4 – DEDUCTING EMPLOYMENT EXPENSES

Employment Expenses – What Cannot Be Claimed
Employment Expenses – Who Can Claim Them and How
The T2200 Form – Declaration of Conditions of Employment (Explained for Beginners)
🧾 The T777 Form – Statement of Employment Expenses
🧭 An Overview and the Framework for Deducting Employment Expenses on the T1
Example of a Simple T2200 and T777 with Vehicle Expense Deductions
Overview of the Two Types of Vehicle Allowances and Their Tax Implications
What If a Vehicle Allowance Is Received? – How to Factor In Reimbursements
What If a Non-Taxable Kilometre Allowance Is Received from the Employer?
An Overview of Home Office Expenses — What You Can and Cannot Claim
Criteria and Process for Deducting Home Office Expenses for Employees
🏠 Example of Home Office Expense Deductions (T2200 & T777)
💼 Example of a Straightforward T2200 and T777 with Other Expenses
🚗 Example: T2200 and T777 with Reimbursed Expenses
Additional Eligibility for Expenses for Commissioned Salespeople
Example of a T2200 and T777 for a Commissioned Salesperson
Expenses You Cannot Deduct as an Employee (and Other Important Details)
Filing Requirements for Employment Expenses – What You Need to File with the CRA
CRA Guide T4044 for Employment Expenses

Employment Expenses – What Cannot Be Claimed

When preparing Canadian income tax returns, one of the most common questions new tax preparers and taxpayers ask is:
“What employment expenses can I claim?”
Before diving into what can be claimed, it’s just as important to understand what cannot be claimed — because many expenses people assume are deductible actually aren’t.

This section will walk you through the non-deductible employment expenses so you can avoid mistakes and set the right expectations for your clients.

1. Travel to and From Work

Many people believe they can claim the cost of commuting from their home to their regular workplace — but this is not deductible under Canadian tax law.

Whether you drive your own car, take public transit, or use rideshares, the cost of traveling between your home and your workplace cannot be claimed.

Why?
Because this travel is considered personal in nature, not part of the duties of earning income.

The only travel that can be deducted is travel required while performing your job — for example, visiting clients, making deliveries, or traveling between multiple work sites as part of your employment duties. Commuting to your workplace, however, remains personal and non-deductible.

2. Personal Expenses

Any expense that is personal, even if it helps you perform your job better, is not deductible. The Canada Revenue Agency (CRA) clearly separates personal and employment-related expenses.

Here are common examples of personal expenses that cannot be claimed:

Clothing and shoes: Everyday clothing or business attire (like suits, dresses, or shoes) are personal expenses. Even if your job requires you to dress professionally — such as a lawyer, accountant, or real estate agent — these costs are not deductible.
Personal grooming: Haircuts, makeup, skincare, or dry cleaning of personal clothing are also not deductible, even if they help you “look professional” for work.
Personal memberships: Gym memberships, club dues, or personal development programs not required by your employer cannot be deducted.

The key reason: these expenses benefit the individual personally, not just professionally, and therefore cannot be treated as employment costs.

3. Work Clothing (Except Safety or Protective Gear)

There’s a common misconception that any “work clothes” can be deducted. That’s not the case.

Regular business attire or uniforms you choose to wear are not deductible.

However, there are very limited exceptions for certain specialized workwear, such as:

Safety boots or shoes
Hard hats
Protective gloves
Fire-resistant clothing or safety vests

These are considered protective equipment, not ordinary clothing, and they are deductible only if you are required by your employer to purchase them and are not reimbursed.

In many cases, though, employers provide or reimburse employees for such items, meaning there’s nothing for the employee to claim.

4. Personal Vehicle Use (for Commuting)

If you use your own vehicle just to get to and from work, those fuel, parking, and maintenance costs are not deductible.

Vehicle expenses can only be claimed when the travel is directly related to earning employment income, and only if your employer requires you to pay those costs as a condition of employment.

To claim any employment-related vehicle expenses, you would need a completed Form T2200 (Declaration of Conditions of Employment) from your employer — which confirms that you must cover those costs as part of your job.

Commuting, however, still remains a personal expense, no matter how far or costly the drive is.

Any expense that doesn’t directly help you earn your employment income cannot be deducted. Examples include:

Meals or snacks during your regular workday
Personal cell phone or internet costs (unless specifically required for work and not reimbursed)
Training or education courses not required by your employer

Only expenses that are clearly required by your job and supported by documentation (such as a T2200 form) can be considered deductible.

6. Even Business Owners Face the Same Rules

You might wonder whether these rules only apply to employees — they don’t.
Even self-employed individuals or corporations cannot deduct personal expenses like clothing, grooming, or commuting costs.

While business owners sometimes claim these costs, the CRA does not allow them. If reviewed, such expenses are typically disallowed upon audit.

🔍 Key Takeaway

When in doubt, remember this general rule:

If an expense is personal in nature — meaning it benefits the individual and not just the job — it’s not deductible.

Understanding what cannot be claimed helps prevent costly mistakes and ensures your tax returns stay compliant with CRA standards.

In the next section, we’ll look at which employment expenses can be claimed and the eligibility requirements for deducting them.

Employment Expenses – Who Can Claim Them and How

When it comes to deducting employment expenses in Canada, not every employee qualifies. The Canada Revenue Agency (CRA) allows certain employees to claim deductions only if specific conditions are met. Understanding who can claim these expenses—and how the process works—is an essential skill for any new tax preparer.

Let’s go through the eligibility rules, required forms, and key steps you need to know.

🧾 1. Basic Eligibility Criteria

To claim employment expenses on a personal (T1) tax return, two main conditions must be met:

Condition 1: The employee is required to pay their own work expenses

This means that the employee’s contract of employment—written or implied—states that certain costs must be paid personally.

It doesn’t always have to be a formal, signed document. Sometimes, it’s understood between the employer and the employee.

Example:
Jason is a plumber who uses his own van to visit job sites. His employer doesn’t reimburse him for fuel, repairs, or insurance. Even though there’s no written contract, it’s clearly part of his job arrangement that he pays these costs himself.

In this case, Jason may be eligible to claim employment expenses for his vehicle.

Condition 2: The employee does not receive an allowance for those expenses (or includes the allowance in income)

If the employer reimburses the employee for their expenses, they generally cannot claim a deduction.

However, there’s one exception:
If the allowance received from the employer is included in the employee’s income, then the employee may deduct their actual expenses instead.

