In most cases, you can’t deduct employment expenses on your tax return. The Canada Revenue Agency (CRA) expects employees to pay for items such as transportation to and from work or a business suit to wear at the office.
In some cases, however, an employee may have job conditions or out-of-pocket expenses that aren’t reimbursed by the employer. When expenses of this nature exist and your employer declares that you are responsible for payment, you may be able to deduct them from your income, thus lowering you tax burden.
Employee Rules and Exceptions
“According to the CRA, most Canadians working as employees cannot deduct employment expenses,” says Heidi Mettler, certified financial planner and consultant with Investors Group in London, Ontario.
“The CRA defines an employee as a person who is paid to work and for whom the payee deducts Canada pension plan contributions, employment insurance premiums and income tax from pay and other benefits.”
However, a wide variety of employment arrangements exist, and there are situations where people recognized as employees by the CRA can deduct employment costs when meeting certain conditions.
These expenses usually are similar to those claimed by a self-employed person, though the employed person’s claims are fewer and more limited by the CRA.
Conditions of Employment
- As an employee, when you have expenses to deduct, the conditions that caused you to spend should meet CRA standards, supported by a form T2200 Declaration of Conditions of Employment completed by your employer. If you have more than one employer, each one has to sign a separate form.
- Form T2200 covers situations creating allowable employment expenses such as home-based employment, commission payment structures and trade and mechanic apprenticeships. Your employer outlines expenses that you are expected to pay and those for which you will be reimbursed, including car allowance, supplies and rented office space.
- The employee is not required to submit form T2200 with a tax return, but the completed form should be retained with tax records for the applicable year.
When your employer’s declaration on form T2200 supports your claim for employment deductions, declare these expenses on line 229 of your tax return, supported by form T777, the Statement of Employment Expenses.
This form guides you through all allowable employment expenses, though eligibility for each depends on the conditions of employment declared on form T2200.
The CRA’s tax guide T4044 provides comprehensive information to assist you when completing form T777. The chapters listed on T777 correspond to the chapters in the T4044 guide.
Unlike form T2200, form T777 is included with your tax return and should be part of any e-filing tax preparation software. Keep receipts and other documents to support expenses claimed on line 229 in keeping with CRA records retention guidelines.
Moving expenses also may be claimed if your new home is at least 40 kilometres closer to a new place of business, whether it is a new job or a new location for an existing job. As with conventional employment expenses, you can’t deduct any expenses for which you are reimbursed.
References & Resources
- Heidi Mettler, CFP; Investors Group; London, Ontario
- Canada Revenue Agency: Line 229 – Other Employment Expenses
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