment, fuel, repairs, leasing costs, interest and insurance premiums. Expenses incurred for clothing or shoes acquired to protect the employee from job-related dangers are not deductible. However, allowances paid by an employer to acquire such clothing and shoes are generally not taxable.
20 2018 amounts, indexed annually.
Employed musicians can deduct expenses related to the use of their instrument to the extent they do not exceed the net employment income earned for the year as a musician. Eligible expenses include maintenance or lease costs, insurance premiums and capital cost allowance (Class 8 – 20%) on purchased instruments.
For federal purposes, artists may deduct their expenses in accordance with the rules for salaried employees or treat such expenses as expenses of an employed artist and deduct the expenses incurred to earn employment income from an eligible artistic activity up to the lesser of $1,000 or 20% of employment income from that activity.
Taxi drivers may benefit from a refundable tax credit, under certain conditions (see Section VI)
Office expenses are deductible if the employment contract requires the employee to have an office and pay the costs thereof. However, expenses related to the use of an office at home may only be deducted if:
- The workspace is where the taxpayer mainly does his/her work; or
- The workspace is used exclusively to earn employment income and used on a regular and continuous basis to meet clients and customers.
Reasonable maintenance, electricity and heating costs relating to the office (i.e. based on prorata portion of the space occupied) may be deducted. Property taxes, insurance premiums, mortgage interest and capital cost allowance may not be deducted. However, commission employees may deduct a portion of the property taxes and insurance premiums relating to the office. If the employee rents a residence, the portion of the rent for the area used as an office may be deducted. While the amounts cannot be greater than the employment income to which they relate, expenses that cannot be deducted in a year may be carried forward indefinitely.
The following table summarizes the tax treatment for the employee of professional and union dues:
CONTRIBUTIONS PAID BY EMPLOYER
CONTRIBUTIONS PAID BY EMPLOYEE
Amounts paid for liability insurance required to maintain professional status are deductible.
21 Rate of 10%.
22 Insofar as the employee is entitled to a GST/HST and QST refund.
When an individual moves within Canada to take up a new job (including a summer job) or to operate a business, he/she may deduct eligible moving expenses incurred to move from the former residence, providing he/she moves at least 40 kilometres closer to the new place of work. Moving expenses incurred abroad may also be deducted if the individual is deemed to be a resident of Canada for tax purposes. In every case, the total deduction for moving expenses is limited annually to the employment income earned in the new work location. Any excess may be carried forward to subsequent years.
Eligible expenses include moving expenses, meals and lodging for the individual and his/her family, costs for moving furniture, costs related to leaving a residence and certain expenses for the acquisition of a new one. Moving expenses include the costs of maintaining a former residence that has been left vacant. These expenses include mortgage interest, property taxes, insurance premiums, heating and electricity, up to $5,000.
In calculating moving expenses, a taxpayer may elect to use a simplified method requiring no receipts. The method allows the taxpayer to claim a fixed rate of $17 per meal per person up to $51 per day, while moving his/her family to the new residence and to deduct $0.505 for every kilometre travelled from Quebec ($0.555 for Ontario and $0.505 for New Brunswick) for the use of a vehicle to get there.23 A taxpayer may of course continue to use the detailed method and retain receipts.
Certain moving expenses paid by employers on behalf of employees are taxable benefits. However, the first $15,000 paid to an employee (or a related individual) to offset an actual loss incurred on the sale of a former residence in connection with an eligible relocation is non-taxable. Only half of the amount paid to an employee in addition to this amount is taxable.
Additionally, an interest-free loan granted directly or indirectly to an employee to purchase a new home following a move confers a taxable benefit on the employee except for home relocation loans (see point 1 of this section), whereas some allowances paid by the employer are not taxable (see point 3 of this section).
23 Amounts for 2017. 2018 amounts will be available in January 2019. For updated rates and amounts, refer to the CRA Internet site at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-255-northern-residents-deductions/meal-vehicle-rates-used-calculate-travel-expenses.html.
Taxpayers may generally deduct legal fees paid in the year to collect salary owing or to establish their right thereto even if they have not yet collected the amount. Employees are also entitled to deduct expenses paid to collect or establish the right to a retiring allowance or a pension benefit.
This document has been updated on August 31st, 2018 and reflects the state of the Law, including draft amendments, at that date.