Example:
Let’s say Jason’s employer pays him a $600 monthly vehicle allowance to cover work-related travel. If that $600 per month ($7,200 for the year) is taxable and reported as income, Jason can include it in his income and then deduct the actual business-related vehicle costs (like gas, insurance, and maintenance).

If, however, the allowance is non-taxable (meaning it isn’t included in income), Jason cannot also claim expenses—otherwise, he’d be double-dipping.

📝 2. The Role of Form T2200 – Declaration of Conditions of Employment

To verify that an employee meets the above conditions, the employer must complete and sign Form T2200, called the Declaration of Conditions of Employment.

This is one of the most important documents for claiming employment expenses.

What the T2200 form does:

Confirms that the employee is required to pay certain work-related expenses.
States which types of expenses the employee is responsible for (for example, vehicle, phone, home office, or supplies).
Indicates whether the employee receives any reimbursements or allowances.
Must be signed by the employer (usually a manager, HR representative, or supervisor).

Important: The T2200 form must be issued by the employer.
Employees cannot fill it out themselves, and tax preparers cannot create it for them.

The CRA requires this form as proof that the employee is genuinely responsible for paying those expenses as part of their job.

🚗 3. Examples of Eligible Situations

Here are a few real-world examples to help you identify when employees may be able to claim employment expenses:

Situation	Eligible to Claim?	Explanation
Jason uses his personal van for work and pays his own fuel and insurance	✅ Yes	Required under employment conditions and not reimbursed
Sarah drives her own car to commute to and from the office	❌ No	Personal commuting expenses are not deductible
Emma receives a $500/month non-taxable car allowance	❌ No	She has already been compensated and it’s not included in income
Raj includes his $600/month vehicle allowance in income and keeps expense records	✅ Yes	Included in income, so can claim actual employment expenses

💼 4. Commission Employees Have Special Rules

Employees who earn commission income have some additional flexibility in claiming deductions.

Commissioned employees can usually deduct the same expenses as other employees, plus certain extra costs directly related to earning their commissions — for example, advertising or promotion expenses.

However, to qualify:

They must be paid in whole or in part by commission, and
Their T2200 form must indicate that they are responsible for those specific expenses.

These extra deductions are claimed on the same forms, but with slightly different rules, which you’ll explore later when learning about commission income deductions.

📄 5. The Forms Used for Claiming Employment Expenses

Once you have the signed T2200 form, the actual deduction is claimed on Form T777 – Statement of Employment Expenses.

The T777 form lists the types of expenses eligible to be claimed and calculates the total amount that will appear as a deduction on the tax return.

We’ll cover the details of this form later, but for now, remember:

T2200 = authorization from the employer
T777 = calculation and claim of the expenses

Both are essential for CRA compliance.

✅ 6. Summary – Key Points to Remember

To determine whether someone can claim employment expenses, ask these questions:

Are they required to pay work-related expenses as part of their job?
→ If yes, continue.
Are they reimbursed or given an allowance for those expenses?
→ If yes, the allowance must be included in income to deduct expenses.
Did the employer issue a signed Form T2200?
→ If not, the CRA will not allow the deduction.
Are the expenses directly connected to earning employment income?
→ Personal or unrelated costs cannot be deducted.

If all of the above are satisfied, then the employee may be able to claim those expenses using Form T777.

💡 Takeaway for New Tax Preparers

For beginners, it’s crucial to remember that eligibility comes before calculation.
Before you start entering numbers, always confirm that the employee meets the CRA conditions and has the necessary documentation (especially the T2200 form).

Understanding these fundamentals will help you accurately identify valid deductions, avoid disallowed claims, and build a strong foundation in Canadian personal tax preparation.

The T2200 Form – Declaration of Conditions of Employment (Explained for Beginners)

If you’re learning how to prepare Canadian tax returns, one of the most important documents you’ll come across when claiming employment expenses is the T2200 form, officially called the Declaration of Conditions of Employment.

This form acts as proof that an employee is required to pay certain work-related expenses and therefore may be eligible to claim those costs on their tax return. However, the form must be accurate, complete, and signed by the employer — otherwise, the Canada Revenue Agency (CRA) will not accept the claim.

In this section, we’ll go through the purpose of the T2200, what information it contains, and how to review it carefully before claiming employment expenses.

🧾 What Is the T2200 Form?

The T2200 form is a declaration completed by the employer, not the employee. It outlines the conditions under which the employee works — for example, whether they:

Must pay for their own work-related expenses (like vehicle use, phone, or home office costs),
Travel for work, or
Earn commission income that involves additional costs.

Without this signed form, an employee cannot legally claim employment expenses on their personal tax return (T1).

The T2200 doesn’t calculate deductions — it simply authorizes and confirms eligibility. The actual expense amounts are later claimed on Form T777 (Statement of Employment Expenses).

📄 Overview of the Form

The T2200 is three pages long and divided into several sections. Here’s what each part typically includes:

Part A – Employee and Employer Information

This section lists:

The employee’s name and job title,
The employer’s name and address, and
A brief job description.

The job description is important because it helps CRA verify whether the employee’s duties align with the expenses being claimed.
For example, a construction supervisor who drives to multiple job sites might reasonably claim vehicle expenses, while an office clerk who works at one location would not.

CRA Tip: CRA often checks whether the nature of the employee’s work actually requires expenses. A vague or mismatched job description can raise questions during a review.

Employer Declaration (End of the Form)

At the bottom of the T2200, you’ll find the employer’s declaration and signature area.
This is the most critical part of the form. It must include:

The name and title of the person authorized to sign (usually a supervisor, HR manager, or payroll officer),
Their phone number, and
Their signature and date.

⚠️ Important:
If the form is not signed by the employer (or is signed by the employee themselves), it’s invalid.
An unsigned T2200 cannot be used to support an employment expense claim.

🔍 Reviewing the Key Questions

The middle portion of the T2200 contains a series of numbered questions.
These questions identify exactly what the employee is required to pay for and what allowances or reimbursements they receive. Let’s go through the key ones.

Question 1 – Contract of Employment

This question asks if the employee is required to pay their own expenses as part of their employment contract.

This must be marked “Yes” for the employee to claim employment expenses.

Sometimes, small business employers mistakenly answer “No” because they believe a formal written contract is required — but that’s not true.
An implied contract (an unwritten understanding between employer and employee) is enough, as long as the employee is expected to pay certain costs personally.

If this box is marked “No,” the rest of the form becomes invalid, and no deductions are allowed.

