If you've made a move to working from home this year or are an employer who has the majority of their employees working remotely, chances are you're looking for information on what you can and can't claim.
Those who are self-employed and own their own business are privy to a myriad of deductible expenses. On the other hand, salaried employees have more limitations around what deductions they are entitled to and must get a T2200 form if they need to deduct specific expenses.
In the last little while, the pandemic and the increase in our 'gig' culture have increased the number of Canadians taking on more side hustles and contract work. There is a lot of ambiguity around whether or not an employee is self-employed or not. This excellent resource from the CRA can help you identify if you are self-employed or a full-time salaried employee.
Once you've determined if you are an employee or self-employed, you can start the process of figuring out what expenses you can deduct or not. Employees looking to deduct work expenses for the 2020 year will need their employers to provide Form T2200. Our quick and handy guide can help provide information and all the essential T2200 info you'll need.
Let's start with the basics.
What is Tax Form T2200?
Tax Form T2200 is provided to employees by their employer. This form is a two-page document entitled "Declaration of Conditions of Employment." You may already be familiar with this form if you have worked with or as one of those sales types who travel a lot for their jobs.
Form T2200 allows employees to claim expenses that they may incur to do their job, including running a home office, mobile phone expenses and car. While this form can help you recuperate costs that come out of your pocket, you probably can't expect the CRA to pay out if you're infrequently hammering out emails on your personal phone or sometimes taking your car to work. This form is specially designed for those who cannot do their jobs unless they take on the financial burden of specific unreimbursed expenses.
If you're an employee and the above sounds like you, then the T2200 form will give you the power to deduct a fair amount of the expenses that you take on for your work. Read on to learn more about if you qualify for this form and how to navigate it.
If you are an employer and have a substantial amount of employees currently taking on a financial burden for their job, we can help you understand your duties and obligations. Click here to scroll to the section on Employers Duties and Obligations. [ANCHOR
What Can I Deduct with the T2200 Form?
There are many expenses that you can deduct. To spare you the long list, we've attached the actual form to give you a better picture of what is available to you.
The most important ones to note are those concerned with:
- automobile expenses
- work-related entertaining
- office rent or a portion of total home expenses if you work from home
To help make the last point even easier to understand, here is the CRA's guide to home office deductions for you to peruse: "Work-space-in-the-home expenses."
Changes to work-space-in-the-home expenses were announced on November 30th in the Fall Economic Statement: 4.8.3 Simplifying the Home Office Expense Deduction. Keep an eye out, as these pages will be updated shortly by the CRA to reflect these changes.
Breaking down Tax Form T2200
Beyond the general employee information (name, address and social insurance number), the T2200 form features 13 questions. Within those 13 questions is one that indicates whether or not the employee is entitled to claim anything.
As an employee, you do not need to fill out the T2200 yourself. This responsibility falls on your employer. Most employers will fill it out automatically and deliver it to you. While this seems similar to your T4s and other tax documents, it differs because the CRA will not receive a copy of the T2200 form.
Although they will not receive a copy of the form, it doesn't mean that the document is not essential. Consider it a precaution. It's one of those things you prepare for in case the CRA does come around looking for any supporting documentation for your submitted tax return, or in the case of an audit. Similar to other important tax documents, by filling out and keeping your T2200, you protect yourself from potential
Once you've filled out Form T2200, you must itemize and detail your various deductible expenses in the corresponding Form T777. This form differs from T2200 because you must send a completed copy of the T777 to the CRA.
Employees: Entitled to the T2200 or not?
If you're an employee and believe that you are entitled to deductions but have not received a T2200 from your employer, we recommend you first check out the CRA's publication 4044. this publication provides an overview of what is deductible and what is not.
Once you've reviewed this, you will have a better idea of your entitlement to a T2200 from your employer. If you are entitled to it, we suggest that you reach out to your company's HR or Payroll department to get the process started.
This will help demystify any contractually obligated conditions of your employment that require you to pay out of pocket that is not reimbursed by your employer and if you are legally entitled to deduct them via Form T2200.
Things to Note:
On the T2200 Form, Item 9 is a particularly sticky one. It asks if the employer has compensated the employee for any expenses they have paid out of pocket and how much.
When completing your taxes, the amount your employer reimbursed you shouldn't be included in your overall deductible expenses. Claiming reimbursed expenses as a deduction is an easy way to get into trouble with the CRA.
For Employers: Managing the T2200 Form
Employer Duties and Obligations [ANCHOR]
As an employer, you know that there are specific duties and obligations that you must fulfill to your employees. When it comes to the T2200, you must answer the question, "does this employee's contract require them to pay their expenses out of pocket while carrying out the duties of employment?" If the answer is 'no,' then your employee cannot deduct any expenses.
If your employees work from home, use their cars, or otherwise pay for other unreimbursed expenses regularly as part of their job duties? If yes, then they may be able to deduct those as employment expenses.
But they cannot claim said expenses as tax deductions unless you, their employer, complete Form T2200 Declaration of Conditions of Employment. By filling this form out, you can provide your employees with a way to take advantage of those deductions to minimize their tax obligations.
Content of Form T2200
The first part of the form contains necessary information about the employee, such as an address, SIN, and job title. The next part requires you to fill out the information about the employee's day-to-day conditions of employment. These fundamental questions on the employee's contract show if they must pay their expenses while carrying out their job duties.
If you answer "no" to the first question in the form, then the employee is not entitled to any deductions. If the answer is "yes," then the next sections must be filled out with more details.
The following questions deal with employees required to travel to locations away from your primary place of business. You must also detail how often they're out of town on business. This part also expects you to provide any expenses that the employee incurs in their motor vehicle allowance or whether the company has provided a vehicle.
Further questions ask about the type of employment for the specific employee, including:
- Is the employee expected to rent an office? Use part of their home as an office?
- Does the employee have a car that is used for business purposes?
- Do they require a business cell phone?
- Is your employee required to own a power saw? (some of these questions go quite deep)
Completing the Document
Upon completion, you have to sign the form and date it. You must also certify that the information given on the form is, to the best of your knowledge, both correct and complete.
It's essential to remember that both you and your employee can face penalties for any false statements submitted to the CRA. So, it is in your best interest to make sure the answers you give are as accurate as possible and supported by documentation (i.e. a written contract of employment and the itemized list of deductibles, Form T777).
As an employer, like how you seek to save as much as you can on your business taxes, your employees probably are looking to deduct as much as possible to reduce their tax obligations. By filling out Form T2200, you can help your employees maximize their tax deductions for unreimbursed employment expenses.
Knit Payroll can help you maximize your tax deductions and keep on the right side of the CRA. Keep more of what you earn today