The Fine Print Matters:  New Tax Deductions for Employees

Evelyn Jacks

The April 7, 2022 Federal Budget introduced a new tax deduction for employees which will be in effect starting on January 1, 2022, assuming Royal Assent will be received. With the exception of some simplified filing opportunities, most employee deductions will require receipts and a signed tax form from the employer.  It is expected this will be no different for the new Labour Mobility Deduction. Here are the details to know:

The Paperwork Matters:  if you are an employee of your small business corporation and if you employ others, it’s smart to know about the little-know tax deductions that are available and make sure your payroll and compensation arrangements take these into account.  In particular, when your employees claim unreimbursed, out-of-pocket expenses incurred in fulfilling their contract of employment, employers will be required to sign Form T2200 Declaration of Conditions of Employment.  This form must be kept on hand by the employee in case of a future audit.

The Deductions Available.  There are fewer deductions available to employees in general, then there are for those who are self-employed. Those who earn commissions will be able to deduct more. Your employees may have questions about their out-of-pocket expenses, which should be directed at their tax specialist. However, employers who sign the T2200 forms will want to understand the rules. 

Deductions for Non-Commissioned Employee.  For a non-commissioned employee, here’s what’s available, providing there is proper receipting:

For Travel Costs. Employees can make a claim for the following, provided form T2200 is signed:

• 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; that is, trains, planes and buses as an example
• Motor vehicle and aircraft travel expenses
• Certain fixed costs of owning or leasing motor vehicles and aircraft

New for tax year 2022.  The Labour Mobility Deduction for Tradespeople.  Eligible workers who reside in Canada and are employed in the construction industry as tradespeople and apprentices will be able to deduct up to $4,000 per year for eligible travel, relocation, meals and lodging expenses of they must work at a worksite at least 150 km from their ordinary place of residence for at least 36 hours.   

Professional fees.  Most employees can also claim professional fees in the following instances:

• Annual professional membership dues
• Dues paid to a profession’s board
• Union annual dues
• Teachers’ exchange fund contribution
• In the case of disputes between the employee and employer, legal expenses if they were incurred to hire an employment lawyer to collect or establish a right to employment income

The Home Workspace. This deductibility of home workspace expenditures has undergone some changes due to the pandemic. However, the usual rules are in place for anyone claiming under the “detailed method” and for 2023 forward.     

• The simplified method.  Work space in home deduction (this includes a simplified method using a flat rate of $2 a day up to $500 for tax years 2021 and 2022; the claim was a maximum of $400 in 2020).  Using the detailed method may reap a bigger claim, especially for commissioned employees who can claim property taxes and insurance, while salaried employees only cannot.  Employees can never claim interest on the mortgage or capital cost allowance on the home. 
• The detailed method.  Employees can claim the cost of rent for an out-of-home office or home rent, utilities (electricity, heat, water, condo fees, internet costs, maintenance and repairs including cleaning costs) all in proportion to the use of space and time.  
• Commission sales employees.  These people can also claim home insurance, property taxes, and leasing costs for cell phones, computers/tablets and other electronic equipment used to earn their income.
• Take note:not claimable by employees.Mortgage interest or principal payments, internet connection fees, furniture, wall decorations, capital expenses.

Job Specific Employment Expenses that are deductible include: 

• Cost of supplies that were consumed directly in the performance of the employment duties. Note that there is a separate refundable deduction for teachers:the Eligible Educator School Supplies Tax Credit
• Musical instrument costs when the taxpayer was employed as a musician
• Artists’ employment expenses
• Apprentice mechanic’s tool costs
• Deductions for tradesperson’s tools
• Clergy residence deductions
• Claim for Board and Lodging of long-distance truckers . This is claimed on Form TL2 and requires a distance log.A simplified method for claiming meals enroute is available.

Additional Educational Resources:  Learn and Earn your Certificate of Achievement! 

 Check out the following Professional Certificate Course from Knowledge Bureau:  Professional Income Tax Course – Entry Level. While this course provides professional training to tax specialists, owner-managers may find this knowledge will help them have better conversations with their accountants, lawyers  and financial advisors and thereby make more tax-astute financial decisions.