Question 2–4 – Work Travel and Period of Employment

These questions confirm:

Whether the employee travels for work (not commuting to and from home, but work-related travel),
The area or region where travel occurs (e.g., within the Greater Toronto Area or across multiple cities),
The employment period (start and end dates).

This information helps determine how long and to what extent the employee incurred eligible expenses.
If someone only worked part of the year, only expenses from that period can be claimed.

Example:
If an employee was laid off in September, expenses after that date cannot be included.

Question 5 – Vehicle Allowances and Vehicle Expenses

This section is used to confirm whether:

The employee is required to use their personal vehicle for work,
They receive a vehicle allowance, and
That allowance is taxable or non-taxable.

This is essential for calculating the correct claim on the tax return.
For example, if the allowance is non-taxable, the employee cannot claim additional vehicle expenses.
If the allowance is included in income, then the employee can deduct the actual vehicle costs related to employment use.

Question 6 – Reimbursed Expenses

Here, the employer specifies whether the employee was reimbursed for any expenses they paid out of pocket.

If certain costs were reimbursed, those cannot be claimed again.
This question helps prevent double-dipping, which is when someone deducts an expense they’ve already been paid back for.

Question 8 – Commission Income

This section applies to commission-based employees.
It confirms whether the employee:

Earned commission income, and
What percentage of their total income came from commissions.

Only employees who earn commissions (and have this question marked correctly) can claim additional deductions such as advertising or entertainment expenses.
The commission amount should match the figure in Box 42 of the employee’s T4 slip.

Question 9 – Other Expenses

This question covers less common situations where the employee:

Rents their own office,
Hires an assistant or substitute, or
Pays someone to perform their duties temporarily.

Although rare, these cases exist in certain fields — for example, a substitute professional or sales agent covering a colleague’s territory.

Question 10 – Working from Home

This section identifies employees who are required to work from home.
It specifies:

The percentage of time the employee worked from home, and
Whether the employer reimbursed any home office costs.

This helps determine whether the employee qualifies to claim home office expenses, and what portion of utilities, rent, or maintenance can be deducted.

Special Questions – Tradespeople and Apprentices

Near the end of the form, there are questions specific to:

Tradespeople,
Apprentice mechanics, and
Forestry workers.

These groups have special expense rules, such as tool deductions, that are beyond the general employment expense category.
While these may not apply to most taxpayers, it’s important for preparers to know they exist — and the CRA provides detailed guidance for each group on its website.

🖊️ Reviewing and Using the Form Properly

When you receive a completed T2200 from a client or employer, always:

Check that it’s signed and dated by the employer.
Read each question carefully — don’t just assume it’s correct.
Compare the answers to the information on the T4 slip and your client’s description of their job.
Use the T2200 to complete Form T777 accurately.

⚠️ Many CRA reassessments happen because the tax preparer did not carefully review the T2200 before filling out the T777.
Always double-check the answers — especially about reimbursements, allowances, and commission income.

✅ Key Takeaways for New Tax Preparers

The T2200 is the employer’s declaration — it’s not filled out by the employee or the preparer.
Without a signed and valid T2200, the CRA will deny employment expense claims.
Always make sure Question 1 is “Yes.”
Review vehicle, travel, and reimbursement sections carefully to ensure proper deductions.
For commission employees, confirm the T4 Box 42 matches the commission details on the T2200.
Use the information on the T2200 to accurately complete Form T777 (Statement of Employment Expenses).

Understanding the T2200 form is a major step toward becoming a confident and accurate tax preparer.
In the next section, we’ll look at how to use the T2200 and T777 together to calculate allowable deductions — including examples of common employment expense claims.

🧾 The T777 Form – Statement of Employment Expenses

Once an employee receives a Form T2200 (Declaration of Conditions of Employment) from their employer, the next step is to report the actual employment expenses on their personal tax return (T1).
This is done using Form T777 – Statement of Employment Expenses.

What Is the T777 Form?

The T777 form is the document that allows employees to claim certain work-related expenses they paid to earn employment income.
While the T2200 verifies that an employee is eligible to claim expenses, the T777 is the form that actually reports those deductible expenses on the income tax return.

It’s important to note that:

The T2200 is not filed with the tax return unless the CRA requests it.
The T777 is filed as part of the tax return and directly affects the taxpayer’s deduction.

Understanding the Structure of the T777 Form

The T777 is a two-page form, but most employees will only need to complete the first page.
Here’s how it’s generally structured:

1️⃣ Employment Expenses Section

This section lists all the different types of deductible expenses that employees might have paid out of pocket.
Common examples include:

Advertising and promotion – Usually for commission employees who spend money to earn commissions.
Meals, beverages, and entertainment – Only in specific work-related situations.
Parking costs – When incurred while performing employment duties.
Office supplies – Items like pens, paper, and toner that are directly used for work.
Cell phone or long-distance charges – If required for employment duties.

Each of these amounts should be supported by receipts or invoices.
Tax preparers should ensure that every expense claimed has supporting documentation in case the CRA asks for proof.

2️⃣ Motor Vehicle Expenses Section

This section helps calculate how much of an employee’s vehicle costs can be deducted.

To complete it, the employee (or tax preparer) needs:

The make and model of the vehicle.
The total kilometers driven during the year.
The kilometers driven for employment purposes.
A record of all vehicle expenses, such as:
- Fuel
- Maintenance and repairs
- Insurance
- License and registration fees
- Leasing or interest costs (if applicable)

Only the employment-use percentage of these costs is deductible.
For example, if 30% of the total kilometers were for work, then only 30% of the vehicle expenses can be claimed.

3️⃣ Work-Space-in-Home Expenses

Employees who work from home may be able to deduct home office expenses — but only if Form T2200 specifies that the employee was required to maintain a workspace at home.

Eligible expenses can include:

Electricity, heating, and water
Rent (if renting the home)
Internet (for employment use only)

Homeowners generally cannot deduct mortgage interest or property taxes unless they earn commission income and meet specific conditions.

A key mistake many new filers make is assuming that simply working from home means they can claim these deductions.
That’s not true — the employer must confirm eligibility in the T2200, and the space must be used regularly and exclusively for work.

4️⃣ Capital Cost Allowance (CCA)

CCA represents depreciation for tax purposes on assets like vehicles, computers, or tools.
However, employees must be cautious — only certain employees (such as commission salespeople) can claim CCA, and only for specific types of assets.

For example:

Employees working from home generally cannot claim CCA on home office equipment.
Commission employees may be allowed to claim CCA on vehicles used for work.

