“ЕСЛИ ТЕБЕ РАБОТНИК ИМЯ….”

Если в прошлом году вы работали на “дядю”, то против полученной зарплаты вы можете списать определенные расходы. И хотя возможности у наемных работников существенно ограниченны по сравнению с предпринимателями, ведущими свой бизнес, все таки, как говорится, “хоть шерсти клок”.

Еще месяц и многие из нас начнут находить в почтовых ящиках письма от своих настоящих и бывших работодателей с формой Т-4, которая содержит информацию о годовой зарплате, выплаченных льготах, удержанных отчислениях и профсоюзных взносах. Как правило, это один из основных документов, определяющих какой будет налоговая декларация. И если, по закону работодатель обязан опустить эту форму в почтовый ящик до 1 марта текущего года, то по поводу других форм закон не устанавливает никаких дат. И это уже в ваших интересах стараться получить необходимое подверждение вашим расходам, если конечно вы имеете на это право. Необходимо иметь следующие формы

-Форма T777, Statement of Employment Expenses. Эта форма используется для подсчета расходов и включается в налоговую декларацию.

-Форма TL2, Claim for Meals and Lodging Expenses. Ей пользуются работники транспорта, такие как служащие авиалиний, железных дорог, автобусных, грузовых и других транспортных компаний. Она должна быть подписана вашим работадателем и хранится у вас, если Revenue Canada захочет проверить правомочность ваших притязаний.

-Форма GST 370, Employee and Partner GST/HST Rebate Application. Если расходы, которые вы понесли, включают в себя налог GST, то вы можете требовать его частичного или полного возврата.

-Форма T2200, Declaration of Conditions of Employment. Эта форма заполняется вами, подписывается вашим работодателем и хранится у вас для предъявления. В ней описываются условия на которых вы работаете:

-по условию договора вы сами оплачиваете свои расходы и не получаете никаких безналоговых компенсаций;

-обычно вы работаете “вдали от родины”, вне оффиса работадателя;

-вы получаете частичную или полную коммиссию

и типы расходов на которые вы имеете право:

-бухгалтерские и юридические расходы;

-реклама и маркетинг;

-автомобильные расходы, включая аммортизацию;

-развлечение клиентов, в том числе угощение, напитки и проживание в гостинице;

-канцелярские принадлежности;

-содержание оффиса, в том чисе домашнего;

-лицензии и разрешения;

-выплаты по аренде оборудования, используемого в работе;

-телефонные и почтовые расходы;

-олплата профессиональных курсов;

-стоимость проезда;

Если вы собираетесь поменять работу, то имеет смысл вместе с последним чеком попросить подготовить для вас формы TL2 и T2200, чтобы потом в лихорадке налогового сезона не тратить время и нервы на их получение. Работники таких категорий, как продавцы или агенты, получающие к основной зарплате еще коммиссионные, могут списывать свои расходы в пределах полученной коммиссии. Следует помнить, что такие виды расходов как дорожные и автомобильные, не ограничиваются размером коммиссионных и поэтому, при ограниченных возможностях имеет смысл заявлять только их.

Нет необходимости посылать вместе с декларацией документы, подтверждающие ваши расходы. Храните их в надежном месте, чтобы предоставить по требованию фининспектора. Такими документами могут быть:

-ежедневные записи ваших расходов вместе с чеками;

-корешки билетов;

-накладные или их копии;

-ежемесячные отчеты по кредитным карточкам, если вы пользуетесь таковыми;

-путевой журнал на автомобиль, показывающий его годовое использование

Обычно такие записи хранятся в течение 6 лет. Если вы хотите избавиться от них раньше, следует получить письменное разрешение налогового управления.

Существующая налоговая система практически не оставляет места для маневра наемным работникам и поэтому, если у вас такая возможность есть, воспользоваться ей - “ваша святая и почетная обязанность”.

Вадим Тартаковский

this guide automatically by Revenue Canada.

Deductions available for expenses incurred in earning commission income are not limited to travelling expenses but will include all amounts which are legitimate business expenses, e.g., trade association fees, telegrams, telephone, secretary's wages, entertainment, commissions paid for sales leads, advertising and promotion, licensing fees, and so on. Although you may claim capital cost allowance on your car, you may not claim a terminal loss on the disposal of any automobile. You may also not claim any deductions for maintenance of recreational facilities, or for club dues. In order to deduct the cost of meals while travelling, you must be away from the municipality or metropolitan area where your employer's establishment is located for a period of at least 12 hours. Even when you meet this condition, only 50% of the cost of meals is deductible, since the rules at ¶734 apply.

Records should be maintained to support expenses claimed. Most salespersons maintain some record of their daily travels and it is recommended that a diary recording location of calls, customers' names and expenses incurred, is an excellent method of providing support for expense claims. Receipts should be obtained and kept on file for hotels and plane and rail fares. It is recognized that it may be difficult to obtain vouchers covering all meals and tips. However, the use of credit cards, particularly for entertaining and automobile expenses, provides an automatic invoice that can be kept on file. Remember — if your claim is disputed by the Department, the onus of proof is on you.

Commission salespersons should know that employees earning all or part of their income from commissions are required to have income tax deducted by their employers using a percentage factor based on personal exemptions and estimated annual gross commissions and expenses, such as travelling and automobile costs. Employees who receive all or part of their income from commissions are obliged to file with their employers a form, TD1X, “Statement of Remuneration, Exemptions and Expenses”.

Related References:

Income Tax Act:

8(1)(f)ITA 8(1)(f) , (j)ITA 8(1)(j) , (4)ITA 8(4) , (10)ITA 8(10)

Interpretation Bulletins:

IT-522RITB IT-522 , especially para. 37

Employee's Deductible Expenses and GST/HST

Some (but not all) employees who incur expenses in the course of employment which they may deduct under these rules have the option to claim a GST (and, where New Brunswick, Newfoundland or Nova Scotia Harmonized Sales Tax has been paid after March 31, 1997, HST) rebate based on the deductions claimed for income tax purposes. This applies to unreimbursed expenses for items which include GST or HST. Automobile expenses are the most common example, but other deductible expenses are also eligible for rebate. The rebate typically involves a great deal of work for very little return; the details are provided at ¶363.

¶369 Automobile or Other Travelling Expenses of Employees

Any officer or employee who:

(a) is ordinarily required to work away from his employer's place of business or in different places,

(b) is required by his employer to pay his own travelling expenses, and

(c) does not receive an allowance for travelling expenses from his employer which is tax-free by virtue of exemption for allowances of salespersons (¶335), clergypersons (¶336), or other employees (¶337)

may deduct travelling expenses so incurred.

The rules separate automobile allowances and other travel allowances under rule (c) above, so that a tax-free travel allowance for other than automobile use will not deny an employee a deduction for automobile expenses (subject to the limitations at ¶370), and a tax-free automobile allowance will not disqualify the deduction of other travel expenses if you meet the other conditions above.

It is a statutory provision that you must have your employer certify on form T2200 that you must incur the type of expenses in question and file that form with your return in order to claim any deductions under this provision. This is true for automobile expenses, meal expenses, and any other travelling expenses which might be claimed under this paragraph. However, proposals that would limit your claims for automobile expenses to a specified mileage deduction have been dropped, and it appears that you may continue to deduct automobile costs based on the proportion of employment use divided by total use times total automobile costs for the year. New limitations on automobile deductions are discussed below at ¶370.

Any employee who receives a non-taxable allowance which is, in effect, less than his or her deductible expenses may choose to add the allowance to income and deduct the expenses.

The cost of meals is deductible only if the officer or employee is away from the municipality or metropolitan area in which his employer's establishment is located for a period of at least 12 hours. Moreover, only 50% of the costs incurred for meals are deductible; see ¶734.

The deductions for automobile and/or travelling expenses are not limited to the amount of the employee's remuneration from the office or employment. However, the travelling expense deduction (for expenses other than auto expenses) may not be claimed by an employee who has chosen to take a deduction as a commission salesperson (¶368), certain railway employees (¶374), or transport employees (¶375). The automobile expense deduction may not be claimed by an employee who has chosen to take any deduction as a commission salesperson (¶368).

