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Banka: Tax deduction possibilities for employees who work at home
When you attend a presentation of any sort, the technique to get the ball rolling or to stop the audience from falling asleep is to ask a question and get some audience interaction.
So with it being tax season, I would like to ask, “How many of you are employed and do work on the road or from home?”
The trend several years ago was toward setting up satellite offices in the homes of employees so that they might be able to work from home when dealing with family issues such as a new baby or an aging parent, taking away the time that it takes to commute back and forth, to and from the office
Today, many meetings are done via on-line Internet so you no longer need to fly to Toronto for a day to have a meeting.
There are many training resources (webinars) that are also available on-line.
In my profession, I am required to maintain my professional development and keep up with the changes happening in the accounting and tax worlds.
So, I participate in many online webinars provided by the CGA as well as other organizations, and I am also able to share this with my staff so that they can grow to become better educated employees and better help my clients.
From a tax perspective, I am asked, “What can I deduct if working outside the office costs me money?”
The first step is to make your employer aware of the costs you are incurring.
Your employer has the option of reimbursing you for the costs or filling out a T2200-Declarations of Conditions of Employment.
This form indicates to CRA that the employer agrees to the additional costs that you are going to deduct from your employment income.
This form does not need to be submitted to the CRA, but does need to be kept on file with the tax return filed for the six-year time period.
The next step is to keep good records and to keep your receipts. You need to prove on a daily basis, the amount spent per day. The receipts should indicate the date, supplier and a full description of the supply or service that you purchased.
You need to keep your credit card statements if you used your credit card to pay for expenses and any receipts related to that. If you travel using your vehicle, you need to keep a mileage log distinguishing between travel for business and travel for pleasure. You can keep this information manually, use an Excel spreadsheet or use a computer program such as Simply or Quickbooks; or you can have your accountant or bookkeeper compile it for you for a deductible fee.
Many of these expenses may have been subject to HST, so you may be able to claim back the HST that you paid on these expenses on an annual basis if your employer is an HST registrant.
This is another reason to keep your receipts—so that you can prove your HST claim. The form for this is called GST370 and needs to be submitted with your tax return.
CRA classifies employees into salaried employees, commissioned employees, transport employees, forestry employees, employed artists and employed tradespersons
Generally, the deductions are very similar to those allowed if you were self employed which is why many persons on this arrangement like to go into business for themselves, making it not very attractive to business owners who are interested in retaining staff.
The kinds of expenses that a salaried employee could deduct (subject to some restrictions) are: accounting and legal fees, motor vehicle expenses, travel expenses, parking, supplies, salary to an assistant, rent expense and workspace in the home expenses.
For commissioned employees, add deductions for advertising and promotion; food, beverages and entertainment; lodging; licences; bonding premiums; computer and other equipment and training costs.
For transport employees the deduction for meals and expenses is focused on and there are special forms to calculate this deduction and a choice between a simple method and a detailed method.
For employees in forestry you can deduct the cost and expenses of a power saw.
There are some complex rules for artists who can deduct artist’s employment expenses, travelling expenses and musical instrument expenses (not the instrument itself).
Employed tradespersons (including apprentices) can claim an additional deduction for their tools.
The tricky part of the deduction is figuring out the workspace in the home expenses. In order to qualify for this deduction, you need to meet one of two conditions.
The first condition is that you do 50 per cent of your work there and the other condition is that the space is only used for work and that you meet clients there.
The expenses that you can deduct a portion of based on square footage are: electricity, heating, maintenance, property taxes and home insurance. You cannot deduct mortgage interest or capital cost allowance.
The CRA has recently instituted an audit mandate with respect to checking employment expenses, so it is important that if you are in this situation that you know and understand the rules. The CRA publishes a booklet, T4044 Employment Expenses, that explains the subject in more detail.
Gabriele Banka is a Certified General Accountant and the owner of Banka & Company Inc.