It’s always best to review CRA’s rules carefully before claiming CCA on the T777.

Filing Tips for New Tax Preparers

Here are a few important reminders:

Keep all receipts and mileage logs — CRA can request proof at any time.
Match details on the T777 to the information on the T2200. If the T2200 doesn’t indicate that an expense type is required for work, you cannot claim it.
Use reasonable estimates based on records; avoid guessing or inflating amounts.
Only deduct the employment portion of any expense — personal use must always be excluded.

Example Scenario

Let’s say Jason, a plumber, uses his own van for work.
His employer gives him a T2200 confirming he must pay for his own vehicle expenses and doesn’t receive a vehicle allowance.
Jason keeps all his fuel, maintenance, and insurance receipts and tracks his kilometers.

At tax time:

Jason completes the motor vehicle section of the T777, listing his total vehicle expenses.
He calculates that 70% of his driving was for work.
He deducts 70% of his total vehicle costs as employment expenses on his T777.

These deductions will then appear on his T1 tax return, reducing his taxable income.

Summary

Key Form	Purpose	Filed with CRA?
T2200	Confirms employee eligibility for deductions	❌ No (keep on file)
T777	Lists and calculates actual deductible expenses	✅ Yes (file with tax return)

The T777 is the bridge between what the employer confirms and what the employee claims.
By carefully completing it and keeping good records, both tax preparers and employees can ensure deductions are accurate and compliant with CRA requirements.

🧭 An Overview and the Framework for Deducting Employment Expenses on the T1

When preparing a Canadian income tax return, one of the more detailed areas you’ll encounter is employment expenses — costs that employees pay out of their own pocket while earning employment income.
To claim these expenses, there’s a structured process that every tax preparer must follow carefully.
Let’s walk through the step-by-step framework that helps ensure employment expense claims are valid, accurate, and CRA-compliant.

🧩 Step 1: The Foundation — Form T2200 (Declaration of Conditions of Employment)

The first and most crucial step is confirming whether the employee is even eligible to claim employment expenses.
That determination comes from Form T2200, the Declaration of Conditions of Employment.

This form must be:

Completed and signed by the employer, and
Kept on file by the employee (it is not sent to the CRA unless requested).

If a signed T2200 isn’t available, the employee cannot claim employment expenses — no matter what receipts or expenses they have.

So, before doing any calculations or entering any amounts on the return, make sure that this form is obtained and properly completed.

📝 Step 2: Reviewing the T2200 to Identify What’s Deductible

Once you have the T2200, go through it line by line.
The goal is to understand:

What expenses the employee was required to pay for work,
Which expenses were reimbursed by the employer, and
Whether certain items, such as vehicle costs or home office expenses, are allowed or restricted.

This review will help you create a list of deductible expenses that you’ll later enter on the T777 form (Statement of Employment Expenses).

Each expense must meet two tests:

It was required as a condition of employment, and
It was not reimbursed by the employer.

🚗 Step 3: Collecting Receipts and Records from the Client

After identifying what’s deductible, the employee must provide proof of those expenses.
Typical documentation includes:

Receipts for items like office supplies or parking,
Invoices for tools or materials,
Mileage logs for vehicle use, and
Bills for internet or utilities if claiming home office expenses.

As a tax preparer, always remind clients that CRA can request these records anytime — so it’s critical to keep organized receipts and detailed logs.

🧾 Step 4: Completing the T777 – Statement of Employment Expenses

The T777 form is where all the deductible amounts are summarized and reported on the T1 personal income tax return.

Common expense categories include:

Motor vehicle expenses
Home office expenses
Supplies and tools
Meals and entertainment (for eligible employees)
Cell phone or internet use related to work

The total deduction calculated on this form reduces the employee’s taxable income.

🚘 Step 5: Vehicle Expenses — The Most Common and Reviewed Deduction

Motor vehicle expenses are among the most frequently claimed — and most closely reviewed — employment deductions.

When claiming these expenses:

Only the employment-use portion is deductible.
Employees must maintain a kilometer log showing both:
- Total kilometers driven during the year, and
- Kilometers driven specifically for employment duties.

This log determines the employment-use percentage (for example, 40%).
Then, that percentage is applied to all eligible vehicle costs — such as gas, maintenance, repairs, insurance, and lease or depreciation (Capital Cost Allowance, or CCA).

Example:
If total vehicle expenses were $10,000 and 40% of driving was for work, only $4,000 is deductible.

💸 Step 6: Understanding Reimbursements

One of the most common areas of confusion is employer reimbursements.
A simple rule applies:

If the employee is reimbursed for an expense, they cannot deduct it.

That’s because the employee is not out of pocket — the employer has already covered the cost.

Example:

If Jason spends $180 on office supplies but his employer reimburses him in full, he cannot claim that $180 on his tax return.
The deduction belongs to the employer, not the employee.

⚖️ Step 7: Handling Partial Reimbursements and Allowances

Reimbursements can sometimes get tricky, especially with vehicle allowances.
Employers might give a monthly car allowance — for example, $300 per month.

Now, if Jason receives $3,600 in total allowances for the year but actually spends $10,000 operating his vehicle for work, two options exist:

Option 1:
- Report $10,000 as total vehicle expenses,
- Deduct the $3,600 allowance received from the total,
- Claim the difference ($6,400) as a deduction.
Option 2:
- Include the $3,600 in taxable income,
- Deduct the full $10,000 of expenses.

The correct method depends on whether the allowance is taxable or non-taxable, which the T2200 form helps clarify.

🧮 Step 8: Calculating and Reporting the Final Deduction

After all eligible expenses are verified, reimbursed amounts are excluded, and vehicle or home office portions are determined, the total employment expenses are entered on the T777 form.
That total flows directly to the employee’s T1 income tax return, reducing taxable income.

🔍 Why the Framework Matters

This framework is essential because employment expense claims are one of the most frequently reviewed areas by the Canada Revenue Agency (CRA).
Most reassessments happen when:

The T2200 wasn’t reviewed properly,
Expenses were claimed without proper receipts, or
Personal and business use weren’t separated.

By following a clear step-by-step process — from verifying the T2200 to accurately calculating the deductible amounts — tax preparers can help clients avoid audits, reassessments, and denied deductions.