The automobile/travel expense deductions under this rule will normally be claimed by employees other than commission salespersons. However, if a commission salesperson's travel expenses exceed his commissions received during the year, he should consider a claim under this provision (travelling expenses only) rather than under the rules outlined in ¶368, since the deduction under ¶368 is limited to the amount of commissions received, and the deduction under ¶369 for travelling expenses is not limited to the amount of commissions received.

Revenue Canada has sometimes taken a very restrictive position on whether an employee is required to pay his own travelling expenses as a term of his contract, although it does recognize that the requirement may be implicit in an unwritten contract. A 1985 court case cast doubt on Revenue Canada's position, suggesting that the mere fact that an employee is required to do some travel (local or otherwise) without reimbursement is sufficient to establish entitlement to the deduction. The case apparently remains under appeal at the time of writing, more than ten years after the original decision. In the meantime, Revenue Canada adjusted its position to say that “required” means that the travelling is necessary to the satisfactory performance of the employee's duties and does not imply that the employer must have ordered him to travel. Presumably the rule that the employer must now certify this requirement (on form T2200) at least takes the onus off the employee to establish it, and compels the employer to address the question in advance.

Related References:

Income Tax Act:

6(1)(b)(vii)ITA 6(1)(b)(vii) , (vii.1)ITA 6(1)(b)(vii.1)

8(1)(h)ITA 8(1)(h) , (h.1)ITA 8(1)(h.1) , (4)ITA 8(4)

Interpretation Bulletins:

IT-522RITB IT-522

Related Cases:

Rozen v. The Queen,, 85 DTC 5611

MLAs

Revenue Canada considers that members of provincial legislatures do not qualify for travel expense deductions, nor presumably for automobile expenses at ¶370. MLAs can, however, receive non-taxable non-accountable allowances so long as it does not exceed 50% of taxable MLA remuneration.

Related References:

Income Tax Act:

81(2)ITA 81(2)

Interpretation Bulletins:

IT-266ITB IT-266

Employee's Deductible Expenses and GST/HST

Some (but not all) employees who incur expenses in the course of employment which they may deduct under these rules have the option to claim a GST rebate based on the deductions claimed for income tax purposes. This applies to unreimbursed expenses for items which include GST. The same rebate rule has been extended to the Harmonised Sales Tax (HST) introduced in New Brunswick, Newfoundland and Nova Scotia on April 1, 1997. Automobile expenses are the most common example, but other travel expenses would also be eligible for rebate. The rebate typically involves a great deal of work for very little return; the details are provided at ¶363.

¶370 Automobile and Aircraft Expenses

If you are an employee entitled to deduct automobile (or aircraft) expenses from your employment income under the rules at ¶368 or ¶369, you should keep a record of all your automobile expenses supported by the relevant invoices or receipts.

In most cases, individuals who use their automobiles for employment purposes also make some personal use of them and it is necessary to apportion the relevant expenses between these uses.

A detailed list of automobile expenses must be filed with your return showing separately, gas, oil, lubrication, repairs, tires, insurance, licence, rentals (where leased), interest on borrowed money which was used to acquire the automobile, and other expenses such as batteries and capital cost allowance. The completion of form T2200 — “Declaration of Conditions of Employment” — is required to support deduction of these expenses.

You should also keep a record of total kilometres travelled during the year divided between business (i.e., employment) mileage and personal mileage. Travelling between your home and your business is personal mileage.

In order to calculate the amount of automobile expenses which are deductible, determine the percentage of business mileage to total mileage and apply it to total expenses including capital cost allowance or leasing charges. See ¶822 for particulars on the calculation of capital cost allowance.

Limitations on Amounts Eligible for Proration

Where you acquired or leased a car after June 17, 1987 (except under an agreement made prior to that date) and use it in the course of your employment, there are limitations on the amount you may claim (before the proration for employment use described above) for capital cost allowance and financing charges if you purchased the car, and for leasing costs if you leased the car. Essentially, these restrictions are intended to limit you to the amount that could be claimed on a mid-price vehicle if in fact you use a more expensive one. The standard for a mid-price vehicle is a moving target, as the following table shows:

Monthly Daily

MSLP limit lease interest

Effective date Cost limit (cost/.85) limit limit___

June 18, '87 ........ $20,000 $23,529 $600 8.33

Sept. 1, '89 ........ $24,000 $28,235 $650 $10.00

Jan. 1, '91 ......... $24,000 + PST/GST ($24,000 + PST/GST) ÷ .85 $650 + PST/GT $10.00

Jan. 1, '97 ......... $25,000 + PST/GST ($25,000 + PST/GST) ÷ .85 $650 + PST/GT $ 8.33

Jan. 1, '98 ......... $26,000 + PST/GST ($26,000 + PST/GST) ÷ .85 $650 + PST/GT $ 8.33

Where you purchased a car which you use in the course of your employment, and the purchase was made in a period shown in the table above for a cost which exceeded the threshold amount for that period, your capital cost allowance (CCA) is limited to CCA on the cost shown in the “Cost limit” column. For more detail, see ¶810a.

If you also borrowed money to purchase a car which you use in the course of your employment, and the purchase was made in a period shown in the table above, the amount of financing (interest) charge which you might otherwise claim (before proration) is limited to the daily amount shown under “Daily interest limit” above times the number of days in the year for which you paid interest on the car.

If you leased a car which you use in the course of your employment, and the lease was entered into in a period shown in the table above, and

(a) the manufacturer's list price for the car exceeded the “MSLP limit” for that period, or

(b) the monthly leasing payments are more than the “Monthly lease limit” for that period, or

(c) you have made special deposits or prepayments on the lease,

the amount you may use in calculating your employment portion of expense for leasing the car may be limited as discussed at ¶738. Revenue Canada provides a detailed calculation of the leasing cost formula in its Employment Expenses Tax Guide; a similar calculation format is reproduced following ¶738.

Note that these restrictions apply to a somewhat narrower class of vehicles than the general rules above (or the rules regarding proration of automobile allowance at ¶337). The general proration and the allowance rules apply to virtually all motor vehicles, including all vans, buses, trucks, etc. The limitations discussed below apply only to a slightly more restricted set of vehicles, as defined in ¶738 and ¶810a.

Related References:

Income Tax Act:

8(1)(j)ITA 8(1)(j)

Income Tax Regulations:

7307ITR 7307

Interpretation Bulletins:

IT-522RITB IT-522

Employee's Automobile Expenses and GST/HST

Some (but not all) employees who own or lease an automobile which they use in the course of employment and for which they deduct expenses under these rules have the option to claim a GST rebate based on the deductions claimed for income tax purposes. The same rebate rule has been extended to the Harmonised Sales Tax (HST) introduced in New Brunswick, Newfoundland and Nova Scotia on April 1, 1997. This typically involves a great deal of work for very little return; the details are provided at ¶363.

Employee's Aircraft Expenses

An employee meeting the requirements for deductions in ¶368 or ¶369 is permitted a deduction for capital cost allowance and interest expense relating to an aircraft owned or rented by him as required for use in his employment. However, this deduction may not exceed an amount that is reasonable in the circumstances having regard to the relative cost and availability of other modes of transportation. The necessity to maintain expense records and allocate expenses between personal and business use should be similar to the rules in place for automobiles. The rules prescribing limitations on capital cost allowance and leasing costs apply only to automobiles; the airplane rules remain based on reasonable amounts.

Related References:

Income Tax Act:

8(1)(j)ITA 8(1)(j)

Interpretation Bulletins:

IT-522RITB IT-522

¶370g Automobile and other Employment Expenses: Filled-in sample

In the David Milan example at the end of Chapter 2, there are a number of facts relating to employment expenses, including motor vehicle expenses. Those facts are then illustrated in the forms that follow, reproduced again at the beginning of this chapter.

