If you have employees and you require them to use a home office, buy their own equipment, drive their own car, or incur similar expenses, they may be able to claim a deduction on their tax return. To help your employees, you should educate them about these deductions and make sure that you have filed all the right forms as an employer.
Available Deductions For Employees
Employees that are required to pay expenses to earn employment income can deduct a number of expenses from this income. In some cases, they can also claim a GST/HST rebate. The two key elements for eligibility to this deduction is that the expense must be mandatory as part of their employment and not reimbursed by the employer.
The law makes a distinction between salaried employees and commission employees when calculating the deduction. Furthermore, there are special rules applicable to the following types of employees — transportation employees, employees working in forestry operations, artists, and tradespeople.
While every employee’s situation differs, the following elements are the most commonly available deductions:
- Accounting and legal fees
- Advertising and promotion
- Motor vehicle expenses
- Food, beverages, and entertainment expenses (50%)
- Special clothing and tools
- Insurance premium
- Computers, cell phones, and other similar equipment
- Salaries (for example to an assistant)
- Office rent
- Training costs
- Travel expenses — you can deduct the full amount you paid for travel fare, such as your airline, bus, or train ticket, as long as you paid it only to earn commission income.
Employees can also deduct an amount for a work space in their home if the space is where they perform more than 50% of their work and the space is dedicated solely to earning employment income.
Note that employees can never deduct motor vehicle expenses for travel from their home to their place of work.
How to Claim the Deductions
There are three key forms that must be completed and filed by the employee and employer to claim a deduction for job-related expenses.
First, the employee must complete Form T777, Statement of Employment Expenses. This form sets out in detail the expenses that the employee is seeking to deduct. It is also the employee’s responsibility to keep detailed books and records proving the expenses incurred in case the Canada Revenue Agency decides to audit him.
Second, the employer must complete and sign Form T2200, Declaration of Conditions of Employment. This is where the employer explains how the employee is obligated to incur certain expenses as part of his job. As an employer, you should give the employee a signed original of this form and keep a copy for your records.
Finally, Form GST370, Employee and Partner GST/HST Rebate Application is used by the employee to claim a GST/HST rebate on the taxes paid on job-related expenses.