🧠 Quick Recap: The Employment Expense Deduction Framework

Step	Action	Purpose
1️⃣	Obtain and verify T2200	Confirms eligibility
2️⃣	Review form to identify deductible items	Understand what can be claimed
3️⃣	Gather receipts and logs	Support every claim
4️⃣	Complete T777	Summarize all expenses
5️⃣	Calculate vehicle and home office expenses	Apply employment-use portion
6️⃣	Exclude reimbursements	Prevent double claiming
7️⃣	Adjust for allowances	Handle taxable vs. non-taxable payments
8️⃣	File T1 return	Deduction applied to income

✅ Final Thoughts

As a tax preparer, your job isn’t just to enter numbers — it’s to understand why those numbers belong on the return.
The T2200 sets the rules, the T777 applies them, and your due diligence ensures the claim is legitimate.

Taking time to carefully follow this framework will help you file accurate, compliant returns and earn the trust of your clients.

Example of a Simple T2200 and T777 with Vehicle Expense Deductions

Now that we’ve covered the basic framework of how employment expenses work, let’s walk through a simple example to understand how these forms (T2200 and T777) fit together — especially when an employee claims vehicle expenses.

We’ll use an example similar to what you might encounter as a new tax preparer.

🧰 Meet Jason — Our Example Employee

Jason is a plumber who works for a company in the Greater Toronto Area (GTA).
He regularly travels to different client locations using his own vehicle — a Ford F-150 truck — for work purposes.

Because Jason is required to pay for all of his work-related vehicle costs himself, his employer provides him with a signed T2200 form (Declaration of Conditions of Employment) confirming that:

He is required to use his own vehicle for employment, and
He does not receive a motor vehicle allowance or reimbursement from the company.

📄 Step 1: Review the T2200 Form

The T2200 form is your starting point. It outlines what types of expenses the employee is allowed to deduct.
In Jason’s case:

Section 5 of the form asks: “Did this employee receive or were they entitled to receive a motor vehicle allowance?”
→ The answer is No.

This means Jason pays for all his own vehicle costs and therefore may deduct the employment-use portion of those expenses.

If Jason’s employer had reimbursed him for gas, insurance, or any other vehicle costs, those amounts would not be deductible because he wouldn’t be out of pocket for them.

🧾 Step 2: Gather Expense Information

Next, Jason provides all his receipts and expense details for the tax year.
Here’s an example of what he might have tracked:

Type of Expense	Total Amount
Gas and oil	$6,000
Maintenance and repairs	$2,500
Insurance	$2,200
Lease payments (or depreciation)	$6,500
Licensing, registration, etc.	$544
Total	$17,744

It’s important that employees keep all receipts in case the Canada Revenue Agency (CRA) requests to see them later.

🚗 Step 3: Determine Employment-Use Percentage

Since Jason uses his truck for both work and personal activities, he must calculate what portion of his total vehicle use relates to his employment.

Jason keeps a kilometer log (which CRA requires for accuracy) and finds:

Total kilometers driven in the year: 28,920 km
Employment kilometers: 19,185 km

Now, calculate the employment-use percentage: 19,185÷28,920=0.6634=66.34%19,185 ÷ 28,920 = 0.6634 = 66.34\%19,185÷28,920=0.6634=66.34%

That means 66.34% of Jason’s total vehicle expenses are related to his employment.

🧮 Step 4: Apply the Employment-Use Percentage

To calculate Jason’s deductible vehicle expenses: $17,744 × 66.34\% = $11,771.37

This is the amount Jason can deduct as employment expenses on his T777 form (Statement of Employment Expenses).

🧾 Step 5: Complete the T777 Form

The T777 form is the official form filed with the personal tax return (T1).
On this form, Jason’s preparer would:

Enter “Motor vehicle expenses” in the appropriate section.
Indicate the total employment-use expense ($11,771).
Note any relevant details such as make and model of the vehicle and kilometers driven.

The final deduction of $11,771 will appear on line 22900 of Jason’s T1 return — this is where employment expenses are claimed.

⚠️ Important Notes for New Tax Preparers

T2200 is not filed with CRA.
It must be signed by the employer and kept on file in case CRA requests it during a review.
Receipts and logs are critical.
CRA frequently reviews vehicle expense claims. A detailed kilometer log is one of the most important supporting documents.
Only employment-related use is deductible.
You must prorate expenses based on the employment-use percentage (not total use).
No double claims.
If the employer reimbursed any portion of the expenses, that part cannot be deducted again.

🧾 Quick Recap

Here’s the process in short:

Get the T2200 — signed by the employer.
Gather all receipts — fuel, maintenance, insurance, etc.
Calculate total and employment-use kilometers.
Prorate expenses using the employment-use percentage.
Enter the allowable expenses on the T777.
Keep everything on file (T2200, receipts, and kilometer log).

✅ Example Summary

Step	What Jason Did	Key Result
1. T2200 Signed	Employer confirmed he pays his own vehicle costs	Eligible to deduct
2. Gathered Expenses	Totaled $17,744	All receipts available
3. Logged Kilometers	66.34% for employment	CRA-compliant log
4. Calculated Deduction	$17,744 × 66.34% = $11,771	Deductible amount
5. Filed with T777	Deduction reported on T1	Line 22900 deduction

By following these steps, you’ll start understanding how employment expense deductions work — especially when it comes to motor vehicle expenses, one of the most common claims made by employees.

Overview of the Two Types of Vehicle Allowances and Their Tax Implications

When employees use their personal vehicles for work, it’s common for their employer to help cover those costs through something called a vehicle allowance.

As a tax preparer, understanding how these allowances are paid and how they affect taxable income is important, because it determines whether an employee can deduct additional vehicle expenses or not.

There are two main types of vehicle allowances:

Flat (fixed) allowance
Per-kilometre reimbursement

Let’s explore both in detail and see how they’re treated for tax purposes.

🚗 1. Flat (Fixed) Allowance

A flat allowance is a set monthly or annual amount paid by an employer to an employee for using their personal vehicle for work purposes.

For example:

Jason’s employer pays him $400 per month to help cover fuel, insurance, and maintenance on his personal truck that he uses for work.

Even though Jason uses the vehicle for employment, this $400 per month is not based on his actual kilometres driven — it’s just a fixed amount.

💰 Tax Treatment:

A flat allowance is always taxable.
The employer must include it in the employee’s income and report it on their T4 slip.
The employee pays tax on this amount, just like regular salary or wages.

Why? Because the CRA (Canada Revenue Agency) considers a flat allowance to be extra income, not a reimbursement of actual expenses.

