One of the few “benefits” of the recent pandemic was the public health mandate that required Canadians, including employees, to work from home. Such arrangements relieved employees of the time and financial costs of commuting and, in many ways, contributed to an improved work/life balance.

 

As well as the intangible benefits, working from home enabled employees to claim a deduction for work-from-home costs on their tax return for the year. During the 2020, 2021, and 2022 tax years, in fact, employees who worked from home were able to deduct a specified flat-rate amount from income for tax purposes, with no requirement that they actually incur any work-related costs.

 

Over the past couple of years, however, employers in both the public and private sectors have gradually restricted, or ended, the work-from-home option for their employees. Many such employees will therefore be wondering whether, and to what extent, the ability to deduct work-related costs from income is still available to them now that they are back at the office full-time.

 

As is almost always the case with income taxes, there is no one-size fits-all answer. Unfortunately, however, the starting point of the analysis for all employees is the rule that no deduction can be claimed for employment expenses, except as specifically allowed under the Income Tax Act. (By way of comparison, all reasonable expenses incurred for the purpose of earning income from business are treated as deductible, unless specifically disallowed or restricted under the Income Tax Act.)

 

As well, there are no circumstances in which a deduction can be claimed by an employee for the cost of commuting back and forth to work, or the cost of parking at the employer’s office or the cost of an office wardrobe – such costs are and always have been treated as personal expenses of the employee. Within that framework, however, there are some instances in which our income tax rules provide for the deduction of work-related expenses by employees. Generally, such deductions are allowed where the employee must incur costs related to their employment, and no reimbursement for such costs is provided by the employer. The nature and extent of such deductions depend on how the employee is compensated and whether they work in a specialized industry/sector.

 

Most employees in Canada work for an annual salary or for an hourly wage. Some of the more common deductions which may be incurred and claimed by employees who are compensated in either of those ways are listed below.

 

Automobile and travel expenses

Where an employee is required to work in different locations, or away from their employer’s place of business, a deduction may be available to the employee for the following types of costs, where those costs are paid personally by the employee and no reimbursement or non-taxable allowance is provided by the employer with respect to such costs:

 

costs of operating a motor vehicle (gas, oil, insurance, maintenance costs, leasing costs, etc.) 

travel costs (including lodging and transportation (like plane or train fare) and a portion of food and beverage costs); and

the cost of parking.

Supplies

Where an employee incurs costs for supplies to be used directly in their work and such costs are not reimbursed by the employer, the employee can claim a deduction for those costs. Such supplies would include a portion of the cost of a cell phone plan, where the cost is reasonable and the employee uses that cell phone for both personal and employment-related purposes. A deduction can be claimed, of course, only for the portion of costs paid for employment-related use of the phone.

 

Salaries or office rent

An employee can deduct a salary which they paid (or that was paid for the employee and included in that employee’s income) to a substitute or assistant (extra help). Where an employee must pay rent in order to earn employment income (or rent was paid for the employee and included in the employee’s income) a deduction for rent amounts paid may similarly be claimed.

 

Where an employee incurs costs for which a deduction may be claimed, it is of course necessary to maintain records to document both the kinds of expenses incurred and the amount of such expenses. Those records must include all of the following:

 

A daily record of expenses, together with receipts and any cancelled cheques;

Any ticket stubs for travel;

Invoices;

Any monthly credit card statements;

A record of each motor vehicle used for employment. This record must show both the total kilometres driven and the kilometres driven for employment purposes in the year.

Receipts for the purchase of merchandise or services have to show the following:

 

The date the purchase was made;

The name and address of the seller or supplier;

The employee’s name and address;

A full description of the goods or services bought; and

Information regarding the GST/HST paid on the expenses.

A minority of employees in Canada are compensated by way of commission and for those employees, a broader range of employment-related expenses may be deducted on the annual return. In addition to the expense deductions listed above, employees who are partly or fully compensated by commissions may also be able to claim a deduction for advertising and promotional expenses and for a portion of entertainment expenses paid for clients.

 

Finally, employees who work in specialized industries or positions may be eligible to claim additional or different deductions for costs related to their employment. In particular, specific rules are provided for employees in the transportation and forestry sectors, as well as for employed tradespeople, employed apprentice mechanics, and employed artists.

 

The rules which govern the types of expenses which can be deducted by employees (and the extent of the deductions which can be claimed) are extremely specific and detailed. Information on the rules governing the deduction of employment expenses for  employees in each of the above categories, including how such claims are made on the annual return, can be found on the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-22900-other-employment-expenses.html#toc2.