The relevant facts are:

David Milan was employed as a commission salesman by ABC Manufacturing Ltd. from January 1 to June 30, 1998. It is clear from the requirements of David's employment that he is required to use his automobile in the performance of his duties (his employer will so certify on form T2200) and he is required to pay his own expenses. During the six-month period, David earned $31,000 of commissions and $500 per month as a travelling allowance. The travelling allowance is taxable, per box 40 of the T4 Supp (reproduced above, at the beginning of the chapter). He incurred the following expenses in respect of this income:

— Motor vehicle expenses

(80% business use):

• Gas........................................... $2,600*

• Insurance..................................... 1,430/year

• Maintenance................................... 1,400*

• Licence....................................... 75/year

• Lease (entered into January 1, 1995).......... 810/month**

• Parking....................................... 1,266*

— Entertainment expenses........................ 4,915*

— Meals......................................... 910*

— Lodging....................................... 1,403*

— Supplies...................................... 304*

_______________

* These costs include the 7% GST.

** David pays 8% PST and 7% GST on this monthly lease cost.

David entered into the lease for his automobile on January 1, 1995. At that time the automobile's manufacturer's list price excluding the GST and provincial sales tax was $32,470. In the preparation of David's 1995 and 1996 tax returns, he claimed $9,095 of leasing costs for each year, and $9,093 for 1997.

On David's 1997 tax return, he claimed a GST rebate of $950 in respect of employment expenses deducted on his return. The $950 rebate was received in May 1998.

Note that all the claimable expenses, as discussed throughout this chapter, are collected in the Expenses section of form T777, reproduced above at the beginning of this chapter. The motor vehicle expenses at line 1 are taken from the calculation in the following box. The leasing expenses on form T777 are in turn taken from a chart in the Employment Expenses Guide, also reproduced; the leasing expense rules are discussed in detail in ¶738. Note in particular that in the case of leasing expenses, the GST/PST component is not included in the work chart amount carried to line 11 on form T777, but rather is to be shown separately at line 12. This would not be the case where capital cost allowance is claimed on a vehicle or other asset; the GST/PST tax component is considered to be included in the capital cost allowance.

The David Milan example is carried through a GST rebate claim on form GST370, also reproduced at the beginning of this chapter. The rules governing GST/HST rebates are discussed in detail at ¶363. Essentially, items deductible on form T777 are eligible for GST/HST rebate if they were subject to GST/HST in the first place. In completing form GST370, you begin with the expenses itemized on form T777. These are analyzed in charts on the back of form GST370 first according to their tax content (i.e., whether they include GST only or both GST and HST), and then according to whether or not they are eligible. Ineligible expenses include the personal use portion of total expenses, so that, for example, where the Milan automobile was used 80% for employment use, the eligible portion is 12,000/15,000 on form T777, and the non-eligible portion is 3,000/15,000 on the form GST370 charts. Expenditures in non-HST provinces may include provincial sales tax (PST). This is included in the costs eligible for rebate, even though PST is not in theory subject to GST. Items which by their nature are not subject to GST or HST are wholly ineligible; these include insurance, registration and licensing fees, and interest. Note that in claiming expenses for work space in a home, property taxes are not eligible since they have no GST content. It does seem, however, that, in the motor vehicle section, GST/PST/HST costs would be eligible, since they would seem to be “an amount in respect of the supply... that was deducted under the Income Tax Act”, and therefore should be included in (or, rather, not backed out of) the amount eligible for rebate.

As a commission salesman, David deducts meal and entertainment expenses, rather than passing them on to his employer as is more often the case. In any event, meal and entertainment expenses deducted are subject to the 50% disallowance on form T777, as discussed at ¶734.

Supplies are deductible to the extent discussed at ¶372.

¶371 Legal Expenses

Legal expenses paid in the year by you to collect salary or wages owed to you by an employer are deductible. In addition, you may deduct legal expenses paid to establish a right to salary or wages, rather than merely expenses incurred in collecting an amount to which a clear right exists. In either case, the amount of the deduction is reduced by any amount received pursuant to an award for costs made by a court.

Prior to 1990, a deduction under the old rules was allowed only in respect of an amount “owed” by an employer, and if you lost your suit in court or otherwise failed to establish that some amount was owed, no deduction for expenses was allowed. However, failure to collect an amount established as owed to you did (and does) not prohibit a deduction. Since the revised rules permit deduction of amounts to establish a right, it was widely suggested that you could deduct the expenses of trying to establish a right whether or not you succeeded, although the matter was not beyond all doubt. Revenue Canada, however, has taken a contrary position, and has said that the change in wording was made for other reasons and was not intended to change this policy, which is restated in Interpretation Bulletin IT-99R5ITB IT-99. Revenue Canada's views are best explained in a detailed opinion letter, found in CCH Tax Files No. 9732546.

Legal fees need not necessarily be paid only to lawyers. Revenue Canada has commented that where fees were paid to a party other than a legal firm to negotiate a termination payment, the amount would be considered a legal fee (CCH Tax Files No. 9424305). On the other hand, legal fees incurred to establish an employee's right to an amount paid by an insurer under a wage loss replacement plan were not considered deductible (CCH Tax Files No. 9326116).

Legal expenses paid in the year by a taxpayer to collect or establish a right to a pension benefit, termination payment or retiring allowance (as described at ¶923) stand on different ground, and are deductible under specific rules discussed at ¶924 and ¶2641. (Those rules were designed to reverse Maruscak v. M.N.R., (T.C.C.) 85 DTC 426.)

As part of the correction to the legal expense rules required by the Maruscak case, more detailed rules have been put in place for 1990 and later years to ensure that any amount received as an award or reimbursement of an amount deductible from employment income is treated as employment income. Thus, an award of legal expenses in a suit or settlement would be income to the extent of offsetting deductions. This will apparently apply regardless of whether the deductions are claimed in the same year or another year, although the statute is less than clear on this issue. On the other hand, the award is not to be doubled up; i.e., it is not income if it has been treated as a reduction of a deductible expense or if it is treated as income under some other rule.

Note that the employment income rule is applicable for expenses or awards after 1989, whereas the termination payment rules at ¶924 are retroactive to 1986.

See also ¶1031.

Related References:

Income Tax Act:

6(1)(j)ITA 6(1)(j)

8(1)(b)ITA 8(1)(b) , (5)ITA 8(5)

56(1)(l.1)ITA 56(1)(l.1)

60(o.1)ITA 60(o.1)

Interpretation Bulletins:

IT-99R5ITB IT-99

¶372 Office Rent and Salaries Paid, Supplies Consumed, Trade Union or Professional Membership Dues, and Other Unreimbursed Expenses of Employees

To the extent that you are not entitled to be reimbursed by your employer, the following amounts may be deducted:

(1) Annual professional membership dues required to maintain your professional status recognized by statute. For example, annual dues or fees paid by a professional accountant, lawyer, doctor or engineer to his professional association or society are deductible. Initial fees payable upon admission to a professional society or association are not deductible, unless they qualify as an eligible capital expenditure (see ¶766).

Annual dues that are not directly related to the ordinary operating expenses of the association to which they are paid are not deductible, i.e., if they are paid for or under a superannuation fund or plan, or for or under a fund or plan for annuities, insurance (other than required malpractice insurance) or similar benefits. Dues paid by students before becoming members of a professional organization are not allowable dues, but might qualify as tuition fees. (See ¶1319.)

Related References:

Income Tax Act:

8(1)(i)ITA 8(1)(i) , (5)ITA 8(5)

Interpretation Bulletins:

IT-158R2ITB IT-158

(2) Dues to a [Professions Board], Parity or Advisory Committee, if payment was required under the laws of a province, and, for payments to a parity or advisory committee, the payment was required by provincial law “in respect of the employment for the year”; [the addition of professions boards was made effective for 1996 and later years].

Dues that are not directly related to the ordinary operating expenses of the association to which they are paid are not deductible, i.e., if they are paid for or under a superannuation fund or plan, or for or under a fund or plan for annuities, insurance (other than required malpractice insurance) or similar benefits.