✅ What the Employee Can Do:

Since Jason is paying tax on this allowance, he may be able to deduct his actual vehicle expenses if he meets certain conditions:

He must have a signed T2200 (Declaration of Conditions of Employment) from his employer stating he is required to use his own vehicle for work.
He must keep a kilometre log and receipts for all expenses.
He reports his employment-related vehicle expenses on form T777 (Statement of Employment Expenses).

In short:

Flat allowance = taxable income, but the employee can claim actual expenses (with proper documentation).

🧾 2. Per-Kilometre Reimbursement

The second type of allowance is a per-kilometre reimbursement.

In this case, the employee keeps a detailed log of kilometres driven for employment and submits it to their employer. The employer then reimburses the employee based on an agreed rate per kilometre — for example, $0.68 per kilometre for the first 5,000 km (as per CRA’s prescribed rates).

💰 Tax Treatment:

A per-kilometre reimbursement is not taxable as long as:
- It is strictly based on the number of kilometres driven for employment, and
- The reimbursement rate is within the CRA’s prescribed limits.

The CRA updates these rates each year, and employers can check the current limits on the CRA website.

Because this allowance is considered a reasonable reimbursement, it does not appear on the employee’s T4 slip, and the employee does not pay tax on it.

🧮 When Actual Expenses Exceed the Reimbursement:

Sometimes, the per-kilometre rate paid by the employer might not fully cover the employee’s true costs.

For example:

Jason drives long distances, and his employer reimburses him $0.60 per kilometre. However, his actual cost per kilometre (fuel, insurance, maintenance, etc.) comes out to around $0.75.

In this case, Jason has two options:

Add the reimbursement to income and deduct actual expenses, or
Deduct only the difference between his total actual expenses and the amount reimbursed.

Either method results in the same outcome — Jason can claim the portion of his expenses that wasn’t covered by his employer.

🧩 Understanding the Difference — Flat vs. Per-Kilometre

Feature	Flat Allowance	Per-Kilometre Reimbursement
Basis of payment	Fixed monthly/annual amount	Based on kilometres driven
Taxable?	Yes – included on T4	No – not on T4 (if rate within CRA limits)
CRA prescribed rates apply?	No	Yes
Requires T2200?	Yes	Only if claiming additional expenses
Common issue	Employee overtaxed on allowance	Reimbursement may not fully cover true costs

🧾 Where to Find This Information

If you’re reviewing a client’s documents, the T2200 form (Declaration of Conditions of Employment) will usually tell you whether:

The employee received a vehicle allowance, and
What type of allowance it was (flat or per-kilometre).

This helps you determine:

Whether the allowance is taxable, and
Whether the employee can deduct any additional expenses on form T777.

✅ Quick Recap

A flat allowance is always taxable, even if roughly based on distance.
A per-kilometre reimbursement is non-taxable if it meets CRA’s criteria.
Employees who think their reimbursement doesn’t cover all their expenses can still claim deductions — but must add the reimbursement to income or claim only the net amount.
Always look at the T2200 to confirm the type of allowance and ensure proper documentation.

💡 Tip for New Tax Preparers:

When reviewing a client’s T4 or T2200:

Look for any vehicle allowance or reimbursement details.
Ask for kilometre logs and receipts to verify actual costs.
Always check the CRA’s current per-kilometre reimbursement rates, as they change each year.

What If a Vehicle Allowance Is Received? – How to Factor In Reimbursements

When employees use their personal vehicles for work, it’s common for their employer to provide some form of compensation to cover those costs. This payment is usually referred to as a vehicle allowance or reimbursement. However, it’s important to understand that not all vehicle allowances are treated the same for tax purposes.

In this section, we’ll look at how to handle a flat vehicle allowance when preparing a personal tax return and how it affects the employee’s income and deductions.

1. Understanding Vehicle Allowances

A vehicle allowance is money an employer gives to an employee for using their own car for work-related duties — such as visiting clients, traveling between job sites, or delivering goods.

There are two main ways employers provide this allowance:

Flat (Fixed) Allowance – A set amount (e.g., $600 per month) regardless of how much the employee actually drives for work.
Per-Kilometre Reimbursement – Payment based on the actual number of kilometres driven for employment, often following the CRA’s prescribed rates.

In this section, we’ll focus on the flat allowance, which is the more common scenario.

2. Flat Monthly Allowances Are Taxable

If an employee receives a flat amount each month, that payment is taxable — even if the employer refers to it as a “reimbursement.”

The key rule is:

If the payment is not based strictly on the number of kilometres driven for work, it’s considered a taxable allowance.

This means the allowance must be included as part of the employee’s income for the year. The employer will report it on the employee’s T4 slip, typically in:

Box 14 – Employment Income (the total taxable income), and
Box 40 – Other taxable allowances and benefits (which identifies the vehicle allowance portion).

For example, if Jason receives $600 per month, he would have received $7,200 for the year. This $7,200 will appear on his T4 and be included in his taxable income.

3. Deducting Vehicle Expenses

Even though the allowance is taxable, the employee can still deduct their actual vehicle expenses on their tax return — as long as they meet the CRA’s requirements for employment expenses and have a valid Form T2200 signed by their employer.

Here’s how it works in practice:

The employee adds the full allowance amount (which is already included in income on the T4).
Then, the employee calculates their total eligible vehicle expenses — such as fuel, maintenance, insurance, and repairs.
On Form T777 (Statement of Employment Expenses), they record those total expenses and determine the portion related to employment use (for example, 70% business use based on a mileage log).
The total allowable employment-use expenses are then deducted on line 22900 of the T1 return.

This means that while the allowance increased the employee’s taxable income, they are also able to claim deductions for their actual work-related vehicle costs.

4. Example – Jason’s Case

Let’s continue with the example of Jason, who uses his Ford F-150 for work:

Jason’s total annual vehicle expenses (fuel, maintenance, insurance, etc.): $17,744
Percentage of vehicle use for employment: 66%
Allowable employment-use expenses: $11,713.37 (66% of $17,744)
Employer paid Jason a flat allowance: $600/month = $7,200/year

Here’s how this appears on his tax documents:

Jason’s T4 shows his total income (including the $7,200 allowance).
On his T777 form, he still claims his full allowable employment expenses ($11,713.37).
On his T1, his employment income is higher because of the allowance, but his deductions reduce his taxable income accordingly.

Essentially, he reports the income (since it’s taxable) and claims the deductions (to offset his actual costs).

