Deductions: Employment Expenses and Their Impact on Your Taxes
- Rylan Kaliel
- Apr 30
- 5 min read
Employment expenses can significantly reduce your taxable income, thereby lowering your overall tax liability. In Canada, various employment-related expenses can be claimed as deductions if specific conditions are met. This blog explores the key deductions available to employees, explains eligibility requirements, and offers practical tips to optimize your tax savings.
What Are Employment Expense Deductions?
Employment expense deductions are costs employees incur that are directly related to their job and are necessary to fulfill their employment responsibilities. To be eligible for deductions, your employer must require you to pay these expenses, and you must not have been reimbursed by your employer or previously reimbursed.
Eligibility and Form T2200
To claim employment expenses, your employer must provide you with Form T2200, Declaration of Conditions of Employment, confirming that you're required to incur certain work-related expenses. This form does not need to be submitted with your tax return but must be kept for potential CRA review.
Earning Commission vs. Salary Employment
For tax purposes, the deductions available to you may vary depending on whether you are a employee earning a commission (a “commission employee”) or earning a salary (a “salary employee”). The CRA generally differentiates between the two, noting that all the following would be required to be met to be a commission employee:
Under contract of employment, you had to pay your own expenses;
You were normally required to work away from your employer’s place of business;
You were paid in whole or in part by commissions or similar amounts, which were based on the volume of sales made or the contracts negotiated;
You did not receive a non-taxable allowance for travelling expenses; and
You have received, and have in your records, a copy of Form T2200.
Where not all the above conditions are met, the CRA will generally not view you as a commission employee. There may be situations where you may still be a commission employee. As such, it may be worthwhile to review your situation with a tax professional to correctly determine what type of an employee you are.
Common Employment Expense Deductions (Form T777)
Employment expenses are reported using Form T777, Statement of Employment Expenses. Some common deductible employment expenses include:
Home Office Expenses: Portion of rent, utilities, internet, maintenance, and home insurance (if required by employer).
Vehicle Expenses: Costs related to business travel, including fuel, maintenance, repairs, insurance, registration fees, and leasing expenses.
Professional Fees and Dues: Annual fees paid to professional associations or regulatory bodies required for your job.
Supplies: Office supplies, stationery, and other materials consumed directly in your job.
Accounting and Legal Fees: For commission employees, accounting fees paid to complete and file your income tax and benefit return. For salary employees, accounting fees paid in the year to assist in the collection of employment income. For both types of employment, legal fees paid in the year to assist in the collection of employment income.
Advertising and Promotion: For commission employees only, amounts paid for advertising and promotion, including amounts you paid for business cards, promotional gifts, and advertisements.
Meals and Entertainment: For commission employees only, meals consumed while conducting business away from your employer’s place of business, typically at 50% deductibility.
Lodging: For commission employees only, lodging expenses if your work conditions require you to travel away from your employer’s place of business and you pay your own lodging expenses.
Other: May include amounts such as salaries paid, office rent, computers and cellphones, and a variety of others based on your employment situation.
As was previously noted, the type of deductions available to you is dependent on whether you are a commission or salary employee. The below table intends to give you a quick glance at what may be available in either situation.
There may be exceptions to the above. As such, it is recommended that a review of your employment expenses be reviewed by a tax professional to ensure you are getting the most out of your expenses.
Vehicle Expenses
If you're required to use your vehicle for work (not commuting), you may deduct expenses such as:
Fuel or electricity costs and maintenance
Insurance premiums
Lease payments (or tax depreciation (CCA) if you own the vehicle)
Interest on money borrowed to buy a motor vehicle
License and registration fees
You must keep detailed records, including a logbook tracking kilometers driven for employment purposes compared to total kilometers driven in the year. More details on this in an upcoming blog.
Home Office Expenses
To claim home office expenses, you must meet the following criteria:
Your employer required you to work from home
You were required to pay for expenses related to the workspace in your home
One of the following apply:
You worked more than 50% of the time from the workspace in your home for a period of at least 4 consecutive weeks in the year; or
You only use your workspace to earn employment income and you use it regularly or continually for in-person meetings.
You may deduct a portion of expenses such as rent, utilities, home insurance, and maintenance, based on the square footage of your workspace relative to your home’s total area. More details on this in an upcoming blog.
Meals and Entertainment
Meals and entertainment expenses related to employment duties can be deducted at 50% of the total cost. To qualify, these expenses must be directly related to earning employment income, such as meals with clients.
Recap on How Deductions Work
As was discussed in our Basics of Individual Taxation blog, employment deductions are calculated based on your marginal tax rate. Taking an example from this blog, imagine we had two persons, Person A with an income of $15,000 and Person B has an income of $400,000. Both persons get a $100 tax deduction. The value of this deduction will be different, as Person B has a higher marginal tax rate. See the table below for an illustration of this.
As can be seen, Person B, having a marginal tax rate of 48% gets $25, or 25%, more of a deduction than Person A. As such, the more income you earn the more valuable these deductions are to you.
Limitations and Exclusions
Certain expenses may not be deductible, including:
Clothing or uniforms that are not specific safety or protective gear.
Personal commuting expenses to your regular place of employment.
Personal or living expenses unrelated to your job.
Understanding these limitations helps you avoid common errors in expense claims. For a review of these expenses and their respective deductibility, it is recommended that you discuss these with a tax professional.
Documentation and Record-Keeping
Proper record-keeping is essential to substantiate your employment expense claims, including:
Receipts and invoices for all claimed expenses.
Logbooks tracking vehicle use (for vehicle expenses).
Detailed calculations of home office space and related expenses.
Keeping accurate records is critical for supporting your claims during potential CRA reviews or audits.
Tips for Maximizing Employment Expense Deductions
To effectively manage and maximize employment deductions:
Obtain a signed Form T2200 annually from your employer.
Maintain detailed and organized records throughout the year.
Clearly differentiate personal and employment expenses.
Consult with a tax professional to ensure you're maximizing your deductions while remaining compliant.
Common Pitfalls to Avoid
Common mistakes taxpayers make include:
Claiming expenses without employer authorization (no T2200).
Overestimating eligible expenses, especially for home office and vehicle use.
Insufficient documentation for claimed expenses.
Avoid these pitfalls by carefully documenting expenses and consulting a tax professional when uncertain.
Summary
Understanding and properly claiming employment expense deductions can significantly reduce your taxes and enhance your overall financial situation. Keeping accurate records and clearly understanding eligibility requirements and limitations helps you fully benefit from these tax-saving opportunities.
Stay tuned for our next blog, where we'll explore self-employment deductions and how they differ from employment expense deductions. KLV Accounting is here to help. Contact us today to enhance your financial strategy and drive business success!
For a free consultation, call us at 403-679-3772 or email us at info@klvaccounting.ca.
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