If you’re an employee who pays for various work-related expenses that your boss doesn’t cover, you may be able to get some tax relief when you file your 2018 tax return by claiming a deduction for valid employment expenses.
Typical, deductible employment expenses can include: accounting, legal, advertising and promotion fees, allowable motor vehicle expenses, certain food, beverage, and entertainment expenses, out-of-town lodging expenses, parking, postage, stationery and other office supplies.
But before trying to claim any of these employment expenses on your return, be sure to get a copy of a properly completed and signed Form T2200, “Declaration of Conditions of Employment.” Your employer must complete this form for you to be able to deduct employment expenses from your income. While you don’t need to file this form with your return, you’re supposed to keep it in case the Canada Revenue Agency asks to see it. If you get audited by the CRA, the failure to have a completed, signed T2200 from your employer can lead to your employment expense deduction being denied, as was the case with a taxpayer who found himself before the Tax Court of Canada.
The 2018 case involved a Toronto lighting technician (the “best boy,” in industry parlance) who was employed in various film productions. He reported to the director of lighting (the “gaffer”) of each production. During 2010, the taxpayer received a T4 slip covering his employment on 12 different film or TV projects for a number of production companies over the course of the year.
In his 2010 tax return, the taxpayer claimed a deduction for employment expenses of $4,013 which were denied by the CRA. The taxpayer objected to his reassessment and went to court. The trial lasted more than a day during which three witnesses testified and 13 exhibits were filed.
The issues in the case were twofold: did not having a T2200 preclude the taxpayer from claiming his employment expenses? And, even if he did have a valid, signed T2200, were the employment expenses he claimed properly deductible?
At trial, the taxpayer was unable to produce a T2200. The CRA has stated that it expects employers to complete a T2200 “in situations where the employees have reasonable grounds to make the related claims”; however, it would not expect an employer to complete the form if there was “no express or implied requirement” for the employee to supply and pay for the supplies.
Prior jurisprudence has concluded that not having a T2200 “is not determinative as to the conditions of employment if the evidence leads to different conclusions.”
The judge acknowledged that there may be “limited circumstances” where the requirement to produce a T2200 can be ignored. This can occur, said the judge, if you make “diligent and timely efforts prior to the tax return due date to obtain the form” provided “the circumstances are not circumstances where the employer refused to provide the form for a valid reason.” Lacking such circumstances, the absence of a T2200 is “fatal” to an employee’s claim for employment expenses.
The taxpayer testified that he tried to obtain a T2200 after receiving a letter from the CRA in 2016 but he was unsuccessful as he was unable to contact the production managers for the different projects he worked on in 2010. Before receiving the CRA’s letter, he stated that he “was unaware that he needed the forms.”
The judge ruled that asking for the form “five years after the end of the 2010 taxation year… does not constitute a timely effort to obtain the forms” and, therefore, this was not a circumstance where the failure to produce a valid T2200 can be ignored.
The judge went on to point out various “difficulties” regarding the expenses claimed, stating that even if the taxpayer would have been able to produce a valid T2200, the judge was “not satisfied that the claimed expenses would be properly deductible.”
For example, included among the taxpayer’s employment expense were copies of various restaurant bills. All but one of the receipts were for meals consumed in Toronto and therefore could not be claimed because of the tax rule that requires an employee to be away from their employer’s metropolitan area for at least 12 hours to claim a meal deduction. The one out-of-town restaurant expense claimed was for a trip the taxpayer made to London, Ont., to assist a friend who was making an independent film. Since this was not part of his employment duties, the meal, along with the cost of two trips to and from London by train and bus, were not valid employment expenses.
The taxpayer also submitted various transportation receipts for Toronto Transit Commission tickets and tokens, as well as taxi fares to or from his home and some Toronto parking expenses. Since these are all considered expenses of getting to and from work, the judge ruled that these were also not deductible.
Other expenses denied by the judge included 100 per cent of the employee’s monthly mobile phone bills. The judge found that the taxpayer was not under any contractual obligation to pay for a mobile phone for employment purposes. In fact, his contract of employment even stated, under the heading “Cell Phone Use,” that “any use of personal cellular phones for production purposes must first be approved … and payment will be made for business calls only.” When the taxpayer tried, twice, unsuccessfully, to get reimbursed for his cellphone, he was simply told to use the “set phone.” In addition, the judge pointed out that even if his cellphone costs were deductible, the amount deducted “must be limited to a reasonable portion representing work‑related use as opposed to personal use.”
Finally, the taxpayer expensed a variety of personal items under the heading “tools,” which included footwear and clothes, a camcorder, computer-related supplies, and other supplies such as bulbs, tape and a flashlight. While the judge had no doubt that these items were used in the course of his employment, the judge was not satisfied that the taxpayer had a contractual obligation to pay for them. Also, clothing or footwear are generally considered “personal” unless they are job-specific.
Jamie Golombek, CPA, CA, CFP, CLU, TEP is the Managing Director, Tax & Estate Planning with CIBC Financial Planning & Advice Group in Toronto.