Employees have many ways to maximize their tax returns
Until the end of the month, Jamie Golombek gives tax filing tips for specific groups. This week, tax tips for employees. Next week, tips for investors.
Every salaried man and woman has had to listen begrudgingly to boastful tax tales from self-employed friends or neighbours, who seem to be able to write-off everything, from their cars, to a portion of their homes, right down to the kitchen sink (think caterers!).
While employees are certainly limited in what they can deduct, it’s important to know the rules to take advantage of all available deductions and credits.
Let’s begin with the deductions. Under the Income Tax Act, an employee can only deduct “the cost of supplies that were consumed directly in the performance of the duties of ... employment and that the ... employee was required by the contract of employment to supply and pay for.”
In other words, to deduct employment expenses, such as non-reimbursed travel costs or supplies, you need your employer’s acknowledgement that you were indeed required to pay those expenses. This requirement must be certified by your employer on Form T2200.
Earlier this year, the CRA was asked by one of Canada’s education boards whether it should be completing the T2200 forms for teachers who spent their own personal money on teaching supplies, but were not reimbursed.
The issue came down to whether the requirement to pay for supplies is explicitly included in a contract of employment or could be implied.
While each case is different, the CRA pointed to factors used in previous tax cases, such as whether or not the failure to purchase supplies could result in termination of employment, a poor performance review or other disciplinary action.
The CRA concluded 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 teaching supplies.
In addition to expenses, employees may also claim tax depreciation, but only for automobiles and airplanes. In other words, if a laptop is purchased for work in the evenings or weekends, the initial capital outlay can’t be depreciated for tax purposes.
This inequity was partially addressed with the introduction of the non-refundable Canada Employment Credit, meant to give Canadians a break on what it costs to work, recognizing expenses for things such as home computers, uniforms and supplies.
The credit is automatically available to anyone who reports employment income on lines 101 or 104 of the personal tax return. The amount on which the credit is based is the lower of your 2009 employment income or $1,044, and is claimed on Line 363 of Federal Schedule 1. It’s worth 15%, equating to a maximum credit of $157 in 2009.
Finally, employees who regularly take public transit to work should remember to claim the 15% tax credit for the cost of public transit passes.