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 annual Canada Revenue Agency (CRA) tax returns. To help your employees, educate them about these deductions and make sure you file all the right forms as an employer.
Educating Employees About Expenses
Since employees must keep immaculate records to claim deductions just like your small business, it helps to make them aware of available deductions and their requirements. You can do this by on-boarding them with a training class when they enter your employ. For existing employees and as a refresher for new ones, you can setup an employees-only section on your company website with all the details they need to figure out what they can claim. You can also use this section to link to forms they need to complete and relevant sections on the CRA website.
Available Employee Expense Deductions
Employees who earn employment income by using their personal property can deduct a number of expenses from their income. In some cases, your employees can also claim a GST/HST rebate. Eligibility requires the expense to be mandatory for employment and not reimbursed by the employer. The law makes a distinction between salaried employees and commission employees when calculating the deduction. Additionally, special rules apply to transportation employees, employees working in forestry operations, artists, and tradespeople.
While every employee’s situation differs, their most common expenses eligible for a deduction include:
- Accounting and legal fees
- Advertising and promotion
- Motor vehicle expenses
- Special clothing and tools
- Insurance premium
- Computers, mobile phones, and related equipment
- Office rent
- Training costs
Your employees can also claim an expense deduction for a workspace in their homes if they perform more than 50% of their work at home and only use that space to work for a small business. If they earn commission income, your employees can deduct the full amount of travel fare, including airfare and bus or train tickets. They can also claim 50% of food, beverage, and entertainment expenses, and if they pay workers to help them with their jobs, they can also deduct those salaries. Note that employees can’t deduct motor vehicle expenses for travel from their home to your company’s offices.
How Salaried Employees Can Claim Employment Expenses
Employees and employers must complete three key forms to claim a deduction for job-related expenses. These include:
- Form T777, Statement of Employment Expenses
- Form T2200, Declaration of Conditions of Employment
- GST370, Employee and Partner GST/HST Rebate Application
First, your employees must complete Form T777. This form sets out in detail the expenses the employee wants to deduct. Employees also have a responsibility to keep detailed books and records proving the expenses incurred in the case of a CRA audit. Second, you, the employer, must complete and sign Form T2200. This form provides space to explain how employees incur certain expenses as part of their jobs with your company. You give your employees a signed original of this form and keep a copy for your records. Finally, your employees can claim a GST/HST rebate on the taxes paid on job-related expenses with Form GST370.
Knowing the ins and outs of tax deductions can save your small company and its employees a lot of money. Tracking expenses as they occur throughout the year to back up your tax deductions proves simple with accounting software such as QuickBooks Online. QuickBooks can help you maximize your tax deductions. Keep more of what you earn today.