Related References:

Income Tax Act:

8(1)(i)ITA 8(1)(i) , (5)ITA 8(5)

Interpretation Bulletins:

IT-158R2ITB IT-158

(3) Office rent, or salary to an assistant or substitute, if the payment or payments are required by the terms of your employment. You may also deduct the amounts you pay as employer's contributions to Unemployment Insurance, Canada Pension Plan or Quebec Pension Plan paid in respect of an assistant or substitute. As an employee, in order to claim office rent and/or salary payments, you must have your employer certify on form T2200 that you are required to incur these expenses in the course of your employment and are not reimbursed for them, and you must file that T2200 with your T1 return. If you maintain an office in your home, see ¶373.

Related References:

Income Tax Act:

8(1)(i)ITA 8(1)(i)

Interpretation Bulletins:

IT-352R2ITB IT-352

(4) The cost of supplies consumed in your employment and which were required to be supplied by you by the terms of your employment. As an employee, in order to claim a deduction for these supplies you must have your employer certify on Form T2200 that you are required to incur these expenses in the course of your employment and are not reimbursed for them, and you must file that T2200 with your T1 return.

Revenue Canada, Taxation has interpreted the word “supplies” as limited to materials that are used up directly in the performance of the duties of the employment and thereafter are unfit for further use in the performance of any similar employment. It will usually include such items as the cost of gasoline and oil used in the operation of power saws owned by employees in woods operations, dynamite used by miners, bandages and medicines used by salaried doctors and various stationery items (other than books) such as pens, pencils, paper clips, charts, etc., used by teachers. However, it will not include the monthly basic service charge for a telephone line, amounts paid to connect or license a cellular phone, special clothing customarily worn or required to be worn by employees in the performance of their duties and any types of tools which generally fall into the category of equipment. (See also ¶373.)

Related References:

Income Tax Act:

8(1)(i)ITA 8(1)(i)

Interpretation Bulletins:

IT-352R2ITB IT-352

(5) Taxpayers employed in forestry operations who are required to supply their own power saws can claim actual saw expenses as well as the cost (net of trade-ins) of any saw purchased during the year. As an employee, in order to claim these expenses you must have your employer certify on form T2200 that you are required to incur the expenses in the course of your employment and are not reimbursed for them, and you must file that T2200 with your T1 return. You must also submit a statement detailing the costs incurred in operating the saw (fuel, chains, parts and repairs, etc.).

Related References:

Income Tax Act:

8(1)(i)ITA 8(1)(i)

Information Circulars:

74-6R2IC 74-6R2

Interpretation Bulletins:

IT-352R2ITB IT-352

(6) Annual dues to maintain membership in a trade union or an association of public servants are deductible. Even though you are not a member, you may deduct annual dues which are withheld by your employer from your salary or wages pursuant to the provisions of a collective agreement.

Trade union dues are deductible only to the extent that they are levied for purposes directly related to the ordinary operating expenses of the trade union and not if they are levied for or under a superannuation fund or plan or for or under a fund or plan for annuities, insurance or similar benefits.

It should be noted that where a portion of trade union dues is being paid into a superannuation fund which has been approved by Revenue Canada, Taxation, such amounts may still be deducted as pension fund contributions, if not as expenses. See ¶365.

The portion, if any, of regular annual union dues which is for the purpose of providing a fund for current or anticipated costs of prosecuting legal strikes of the union is, if reasonable in the circumstances, deductible for tax purposes. However, special assessments for strike funds are not deductible.

Trade union dues levied for the creation or maintenance of a building fund or a fund for the payment of funeral expenses are not deductible.

Where deductible items included GST, GST rebate will be available to some but not all employees, as discussed at ¶363.

Related References:

Income Tax Act:

8(1)(i)ITA 8(1)(i) , (5)ITA 8(5)

Interpretation Bulletins:

IT-103RITB IT-103

¶373 Employee's Office in Home Expenses

Where an employee maintains an office in part of a house or an apartment rented by the employee, a proportionate part of the rent, applicable to the office portion, is deductible provided the following requirements are met:

(a) the taxpayer is required by his contract of employment to provide and pay for such expenses, and the employer so certifies on form T2200 which the employee files with his T1 return;

(b) the taxpayer has not been reimbursed and is not entitled to be reimbursed from his employer for such expenses; and

(c) these expenses are incurred solely for the purpose of earning income from an office or employment.

Where an employee owns the premises in which he resides and maintains an office in that home, and provided he meets all the requirements set out above, he may deduct a reasonable portion of expenses incurred for the maintenance of the premises, such as fuel, electricity, light bulbs, cleaning materials and minor repairs. Where an employee, other than a commission salesperson, provides office space in property which he owns, expenses on account of capital cost allowance, taxes, insurance and mortgage interest will not be allowed. However, a commission sales employee entitled to claim expenses may claim in addition to the expenses listed above, an appropriate portion of taxes and insurance paid on his home, but not mortgage interest and capital cost allowance. No deduction can be made to cover the rental value of premises set aside and used as an office in the employee's own home. That is, you cannot say “I could receive, or would have to pay, $100 per month for this room of my house as office space, and therefore I can deduct that amount.”

Certain items which might be used in an office in your home come under the heading of “Supplies” in ¶372(3). Deductible items (where the conditions above are met) would include the cost of telegrams, long distance calls, and cellular phone airtime incurred in earning employment income. However, the basic monthly service charge for a telephone line and amounts paid to connect or license a cellular phone are not, in Revenue Canada's view, deductible.

At one time, a number of conflicting Tax Court cases cast doubt on Revenue Canada's proposition that an employee could not deduct an imputed rental value for space in a home he or she owns, alone or jointly with a spouse. This issue appears to have been resolved in favour of Revenue Canada by the Federal Court–Trial Division in N. Thompson v. M.N.R., 89 DTC 5439, which held that “rent” had to be given its plain meaning in a landlord/tenant context. Accordingly, the general propositions outlined above should remain valid.

Overriding Restrictions

In addition to the restrictions above, employees are now subject to the same limitations as self-employed persons in deducting office-in-home expenses. The following limitations apply to any amounts that may be deducted after the rules and tests above are met:

(1) You may not make any claim whatever in respect of any “work space” in a “self-contained domestic establishment” in which you live unless you meet at least one of two tests:

(a) the work space is where you principally perform the duties of your employment; or

(b) the work space is both used exclusively during the period to which the deductible expenses relate for the purpose of earning income from your employment and is used on a regular and continuous basis for meeting customers or other persons in the ordinary course of performing the duties of your employment.

A self-contained domestic establishment is merely a dwelling house, apartment or other similar place in residence in which as a general rule you eat and sleep.

Note that under rule (a) above you do not have to set aside part of the house exclusively for business. Thus, you might use a second bedroom as both a guest room and an office. So long as it is a work space where you principally perform the duties of your employment, and you have a T2200 certificate covering it, the second bedroom would qualify as a work space. Your expenses in respect of the space, however, should be prorated both for square footage and time allocated to the business. For example, if you use 10% of your floor space as a work space, and it is used 60% of the time for that purpose, your employment expenses would be 60% of 10% of heat, light, etc.

(2) Provided you qualify for a deduction at all under the tests above, the amount you may otherwise deduct is limited to your income from the employment before claiming any deductions for work space in your home. That is, you cannot use deductions for office-in-home expenses to create or increase a loss from the employment to which the expenses are related. This rule extends to all expenses related to the work space: rent, insurance, property taxes, mortgage interest, heat and light. Expenses such as telegrams, long-distance phone calls and cellular telephone airtime, office supplies and similar items, to the extent they are related to the earning of employment income, are not considered to relate to the work space and are not subject to the restrictions in (a) and (b). That is, deductions are not prorated and may create a loss against other income.