5. Key Takeaways

A flat or fixed vehicle allowance is always taxable, regardless of what it’s called.
It must be included in the employee’s income on the T4 slip.
Employees can still deduct actual employment-use vehicle expenses if they have a valid T2200.
The deductible amount is based on the percentage of work use and documented with a mileage log and receipts.
These deductions are reported on Form T777 and claimed on line 22900 of the tax return.

6. What About Per-Kilometre Reimbursements?

If an employer reimburses the employee based strictly on kilometres driven for work — using CRA’s prescribed rates — that reimbursement is not taxable and won’t appear on the T4.

We’ll explore that scenario in the next section.

What If a Non-Taxable Kilometre Allowance Is Received from the Employer?

When an employee uses their personal vehicle for work purposes, some employers reimburse them based on the number of kilometres driven for employment. This is called a per-kilometre allowance — and in many cases, it is non-taxable.

This section explains what a non-taxable kilometre allowance is, why it isn’t included in income, and how it affects the employee’s deductions when filing a Canadian income tax return.

1. What Is a Non-Taxable Kilometre Allowance?

A kilometre allowance is money paid by an employer to an employee for using their own vehicle for work-related travel.
Instead of receiving a flat monthly amount (such as $600 per month), the employee submits a mileage log showing how many kilometres they drove for work. The employer then reimburses them at a specific rate per kilometre.

Example:
Jason drives 19,185 kilometres for work during the year. His employer reimburses him $0.46 per kilometre.

19,185 × $0.46 = $8,825.10

Jason receives $8,825.10 for the year as a kilometre allowance.

2. When Is the Allowance Non-Taxable?

The Canada Revenue Agency (CRA) publishes a prescribed rate each year for reasonable per-kilometre reimbursements.
If the allowance paid by the employer is at or below this rate, it is considered reasonable and non-taxable.

This means:

It does not appear on the employee’s T4 slip.
It is not included in income on the tax return.
The employee does not pay income tax on this reimbursement.

At the time of the example, the CRA’s rate was in the mid-50-cent range per kilometre, so Jason’s $0.46/km rate was below the limit — making it non-taxable.

3. How Is It Reported on the T2200 Form?

On Form T2200 (Declaration of Conditions of Employment), the employer confirms whether the employee received any vehicle allowance and specifies the type.

In Jason’s case:

Question 5 (“Did this employee receive or were they entitled to receive a motor vehicle allowance?”) would be marked Yes.
The employer would note $0.46 per kilometre as the rate and confirm that the total reimbursement was $8,825.10.

Because the allowance is reasonable and based on actual kilometres, it is treated as non-taxable.

4. How Does It Affect the Tax Return?

Since the allowance is non-taxable, the employee has two choices when filing their tax return:

Option 1: Do Nothing — Keep the Allowance Tax-Free

If the employee feels that the reimbursement fairly covers their costs, they can simply leave it out of the return.
Nothing is added to income, and no deduction is claimed.

This is the easiest option — and perfectly acceptable when the allowance roughly equals the expenses.

Option 2: Claim Actual Vehicle Expenses

Sometimes, the reimbursement doesn’t fully cover the employee’s real costs.
For example, Jason’s actual employment-related vehicle expenses were $11,713, which is about $3,000 more than his non-taxable reimbursement of $8,825.

In this case, Jason can still claim employment expenses on his tax return — but he must factor in the reimbursement.
There are two ways to do that:

5. Two Ways to Handle the Reimbursement When Claiming Actual Expenses

Method 1 – Add the Reimbursement to Income

Jason can add the $8,825 to his income (even though it was non-taxable) and then claim the full $11,713 as vehicle expenses.

This allows him to deduct all his actual employment-related costs, while including the reimbursement as income.
In effect, he’s claiming the difference between his total expenses and the reimbursement indirectly.

Method 2 – Subtract the Reimbursement from the Expenses

The simpler and often preferred way is to deduct the reimbursement directly from the expenses.

Here’s how it works:

Total vehicle expenses: $11,713
Less reimbursement: $8,825
Net deductible amount: $2,888 (rounded)

This net amount represents the portion of Jason’s vehicle expenses not covered by the employer’s reimbursement.
That’s the figure he can claim on his T777 form (Statement of Employment Expenses) and then on line 22900 of his tax return.

6. Key Takeaways

A per-kilometre allowance based on actual distance driven and within CRA’s prescribed rates is non-taxable.
It does not appear on the T4 slip and is not included in income.
If the reimbursement covers all vehicle costs, no action is needed on the return.
If the reimbursement is less than the actual costs, employees can:
1. Add the reimbursement to income and claim full expenses, or
2. Subtract the reimbursement from expenses and claim the net difference.
All claims must be supported by:
- A signed T2200 form from the employer, and
- Proper documentation (receipts and a mileage log).

7. Beginner’s Tip

Form T2200 – This form confirms that the employee had to pay certain work expenses as a condition of employment. The employer signs it, but it isn’t sent to the CRA unless requested.

Form T777 – This is the form where employees list their actual expenses (such as vehicle costs, supplies, or home-office expenses) to calculate how much they can deduct on their tax return.

An Overview of Home Office Expenses — What You Can and Cannot Claim

Working from home has become increasingly common, and many employees wonder if they can claim some of their home expenses when filing their Canadian income tax return. The Canada Revenue Agency (CRA) does allow certain deductions — but the rules can be quite specific depending on the nature of your work and whether you earn a commission.

This guide breaks down what employees can and cannot deduct as home office expenses, and how these expenses are generally treated on the tax return.

✅ What You Can Claim

Home office expense deductions depend on whether you are a salaried employee or a commissioned salesperson.

For All Employees (Salaried or Commissioned)

If you are a regular employee who meets the eligibility requirements (for example, you work from home regularly and use the space only for employment duties), you can generally claim a portion of the following expenses:

Utilities:
- Electricity, heating, and water used in the workspace.
- You can only claim the portion that relates to the workspace used for employment.
Home Internet Access Fees:
- The ongoing monthly fees for home internet are deductible, based on the portion used for work.
- Important: One-time connection or installation fees (for example, from Bell or Rogers) are not deductible.
Minor Repairs and Maintenance:
- Small maintenance costs related to the workspace (like replacing light bulbs or minor painting) can be deducted.
- Large renovations or capital improvements (for example, finishing a basement to create a new office) are not deductible.
Rent (if you rent your home):
- If you pay rent, you can claim the portion that applies to your workspace.
Condominium Fees (utilities portion only):
- If you live in a condo, you can only claim the utilities portion of your condo fees — not the full amount.
- Condo fees also include costs like reserve fund contributions and amenities (pool, gym, etc.), which are not deductible.

