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:
Human Resource and other Costs:
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