Any expenses for a year which are allowable under the first rule but in excess of amounts deductible under the second may be carried forward from year to year and applied against income of the same employment to the extent permitted under the two rules for a succeeding year. That is, expenses which would create or increase a loss from a particular employment cannot be used to create that loss but may be carried forward indefinitely until there is income from that particular employment. The expenses must then be deducted at the first opportunity to the extent permitted after applying the two rules for the year.

Note that these overriding limitations apply only to 1991 and later returns.

Related References:

Income Tax Act:

8(1)(i)ITA 8(1)(i) , (13)ITA 8(13)

Interpretation Bulletins:

IT-352R2ITB IT-352

¶373d Volunteer Emergency Workers

For 1998 and later years, if you perform duties, as a volunteer, as an ambulance technician, firefighter, or a person who assists in search or rescue of individuals or in other emergency situations, and you receive amounts for those duties from a government, municipality or public authority which you must report as income (because they have been reported to you as an employee, typically on a T4 slip), you may deduct up to $1,000 received from each such employer. However, you may not claim this deduction in respect of an employer if you are employed by that employer in the year in connection with any of the duties described (or any similar duties) otherwise than as a volunteer.

This provision is new for 1998 and replaces a $500 exemption for income of volunteer firemen [sic] that was in place for 1997 and earlier years.

If you serve as a volunteer for more than one such employer, for example, as a volunteer firefighter for two different municipalities, you may claim up to $1,000 against the income of each.

Robert served as a volunteer firefighter in two neighbouring municipalities. He received $700 from the first and $1,200 from the second in the year. He must include both these amounts in income, but may deduct (on line 229) $700 in respect of the first municipality (the lesser of $1,000 and the amount received) and $1,000 in respect of the second (again, the lesser of $1,000 and the amount received).

The deduction is denied with respect to amounts received from any particular employer if you were employed in the year, otherwise than as a volunteer, by that employer in connection with the performance of any duties described above. Thus, for example, it would seem that if you were employed by a municipality as a regular ambulance driver, and also served as a volunteer fireman for the same municipality, you could not claim the $1,000 deduction at all, although if you served as a volunteer fireman in a neighbouring municipality you could claim the deduction from income from that municipality. This rule is likely to lead to anomalies and inequities, which should be pointed out to the Department of Finance as they arise.

Related References:

Income Tax Act:

Draft 8(1)(a)ITA 8(1)(a)

SPECIAL STATUS EMPLOYEES

¶374 Certain Railway Employees

A relieving telegrapher, station agent, or railway employee engaged in maintenance and repair work is entitled to deduct 50% of his actual cost of meals and lodging incurred while employed away from his ordinary place of residence. Any other railway employee such as an engineer on temporary relieving duty, may deduct amounts disbursed for meals (50% only) or lodging or both while he is employed away from the municipality or metropolitan area where the home terminal is located and away from home. The deduction is limited to costs which are not reimbursed by the employer. Remember, you must keep adequate records of your actual costs of meals and lodging to claim these deductions. As an alternative to this extensive record keeping, Revenue Canada will permit you to claim a flat $5.50 per meal (50% of $11.00), but you are still required to maintain a time and travel log. In either event, you are required to file form TL2, “Claim for Board and Lodging Expenses” certified by you and your employer, with your tax return. Where a crew of workers, such as a crew on a work train, are provided with cooking facilities, and they purchase groceries and prepare meals either collectively or separately, Revenue Canada will normally accept claims without supporting vouchers for $11.00 (50% of $22.00) per person per day.

Revenue Canada sets out details of how it would like records kept in Information Circular IC 73-21R7IC 73-21R7. The Circular, dated March 8, 1991, still reflects the 80% deduction allowed for meals prior to February 22, 1994. It does suggest that the basic $11.00/$22.00 flat rates on which the 50% (80%) deduction is based will be frozen for the foreseeable future. Nevertheless, it might be well to check these rates against the most recent Employment Expenses Tax Guide, which is where rate changes are usually announced, and which was not available at the time of writing.

Related References:

Income Tax Act:

8(1)(e)ITA 8(1)(e)

Information Circulars:

73-21R7IC 73-21R7

¶375 Transport Employees

Where you are an employee of an airline, railway, bus, trucking, or other employer whose principal business is the transportation of passengers and/or goods, and you are regularly required to travel away from the municipality and, if there is one, the metropolitan area in which your home terminal is located, on vehicles used by your employer to transport the goods or passengers, you are entitled to deduct your cost of lodging and 50% of your cost of meals incurred while away (80% for costs incurred prior to February 22, 1994). Your deduction will be reduced to the extent you have been or are entitled to be reimbursed, and may not exceed a “reasonable amount”; you must keep detailed records of expenses incurred. As an alternative, Revenue Canada will permit you to claim a flat rate of $5.50 per meal (calculated as 50% of $11.00, so the limitation is already provided for) rather than keep extensive cost receipts, but you are still required to keep a log of your travel which Revenue Canada may require you to produce.

In general, and apparently under either method, you may claim one meal after every four hours away from your home terminal to a maximum of three per day. If you do not directly leave the municipality or metropolitan area on a particular run, your time away commences when your run leaves the last stop in the municipality or metropolitan area. Workers on scheduled runs of ten hours or less during normal working day hours would generally be expected to eat their breakfast and dinner at home, and only one meal per day (lunch) will normally be permitted for these shifts. You are not expected to charge for meals you in fact bring from home.

A metropolitan area, in Revenue Canada's view, is the surrounding metropolitan area integrated with a municipality (a major urban centre and its environs). This is not as helpful as it might be; does metropolitan Toronto stop at the far side of Mississauga, or go on all the way to Hamilton?

You are required to file form TL2, “Claim for Board and Lodging Expenses” certified by you and your employer, with your tax return, to claim this deduction. Revenue Canada sets out details of how it would like records kept in Information Circular IC 73-21R7IC 73-21R7. The Circular, dated March 8, 1991, suggests that the basic $11.00 per meal assumption on which the $5.50 deduction is calculated will be frozen for the foreseeable future. Nevertheless, it might be well to check the rate against the most recent Employment Expenses Tax Guide, which is where rate changes are usually announced, and which was not available at the time of writing.

It would seem that if your employer is prepared to issue a form T2200, you could deduct your actual expenses under the rules at ¶369. This might or might not be preferable; the limitations at ¶369 may be more onerous than the ones here, and generally do require detailed records as well as form T2200.

Related References:

Income Tax Act:

8(1)(g)ITA 8(1)(g)

Information Circulars:

73-21R7IC 73-21R7

¶376 Residences of Clergy

A member of the clergy or of a religious order, or a regular minister of a religious denomination, who is in charge of or ministering to a diocese, parish or congregation or who has a full time administrative post with a religious order or denomination and who pays rent or owns a residence or other living accommodation occupied by him or her, is entitled to deduct rents paid or an amount equal to the fair rental value of the owned residence or other living accommodation. The clergyperson may not, however, deduct an amount which exceeds his or her remuneration from employment as a member of the clergy.

Where a member of the clergy is supplied living accommodation by its employer, the member may deduct the value of such accommodation to the extent that it is included in his or her income as a benefit. See also ¶336.

Where a member of the clergy receives an actual cash allowance for rent or housing allowance, this will be included in income. An offsetting deduction may be claimed for the rental value of the housing as indicated above. The deduction is not limited to the amount of the housing allowance, although it is of course limited to the overall remuneration (including housing allowance) from employment as a member of clergy.

Where both members of a couple are members of the clergy who are each performing duties which qualify them for a deduction under this rule, Revenue Canada is of the opinion that they may allocate the rental or fair rental value of their accommodation between them in any manner they choose.

Where premises are only occupied for part of the year, Revenue Canada feels that an allocation should be made for the period of occupation. Presumably this contemplates a genuine cessation of occupation, as where for instance there is a transfer abroad for missionary work. One would expect that a vacation, for example, would not entail a cessation of occupation. It is not clear what the implication of a sabbatical would be.

Note that for 1989 and later years, this deduction does not reduce earned income for RRSP purposes (¶1013).

