Saving Receipts: Deductions for Non-Commissioned Employees

Marco Iampieri, B.A., JD, M.B.A.

Do you know someone who is a commissioned employee? Do they know that they have more deductions available to them than a non-commissioned employee?  Professionals from the tax accounting and financial services industries would add big value to the relationship with these clients before year end, in helping them decipher the difference in write-offs and making sure they gather documentation.  Here is what's important when discussing the deductions for employees.

Both commissioned employees and non-commissioned employees have deductions available to them under the Income Tax Act. These deductions may be used to double-dip tax savings with regards to income splitting opportunities with family members, and a corresponding deduction from employment income reducing their tax payable.

Deductions for Non-Commissioned Employee Employment Income

For a non-commissioned employee, there are many write-offs an employee can deduct from employment income when reporting their T1 Canadian General Income Tax and Benefit return. Many of the following deductions are technical in nature, and a taxpayer’s particular factual circumstance should be reviewed prior to deducting the expenses from employment income to ensure compliance with the Income Tax Act.  For these purposes, they are itemized in categories:

For Travel Costs:

  • Expenses incurred by railway employees for meals and lodging when away from the taxpayer’s ordinary place of residence, municipality and metropolitan area;
  • Expenses incurred by employees of a transport company for meals and lodging, which were incurred away from the employer’s establishment and metropolitan area (form TL2)
  • Non-motor vehicle travel expenses;
  • Motor vehicle travel expenses;
  • Motor vehicle and aircraft costs;

Professional Fees:

  • Teachers’ exchange fund contribution;
  • Annual professional membership dues;
  • Dues to a professions board;
  • Union annual dues;
  • Legal expenses of an employee incurred for hiring an employment lawyer to collect or establish a right to employment income;

Work Environment:

  • Office rent;
  • Work space in home deduction
  • Clergy residence deductions;
  • Cost of supplies that were consumed directly in the performance of the employment;
  • Musical instrument costs when the taxpayer was employed as a musician;
  • Artists’ employment expenses;
  • Apprentice mechanic’s tool costs;
  • Deductions for tradesperson’s tools;

Human Resource and other Costs:

  • Salary paid to an assistant; but not amounts paid to a subcontractor
  • C.P.P. contributions and Unemployment Insurance Act Premiums paid in respect of salary, wages or other remuneration paid to an individual employed by the taxpayer as an assistant or substitute;
  • Quebec parental insurance plan amounts payable in respect of salary, wages or other remuneration paid to an individual employed by the taxpayer as an assistant or substitute;
  • Pension plan contributions;
  • Retirement compensation arrangement contributions;
  • Forfeiture of securities by employee

It is important to note that many of these deductions require the contract of employment between the employee and the employer to require the employee to incur the deductible expenses. This is verified on form T2200 Declaration of Conditions of Employment and itemized on Form T777 Statement of Employment Expenses.  Further, many of these deductions require the employee not to otherwise be reimbursed and not be entitled to a reimbursement in respect of the expense.

There are several exceptions, as well.  Teachers, of course, can also claim the refundable Eligible Educator School Supply Tax Credit, which provides tax relief of 15% of up to $1000 in out-of-pocket supply costs.  It is expected this will increase to 25% in 2022 based on Liberal Election Promises.  In addition, technology supplies are expected to be allowed.

For teachers, verification rules are slightly different, as well.  CRA may request a written certificate from employers (or a principal of a school or manager of a child care facility) to attest to the eligibility of the expenses, as opposed to a signed Form T2200. 

Unreceipted claims for home workspace deductions under the simplified method (maximum $400 in 2020 and 2021) are another example for which the T2200 form can be avoided.

One should review the provisions under s. 8 of the Income Tax Act when reporting their T1 Canadian General Income Tax and Benefit return, as well as the CRA publications on administering the income tax law regarding deductible expenses incurred during employment.

Next time:  Tax Write-Offs for Employees:  Writing Off Assistant’s Costs