If you want to deduct your employment expenses, filing a proper T2200 form is a must
While you won’t be able to submit your 2019 income tax return electronically for a few more weeks (NETFILE opens on Feb. 24), now is a great time to start gathering all the information you will need to file. And when I say “information,” I’m not simply referring to tax slips (many of which haven’t even been issued yet), but other receipts and statements to support the various tax deductions you want to claim.
For example, if you’re an employee and your employer requires you to pay certain employment expenses personally, now is a good time to organize all your receipts and obtain a copy of a properly completed and signed Form T2200, “Declaration of Conditions of Employment” from your employer. Typical deductible employment expenses can include: certain food, beverage and entertainment expenses; out-of-town lodging expenses; parking; office supplies; and allowable motor vehicle expenses.
While you don’t file the T2200 with your return, you’re supposed to keep it in case the CRA asks to see it. If you get audited by the CRA, the failure to have a properly completed Form T2200, preferably completed and signed by your employer either in or just after the tax year in which your employment expenses were incurred, can be fatal to your claim. A recent tax case, decided last week, shows what can happen if you don’t have proper support for your employment expenses and file dubious-looking T2200s.
A Toronto taxpayer found himself in Tax Court because he did not file income tax returns for the 2011, 2012 and 2013 taxation years and as a result, the CRA assessed him based on the employment income he received from several different employers during those years. In calculating his taxes owing, the CRA gave him credit for certain non-refundable tax credits as well as for the taxes that were deducted and remitted at source by his employers. The taxpayer was also hit with failure-to-file penalties and assessed non-deductible compound arrears interest on the unreported income for the years in question.
While the taxpayer didn’t challenge these calculations, he objected to the “non-recognition of the deductibility of certain employment expenses” for the years under review, as well as to the late-filing penalties and arrears interest.
During the tax years in question, the taxpayer worked for three community outreach and service associations “dedicated to the noble task of assisting the settlement, community integration and social needs of … immigrants.”
The taxpayer’s tasks were varied, widespread and took him around the Greater Toronto Area. As executive director of the organization, he supervised the centre, solicited funding from government, prepared reports, reported to the board, ran the annual general meeting and administered the bank and payroll. He was frequently required to travel for meetings, workshops and various community gatherings and he used his own car, and paid for fuel, parking, insurance and repairs. He estimated his mileage to be “not less than” 30,000 kilometres in each of the years.
When questioned about his employment related expenses, he was “quite vague,” stating that his expenses were “not less than” $9,000, $9,000 to$10,000 and $6,000 to $7,000 in each of 2011, 2012 and 2013, respectively.
As evidence of his expenses and his eligibility to claim them, the taxpayer submitted form T2200s for the 2001, 2012 and 2013 tax years, all dated May 3, 2014. He submitted a variety of Honda service and finance statements and 15 gas station receipts.
As the judge explained, in order for employment expenses to be tax deductible, the expenditure and its incurrence must be a necessary condition of employment. The judge reviewed the T2200s and noted that all three years’ forms were dated May 3, 2014. Certain versions had “confusing indications of which terms applied. No version consistently described (his) job title and description of duties consistently with any other year.” The judge also observed that in one year, 2011, the individual who signed the T2200 “spelled his or her own name differently from other years.”
As to the reliability of the expenses incurred each year, the judge noted that each year’s return contained “identical amounts within each year for each category of expense relating to lease payments, repairs and maintenance … and fuel costs were identical in 2012 and 2013 as were the total distances driven in those two years.” No log or record differentiating between personal or employment expenses was produced.
The judge found that taxpayer’s “uncorroborated” testimony to be “self-serving concerning his conditions of employment,” noting that the T2200s were created “not only after the fact, but no employer representative offered any clarification or support.”
In addition, the evidence as to the amount of his expenses was “missing for most years, unreliable for others and inconsistent with the amounts sought to be deducted.” Given the lack of reliable evidence as to the amounts of expenses incurred or of a log of the kilometres driven, “whoever incurred those expenses, for what purpose and the extent of reimbursement all remain a mystery.”
The judge denied all of the taxpayer’s employment expenses.
The taxpayer also requested forgiveness of the penalties and interest he was charged for not filing his tax returns. Prior to 2016, the taxpayer suffered some tragic family losses leading to depression and testified that these “personal family issues during the appeal years … took his time, attention and efforts away from filing his tax returns.”
The judge noted that no tax returns for the years under appeal had ever been filed and each was at least five and a half years beyond the filing due date. While the taxpayer argued that “his personal circumstances alleviate his responsibility to file his tax returns on time,” the judge disagreed, noting that such circumstance “may explain a delay … (but) it does not excuse a complete omission.”
For this reason, the judge upheld the penalties and arrears interest.