Anecdotal evidence suggests that Revenue Canada has targeted this deduction for investigation, and is denying it where in its view the claimant fails to meet the tests above, either because Revenue Canada is dubious about recognizing the religious status of the denomination, or more commonly because it does not see the claimant as being in charge of or ministering to a diocese, parish or congregation, or have a full time administrative post with a religious order or denomination. Taxpayers have had very mixed results on appeal; see McNeil v. The Queen (T.C.C.) 95 DTC 702 and cases cited therein. In Vibe v. The Queen (T.C.C.) 98 DTC 1684, the Court found for the taxpayer and chided Revenue Canada for imposing restrictions more severe than those in its Interpretation Bulletin IT-141.

Related References:

Income Tax Act:

8(1)(c)ITA 8(1)(c)

Interpretation Bulletins:

IT-141ITB IT-141

CCH Window on Canadian Tax:

¶1835

¶377 Teacher's exchange Fund Contribution

A teacher may deduct an amount up to $250 paid by him to a fund established by the Canadian Education Association where such fund has been established for the benefit of exchange teachers who come to Canada from Commonwealth countries.

Related References:

Income Tax Act:

8(1)(d)ITA 8(1)(d)

¶378 Employment Outside Canada

Prior to 1984, you could obtain a deduction for up to one-half of your remuneration from employment outside Canada. For 1984 and subsequent years the deduction has been replaced by an overseas employment tax credit. This is discussed in Chapter 14 at ¶1458.

Related References:

Income Tax Act:

122.3ITA 122.3

¶379 Artists' Employment Expenses

The first question the artist often faces is whether particular artistic income from a particular artistic endeavour is employment or self-employment (business) income. This issue is discussed at ¶793. Once the determination is made that the income is employment income, the following rules apply (in addition to all other rules in this chapter).

Artists' Employment Expenses: General Deduction

Commencing with 1991, artists may deduct from employment income from artistic endeavours any related expenses actually incurred up to a maximum of the lesser of 20% of the artistic employment income or $1,000, minus certain amounts claimed under other provisions. Amounts denied due to the 20%/$1,000 limitations may be carried forward against future artistic employment income.

Eligible income against which the deduction must be measured is defined as employment income for the year from an artistic activity:

(a) that was the creation by the taxpayer of (but not including the reproduction of) paintings, prints, etchings, drawings, sculptures or similar works of art;

(b) that was the composition by the taxpayer of a dramatic, musical or literary work;

(c) that was the performance by the taxpayer of a dramatic or musical work as an actor, dancer, singer or musician; or

(d) in respect of which the taxpayer was a member of a professional artists' association that is certified by the Minister of Communications.

It is unclear how the exclusion for reproductions in (a) above will operate in the case of such things as prints and etchings which are by their nature reproductions of a master. It is to be hoped that Revenue Canada will take the reasonable view that the exclusion is intended to apply to income from such things as the photographic (or painted) reproduction of original works, and analogous situations. Problems of interpretation might well arise where a commercial artist creates a poster for an art show incorporating a work in that show. Is the poster a separate work of art? Only time will tell.

At the time of writing, no information was available on what associations might be certified by the Minister of Communications.

An artist who has income of the type described above may deduct therefrom related expenses incurred in the year or a preceding year (after 1990) to the extent those expenses do not exceed the lesser of 20% of the artistic income or $1,000, minus the sum of (i) expenses claimed in the current year for interest or capital cost allowance on automobiles or airplanes (¶370) and (ii) all expenses claimed in connection with musical instruments under the rules below. Oddly, other travelling expenses, such as gasoline, say, do not reduce the claim under this provision, although of course the same expense may not be counted twice. In general, it seems that expenses which may be deducted from employment income under other provisions, such as travelling expenses (¶369) and expenses listed in ¶372 and ¶373, operate independently of the artists' expense rules and may be claimed in full (travel) or subject to the limitations of other rules (office in home) without impinging on the limits under the artists' rules.

The nature of expenses which may be deducted under this provision is presumably the same as expenses allowed to an artist who is an independent business person. For a performing artist these expenses are described at ¶793. For a visual or literary artist, the problem is somewhat more complex. In general, in a business context the costs of paints or canvas, say, are an inventory cost and subject to special rules as such (¶789). Inventory is a concept that by definition can only relate to a business; it would seem to follow that such costs must be simply eligible expenses to an employed visual artist. Although capital cost allowance (CCA) claimed under other provisions on automobiles or musical instruments reduces the current year limits under the general deduction for employee artists, no capital cost allowance can be claimed under the authority of this provision.

The artistic expense provision allows expenses which cannot be deducted in the current year because of the 20%/$1,000 limitation (and cannot be deducted in the year under any other provision) to carry forward from year to year until sufficient artistic income is generated to absorb them. However, no expenses incurred prior to 1991 can be included in the carryforward.

The resulting calculation is probably best illustrated in a chart, as follows:

Income from all artistic employment: .............. _________ (A)

Limitation:

20% of (A) (maximum: $1,000) ...................... _________ (i)

MINUS

(a) Current year deduction for automobile

(and airplane) interest and CCA related to

artistic use ................................. __________ (ii)

(b) Current year deduction for musical instruments __________ (iii)

Maximum artists' expense deduction

((i) – ((ii) + (iii))) ......................... __________ (B)

Expense calculation:

All current year eligible artistic expenses: ..... __________ (iv)

PLUS

Carryforward from preceding year ................. __________ (v)

Total artists' expenses ((iv) + (v)) ............. __________ (C)

Allowable artists' deduction

(lesser of (B) and (C)) ........................ ========== (D)

If (C) is greater than (B) (i.e., if expenses exceed the limitation), the difference ((C) – (B)) should be noted in your files and carried forward for future deduction at (v). Expenses deducted under (ii) and (iii) may not be deducted again in (iv). That is, you claim automobile expenses and musical instrument expenses on the lines listed on form T777. The components of automobile expenses from lines 6 and 7 of the motor vehicle expense calculation section of T777, to the extent they relate to artistic income, are entered at (ii) above, and the musical expenses from T777 at (iii) above. If you included them again at (iv) you would be deducting them twice. On the other hand, it is not clear why musical instrument expenses (as opposed to CCA) rendered undeductible in a prior year by the income limitation under that provision could not be added to the carryover at (v) under this provision. Automobile/airplane expenses claimed on T777 under the rules at ¶369 are not limited to related income, and to the extent they exceed related income they create deductions against other income or general loss carryovers. Accordingly they would not go into the carryforward pool under these rules.

Example 1: Limitation and Carryover

Sonja is an musician who earned $20,000 as a waitress in Toronto in 1998 and was employed for 10 weeks in the summer as an on-stage player in a summer theatre in Barrie, 50 miles away. Her artistic income was $5,000. She spent $200 for travel, $300 for board, and $500 for lodging, $350 on sheet music, stage make-up and hair styling required, and $400 on upkeep of her bassoon (not including $300 of capital cost allowance she may also deduct).

The travel, board and lodging expenses present a difficulty. They would not seem to be generally deductible under the rules at ¶369 since she was not working away from the location of her employer, the summer theatre. If they did qualify, they would be fully deductible under the ¶369 rules and have no impact in any way under the artistic expense rules (unlike CCA and interest on an automobile under ¶370). As they do not qualify under ¶369, it is difficult to see why they should not qualify under these rules. Board is the most difficult issue, since that would arguably be a living expense and not necessary to earn income. On the other hand, if the board was part of an accommodation package and/or no cooking facilities were available, it would seem this expense should be analogous to other travel expenses and deductible subject to the 80% limitation at ¶734. Assuming the $1,000 for travel, room and board to be fully deductible except for the 20% of $300 board disallowed, her allowable artistic expenses are:

Travel, room and board: .................................. $ 940

Music, make-up, etc. ..................................... 350

Musical instrument expense (incl. CCA) ................... 700

------

Total expense ............................................ $1,990

======

The overall limitation will be the lesser of (20% of $5,000 =) $1,000 or $1,000. If Sonja claims the full $700 musical instrument expense under the special rules for such expenses, that reduces the $1,000 limit to $300. Accordingly, Sonja claims $700 under the musical instrument rules (not the general artists' expense rules) and $300 under the artists' expense rules, $1,000 in total, and carries forward $990 for future deduction. Note that the $990 is made up of $1,290 of general (non-musical instrument) expenses less the $300 of these expenses allowed.

