Tax Tip: Can Employees Claim the Cost of an Assistant?

Evelyn Jacks

The short answer is yes, employees can write off the cost of hiring an assistant if required to perform their employment duties, as verified by their contract of employment and a signed form T2200 Declaration of Employment Conditions by the employer.  Here are the details you need to know:

What Expenses Can Be Claimed?  When you hire and pay an assistant to help you perform your duties of employment there are special rules to observe:  

• You can pay salary to an assistant; but not amounts paid to a subcontractor, unless you are also earning commissions
• Canada Pension Plan contributions, Quebec parental insurance plan amounts and Unemployment Insurance premiums paid 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 the employee

Family Tax Planning.  It’s worth noting that few employees consider writing off the costs of hiring an assistant.   In fact, the ability to hire an assistant who may be a family member provides the employee with an income splitting opportunity to reduce the net family tax burden.  This could be the employee’s partner, child or other family member, provided the amounts paid are reasonable for work actually required and done.  It is also, of course, possible to hire a non-related person.

Reasonable pay for any family members for the duties performed must also be justified:  there should be a written employment agreement, and statutory deductions such as the Canada Pension Plan and Employment Insurance must be accounted for and remitted.  The employer portion of those costs are deductible, too.

The Contract of Employment.  When an employee writes off employment deductions, including the cost of an assistant, the employee must incur the expenses under the contract of employment between the employee and the employer. If you are an employee of your own corporation, this holds true as well.  Further, many of these deductions require the employee not to otherwise be reimbursed and/or to be entitled to a reimbursement in respect of the expense, and this must be verifiable.

The Bottom Line.  An employer’s understanding of the tax rules comes in handy when entering into employment contract negotiations.  Understanding that the employee will gain a tax deduction for unreimbursed out-of-pocket expenses is a consideration in budgeting your human resource costs.   You will also want to check in with your accounting department to ensure all the backup documentation is available – Form T2200, the TD1 forms (federal and provincial) and form T1213  to minimize tax withholdings.  Finally, you will want to double-check whether there was any reimbursement to properly sign off on the forms and that employment contracts, verified trip logs and receipting is in place, as required.    

Additional Educational Resources:  Evergreen Explanatory Notes.  A perfect resource guide for employers, there are more than 800 tax topics about personal, corporate and GST/HST tax obligations at your fingertips – written in layman’s terms – all with handy case study examples and links to all of CRA’s forms and publications.  Only $65 per month when you subscribe to a 3-month subscription.