Do your employees occasionally work from home, use their personal cars, or otherwise pay for other unreimbursed expenses as part of their job duties? Your employees may be able to deduct those employment expenses. But they can’t claim those expenses as tax deductions unless you, as their employer, complete Form T2200 Declaration of Conditions of Employment. Filling out the form correctly helps your loyal employees take advantage of those deductions to cut down on their personal tax obligations.
Employee and Employer Obligations
Certain employees, often those who get paid on a commission basis, can claim deductions for expenses they incur as part of their employment. Deducting those expenses on their returns with Form T777 – Statement of Employment Expenses is the responsibility of the employee. Per the Income Tax Act, employees who qualify for the deduction must have their employer provide a declaration of their conditions of employment. The form doesn’t have to go with the employee’s tax return, but it does need to be on file with the Canada Revenue Agency (CRA).
As an employer, you’re responsible for completing the form truthfully and returning it to your employee. It’s a good idea to keep a copy of your files. You need to complete the form each year your employee wants to claim the deductions.
Content of Form T2200
The first part of the form contains basic information about the employee, such as address, social insurance number, and job title. From there, the form asks several questions about the employee’s day-to-day conditions of employment. These questions help determine which deductions the employee qualifies for based on their type of employment.
The questions appear in different sections relating to common issues. First, the form contains a generic question about whether your employee’s contract requires them to pay their own expenses while carrying out the duties of employment. If you answer “no” to this first question, then the employee isn’t entitled to any deductions. If you answer “yes,” the next sections ask you to provide further details.
The next set of questions deals with employees whom you require to travel to locations away from your principal place of business and how often they’re out of town on business. The form also asks you to provide the amount, if any, of the employee’s motor vehicle allowance or whether they have access to a company vehicle. Additional questions ask about the type of employment. The questions include things such as:
- Does this employee work on commission?
- Does the person work from home?
- Is the employee a tradesperson?
- Does the employee supply tools for the job?
Finalizing the Document
Once you’ve completed the form, you have to sign and date it. As an employer, you must also certify that the information provided on this form is, to the best of your knowledge, correct and complete. Both you and your employee face penalties for any false statements, so make sure the answers you give are as accurate as possible and supported by documentation, such as a written contract of employment.
Just like you want to save as much money as possible on your business taxes, your employees want to deduct as much as possible to minimize their tax obligations. Filling out Form T2200 helps your employees maximize their tax deductions for unreimbursed employment expenses. QuickBooks Online can help you maximize your tax deductions. Keep more of what you earn.