Since CCA is an optional claim, it is possible to reduce the CCA claim and increase the amount attributable to other expenses. In the case shown, a reduction of $300 in CCA would correspondingly reduce carryforward in the artistic expense category and leave depreciation rather than carryforward available for future use. This would be beneficial if in a future year the CCA could be claimed but the artistic expense would be limited by the 20%/$1,000 rule. In general, a full CCA claim is likely to be preferable, although it may not be so in absolutely every case.

Example 2: Carryover of Musical Instrument Expenses

Suppose Charles has $500 of artistic employment income, $350 of general artistic expenses and $600 of musical instrument expense, not including an additional $175 of eligible CCA on the instrument. He will be entitled to deduct $500 under the musical instrument rules, since that deduction is limited to related income. His general expense claim of 20% of $500 = $100 is reduced to nil by the $500 claim. Charles will be entitled to carry forward the $350 expenses unclaimed under the general rule. It appears that he should also be entitled to carry forward the $100 of musical instrument expense denied under that rule as a carryforward under the general rule. (It is not entirely clear that this result is intended, but it certainly seems to follow from a literal reading of the rules.) Charles' CCA claim will always remain available under general CCA rules. It is less clear whether Charles could claim $325 of musical instrument expense plus $175 of CCA, and attempt to carry forward $275 of musical instrument expense plus $350 of general expenses. There is some precedent for the taxpayer being entitled to order his deductions in the most favourable manner in the absence of specific statutory commandments; in fact the statutory rules seem especially ambiguous in this case.

Employee's Musical Instruments

Regardless of the deduction limits above, employed musicians who are required to provide a musical instrument as a condition of employment may deduct from that employment income the cost of maintenance, rental and insurance for the instrument, and, where an instrument is owned by the musician and used in employment, capital cost allowance of 20% per year of the original cost of the instrument. The 20% is applied each year to the “undepreciated capital cost”of the instrument, i.e., the amount of cost remaining after all previous years' tax claims have been deducted. Deductions claimed under this provision go into the pool of expenses subject to the general employed artist's limitation, but are not limited by the general limits. That is, a musician who had a $1,200 deduction available under this rule and another $300 available under the general rule above could deduct the $1,200 but not the $300, since the $1,000 general expense limit is reduced by the $1,200 counted here.

Revenue Canada discusses the musician's deductions from employment income in the Employment Expenses Guide. The Guide also provides form T777 (reproduced at the beginning of this chapter) to assist in the calculation of expenses and capital cost allowance.

Only employment income earned as a musician who had to supply an instrument as a condition of employment is eligible for this deduction, so that if the musician also received other income, and his expenses were greater than his employment income as a musician, he could not deduct the expenses in excess of the income as a musician. On the other hand, if the musician also receives income as a musician which is considered business rather than employment income, he may also deduct instrument costs from that income, although as you might expect total deductions may not exceed actual costs incurred and capital cost allowance.

A musician who is considered to be in business, as discussed at ¶789 and ¶793, may deduct all his expenses from income of that business, and any loss may be deducted from any other form of income, including employment income. Thus it is only a musician who cannot be considered in business, but only an employee, who is subject to the restrictions described here. See also ¶789.

Expenses, Capital Cost Allowance and GST

Note that for musical instruments acquired in and after 1991 and other deductible expenses incurred after 1990, a rebate of GST may be available to employees, which in turn will have an effect on capital cost or income, as the case may be. See ¶363. Note that the GST rebate may only be claimed on the amount deducted from tax in the year, including, in future years, carryforward amounts deducted.

Related References:

Income Tax Act:

8(1)(p)ITA 8(1)(p) , (q)ITA 8(1)(q)

Interpretation Bulletins:

IT-504R2ITB IT-504

Canada Council Grants

A Canada Council grants (assuming any remain) may be income from employment, income from a business (¶789), or if not received in connection with either, a prize eligible for the $500 exemption at ¶953 and ¶959; see also the deduction alternative at ¶966. In a few cases, such as the Governor General's Literary Awards, the amount may be entirely exempt under rules at ¶960.

Related References:

Interpretation Bulletins:

IT-257RITB IT-257

¶390 Professional Athletes

The remuneration of players and other employees or officers of football, hockey and similar clubs includes any of the following items, all of which must be included in income:

(a) salaries including income from personal service contracts;

(b) bonuses — for good performance, for allstar rating, for signing contracts, etc.;

(c) fees — for scouting, refereeing or special coaching;

(d) living and travelling allowances to players or officers during and after the training and tryout period, other than accommodation provided or expenses reimbursed during that period as explained below;

(e) honoraria;

(f) payment for time lost from other employment;

(g) commuting expenses;

(h) free use of automobiles;

(i) awards — including cash and fair market value of bonds, automobiles and other merchandise;

(j) payments made by a club on an employee's behalf that would otherwise be a non-deductible expense to the employee, i.e., agent's fees, legal fees, income taxes, fines, etc.; and

(k) other benefits.

Non-accountable allowances paid to or on behalf of players, even if paid during the training and tryout period, before the signing of contracts, are considered to be income for the purposes of the Act, unless they are in respect of reasonable travelling expenses (see ¶337) or in respect of board and lodging for employment at a special work site (see ¶360). Where allowances are included in income, a deduction may be available as described at ¶369. Where the club provides a dining room or dormitories, the value of these living expenses during the training and tryout period is not regarded as income provided they are reasonable in the circumstances.

Where an employee lives in the general location of the training and tryout camp, and for personal reasons commutes daily from his home, any allowance paid to him for travelling, meals, etc. is taxable. Where such an allowance is included in income, the deduction described at ¶369 is not available.

Direct payment or reimbursement by the club of properly vouchered travelling expenses incurred for scouting, or any other bona fide club business away from the club's home base, is not considered to be income. However, amounts paid for personal travel are considered income.

A contract of employment may state that part of the player's remuneration will be payable on a deferred basis. Generally, the player should include such deferred remuneration in his income for the year in which it becomes receivable by him or he actually receives it, rather than for the year in which it was earned but not received even though the year of inclusion in income is after the player has ceased to be employed by that club. Professional athletes in leagues with regularly scheduled games are exempt from the salary deferral rules discussed at ¶307. If he has ceased to be resident in Canada at the time he receives the remuneration, the rules outlined in ¶2020 would apply.

As employees of their clubs, players are limited to the deductions from employment income that are specifically authorized (see ¶362–¶377). For example, legal fees incurred in the negotiation of their contracts are not deductible, since to be deductible the fees must be incurred in collecting salary or wages owed to him by an employer or former employer. Fines paid by players personally are also not deductible.

It should be noted that where athletes earn money through a corporation and in the absence of the corporation would earn that money as employees, the corporation will not get the low rate of tax for small businesses, with the result that the overall tax rate will be greater than for employment income. In addition, no deduction will be allowed against personal service income, except for the salary, wages or other benefits provided to the individual performing the services and other appropriate amounts described at ¶305.

Although team athletes are generally employees vis-a-vis their team, they are generally independent businessmen in respect of income from personal endorsements and public appearances which they negotiate directly with third parties rather than through the team. Accordingly, the general expenses related to such income may be fully deducted, regardless of limitations which would apply to the athletes as employees. Revenue Canada takes the position that such endorsement and appearance income can be earned through a corporation, and the corporation would not be engaged in a personal services business (¶785) with respect to such income.

Related References:

Interpretation Bulletins:

IT-168R3ITB IT-168

Amateur Athletes

Athletes who must maintain amateur status under international competition rules may have trust established for certain payments; see ¶777.

Specific Questions and Answers

Commissions Earned in 1998 — Received in 1999

I am a commission salesperson and my commissions are calculated on a monthly basis. During 1998 I earned commissions totalling $36,000 for the months of January to November and by December 31 I had actually received all $36,000 from my employer. My sales for December were very good and I earned $6,000 on that month's sales. However, I did not receive the $6,000 until January 25, 1999. In fact, it was not until the company's books were closed and the necessary calculations made in the first week of January that either the company or myself were aware of how much my commission would be. Do I have to include the $6,000 in my 1998 income?

No. You should include only those amounts actually received by you or credited unconditionally to your account in 1998. Your employer should prepare your T4 slip on that basis. (See ¶308.) Some concern may arise under the salary deferral rules (¶307), but it seems doubtful your situation would constitute a plan to defer tax, and if it did you might come under the exemption for payments made within three years.

Cash Advances against Commissions

My company gives me cash advances of $1,500 per month against my commission earnings. My earned commissions are calculated annually and I receive a cheque in February of the following year for the excess of my earnings over these advances. In 1998, my earned commissions totalled only $15,500 while my advances were $18,000. I was not asked to repay the $2,500 difference immediately but this debit balance was carried over in my account for 1999. Do I have to pay tax on this $2,500 in 1998?

Yes. The $2,500 advance must be included in your 1998 income as your employment income must be reported in the year in which you receive it. (See ¶329.)

Cash Advances Repaid

During 1998 I left the company for which I had worked as a commission salesperson for the past 3 years. At that time I had a $300 debit balance in my earnings advance account and I repaid this amount to the company. I have always paid tax as reported by the company on my T4 slip — on all advances I received rather than on my commission earned. Can I deduct the $300 I repaid?

Yes. You should deduct the $300 from your 1998 income if this amount has not been deducted on your 1998 T4 slip. (See ¶329.)

Can an Employee Receive “Fees” from his Employer?

I am employed as treasurer of a manufacturing company. In addition to my regular salary, I receive a fee for preparing and presenting training programs to company employees. I do the preparation and conduct the sessions in the evenings on Saturdays and received 4 fees of $500 each for this work. May I claim expenses, such as travelling to the office for such sessions, from my $2,000 in fees?

No. Because of your master-servant relationship with your employer, and because you received the fees by virtue of your employment as treasurer, it is not possible for you to act as an independent contractor on receipt of “fees”. Therefore, as an employee, you are entitled to deduct travelling expenses only under certain specific conditions. One of these requirements is that you were ordinarily required to carry on the duties of your employment away from your employer's place of business.

Executor's Fees

During the year, I received $2,000 in executor's fees in connection with my deceased brother's estate. I incurred some expenses which were necessary to earn this income, particularly, wages paid to a part-time secretary of $600. Can I deduct the $600?

Revenue Canada, Taxation has indicated that unless you carry on a business of acting as an executor, executor's fees are income from employment. Salaries paid to an assistant are only deductible if they are required to be paid by the contract of employment. However, you might have some grounds for arguing that you were implicitly required to utilize necessary services; the case of Rozen v. The Queen, 85 DTC 5611, although not directly on point, may support this view. (See ¶309 and ¶372.)

Earnings Directed to be Paid to Sister

I earned a bonus of $6,000 during the year, and directed my employer to pay the money to my widowed sister. Do I have to pay tax on this $6,000 that I never actually received?

Yes. The only offset you may be entitled to is an amount of personal exemption credit if you meet the conditions at ¶1126.

Salesperson's Travelling Expenses

I am a salesperson who travels overseas and I receive an allowance from my employer for travelling expenses. Can I claim a deduction for additional expenses which I pay out of my own pocket?

If you are engaged in selling property or negotiating contracts for your employer, you may add an unreasonably low allowance back to income and claim your actual expenses, provided your employer will certify on form T2200 that the expenses were incurred to earn income. (See ¶368, ¶369.)

Employee's Travelling Expenses

I am a salaried employee and am away from my employer's place of business for short periods of approximately 20% of my working time. This is done on a regular basis — about one day a week. Can I deduct expenses I incurred?

Yes. You must be ordinarily required to conduct your duties away from your employer's place of business. “Ordinarily” has been interpreted by Revenue Canada, Taxation to mean “customarily” or “habitually” rather than “continually”. There should be some degree of regularity in your travelling, and occasional absences from your place of employment will not qualify. However, you must file form T2200 to support your claim. (See ¶369.)

Employees Discount Purchases

My employer, a large retail store, permits its employees to purchase electrical goods at a 25% discount off retail selling price. During the year, I purchased an air-conditioner for $300, the retail price being $400. Do I need to add the $100 to my income as a benefit received from employment?

No. Where it is the practice of an employer to sell merchandise to employees at a discount, the benefits that an employee may derive from exercising such a privilege are not normally regarded as taxable benefits. This, however, does not apply to the situation where a particular employee or group of employees is permitted to purchase merchandise at less than the employer's cost. (See ¶348.)

Board and Lodging of Hotel Employees

I am an employee of a large hotel. In addition to my salary of $300 per week, I receive free room and board valued at $100 per week. The cost of board and lodging to my employer is $80 per week. On which amount am I taxable?

Revenue Canada says you are taxable on the “approximate” fair market value of the room and board, i.e., $300 + $100 = $400 per week. There is some case law which suggests that the value to you may be less than what a third person would pay for it. Very possibly your employer has in fact used a cost-plus calculation for your T4. It is possible, if the hotel is isolated, it may qualify as a special work site (¶360).

If I contributed $70 per week towards my room and board, on what amount would I pay tax?

You would again pay tax on your salary plus the fair market value of your room and board minus your contribution, i.e., $300 + $100 – $70 = $330 per week. (See ¶311.)

House Provided Rent-Free by Employer

Throughout the year, my employer provided me with a house rent-free. A fair rent for a similar house would be $550 per month. Am I taxable on any portion of the $550 per month?

Yes, on all of it. Your employer should include $550 × 12 = $6,600 in your T4 slips. However, the tax liability is yours personally regardless of whether your employer has reported properly. (See ¶312.)

Vacation Expenses Paid by Employer

Our company sent one of our employees on an extended vacation to Europe for six months as a token of appreciation of 40 years faithful service. All his expenses which amounted to $25,000 were paid by the company. Is he taxable on this amount?

Yes. The sum of $25,000 must be added to his income as a taxable benefit.

Would it make any difference if he had received an automobile worth $25,000 instead of the vacation?

No. Prizes and holidays in return for extended or meritorious service are all considered to be taxable benefits and must be included in the taxpayer's income. (See ¶315.)

Workers' Compensation Payments

During 1998 I suffered an injury while working and as a result I was entitled to workers' compensation payments of $80 per week for 8 weeks. However, my company continued to pay me my regular wage of $190 per week and it collected the $80 per week from the Compensation Board. Must I include in income the full $190 per week I received during my convalescence?

Yes and no. Technically, the amount received as income from employment must be included in income. You may deduct amounts paid in the year on your behalf by the Compensation Board to your employer ($80 per week). The net effect is that only the differences between the amount you received each week and the amount of workmen's compensation are included in taxable income. If the $80 per week has been reported on form T5007 and only the $110 reported on the T4 slip, you report the $110 on line 101 and the $80 on line 144, and deduct it again on line 250. If the entire $190 is reported as employment income on the T4 slip, and you also received a T5007 including the same amounts, the $80 per week from the T5007 must be reported on line 144, but the second $80 per week included on the T4 slip must be deducted from the T4 amount reported on line 101, and you must attach an explanation to your return. It might be more practical to refer your employer to the Employers' Guide to Payroll Deductions and ask the employer to issue a revised T4 slip. If you have not received a T5007, typically because the Board has not ruled on your claim, and your employer has in effect advanced you the $80 per week against your WCB compensation, you report the $110 per week on line 101 and $80 per week on lines 144 and 250. Your employer should issue the explanatory letter Revenue Canada describes in the Employers' Guide to Payroll Deductions. See ¶358.