Additional Expenses for Commission Employees

If you earn income based on commissions, the CRA allows a few extra deductions in addition to the ones above:

Home Insurance Premiums:
- You can deduct the portion of your home insurance that applies to your workspace.
Property Taxes:
- A portion of your property taxes can also be deducted for your workspace.

However, note that both insurance and property tax deductions apply only to commissioned employees — not to regular salaried employees.

🚫 What You Cannot Claim

Certain common household expenses cannot be deducted as home office expenses for employees, even if the space is used for work. These include:

Mortgage Interest and Principal Payments:
- Neither the interest on your mortgage nor your actual mortgage payments are deductible as employment expenses.
- (This is different for self-employed individuals or business owners filing a business income form, where mortgage interest may be eligible.)
Capital Expenses:
- Costs that improve or increase the value of your home, such as renovations, new flooring, or furniture purchases, are not deductible.
- This includes desks, chairs, and office equipment, unless your employer requires you to buy specific items and reimburses you.
Home Internet Connection Fees:
- As mentioned earlier, you can deduct ongoing monthly internet fees, but not one-time setup or connection charges.
Wall Decorations and Personal Items:
- Pictures, paintings, plants, or other decorative items for your office are considered personal and not deductible.

🧾 How Deductions Are Calculated

To calculate your deduction, you’ll need to determine what portion of your home is used for work. This is usually based on two factors:

Area Used:
- The square footage of your workspace divided by the total square footage of your home.
Time Used:
- If your home office is used for both personal and employment purposes, you must also account for the time it’s used for work.
- For example, if you use your dining room table as your office for 40 hours a week, you’d calculate the proportion of total home area and the proportion of total time used for work.

The total of your eligible expenses (utilities, internet, etc.) is then multiplied by that proportion to determine your deductible amount.

📄 Where It Appears on the Tax Return

Home office expenses are reported on Form T777 – Statement of Employment Expenses, which is filed along with your tax return.
Your employer must also complete Form T2200 – Declaration of Conditions of Employment, confirming that you were required to work from home and pay for these expenses yourself.

💡 Key Takeaways

Only certain types of expenses qualify, and most are limited to a portion of utilities and rent.
Commission employees can also claim home insurance and property taxes.
Mortgage interest, connection fees, renovations, and decorations are not deductible.
Always keep receipts, records, and a detailed calculation of your workspace percentage.
The CRA may request documentation to verify your claim.

This is the general overview of what you can and cannot claim for home office expenses as an employee. As you progress in your tax-preparation learning, you’ll also see how these expenses interact with other forms like T2200 and T777, and how they differ from deductions available to self-employed individuals.

Criteria and Process for Deducting Home Office Expenses for Employees

Many Canadians work from home either full-time or part-time, and it’s natural to wonder whether some of the costs of maintaining a home workspace can be deducted on a tax return. The Canada Revenue Agency (CRA) does allow employees to claim certain home office expenses — but not everyone qualifies, and the list of eligible deductions is fairly limited.

This section will help you understand the criteria you must meet and the steps to properly claim home office expenses as an employee.

1. Not Everyone Qualifies

A common beginner mistake is assuming that anyone who occasionally works from home can claim home office expenses.
That’s not the case. Even if your employer gives you a Form T2200 (Declaration of Conditions of Employment), you must still meet specific CRA requirements to qualify.

2. Key Eligibility Requirements

The CRA outlines two main conditions under which an employee can deduct home office expenses. You must meet at least one of them:

a. Your home is the place where you mainly do your work

“Mainly” or “principally” means more than 50% of the time.
If you work from home at least half of your working hours during the year, you likely meet this test.
For example:
- If you work from home three days a week and in the office two days a week, that’s 60% — you qualify.
- If you only work from home one day a week (20%), you don’t meet the test.

b. You use your workspace to meet clients or customers on a regular, ongoing basis

This doesn’t just mean a few occasional phone calls or meetings — it must be continuous and significant.
The CRA expects you to have actual meetings or client interactions that take place in your home office as part of your employment duties.

3. The Importance of Form T2200

Before you can claim any employment expenses, including home office costs, your employer must complete and sign Form T2200 – Declaration of Conditions of Employment.

This form confirms that:

You were required to work from home as part of your job duties.
You paid your own expenses and were not fully reimbursed by your employer.
The percentage of time you were expected to work from home (this is crucial for the “more than 50%” rule).

As a tax preparer, the first step is always to review the T2200 carefully.
If the percentage of time spent working from home is less than 50%, the CRA will likely disallow the home office deduction.

4. Which Expenses Are Deductible

Once the employee qualifies, only certain types of expenses can be deducted — and usually only a portion that relates to the workspace.
These typically include:

Utilities (heat, electricity, water)
Rent, if the employee rents their home
Home Internet access fees
Minor maintenance and repairs related to the workspace

Employees who earn commissions may also claim property taxes and home insurance, which regular salaried employees cannot.

We’ll go into more detail on the specific expenses in the next section, but remember that mortgage interest, principal payments, and capital expenses (like renovations or new furniture) are never deductible for employment purposes.

5. Reimbursements from the Employer

If the employer reimburses any portion of the home office expenses, that amount must be handled carefully:

If it’s a taxable reimbursement, it’s added to the employee’s income.
If it’s non-taxable (for example, reasonable direct reimbursements for actual costs), the employee cannot claim a deduction for those same expenses.

The goal is to ensure there’s no “double benefit” — you can’t claim an expense that your employer has already covered.

6. Home Office Expenses Cannot Create a Loss

The CRA does not allow employment expenses, including home office costs, to reduce your total employment income below zero.
In other words, you cannot use these deductions to create a loss from employment.

If your allowable expenses are greater than your income, the excess may be carried forward and applied against employment income in future years, but it cannot generate a negative result in the current year.

7. The Claiming Process

To claim home office expenses, employees must:

Have a signed Form T2200 from their employer confirming eligibility.
Calculate the portion of the home used for work — usually by dividing the square footage of the workspace by the total square footage of the home.
Apply that percentage to the eligible expenses (utilities, rent, etc.) to determine the deductible amount.
Report these amounts on Form T777 – Statement of Employment Expenses when filing the income tax return.
Keep supporting records, including receipts, utility bills, rent statements, and calculations of workspace percentage. The CRA can ask to review these at any time.

8. Summary: Key Points to Remember

Rule	Explanation
Work-from-home requirement	Must work from home more than 50% of the time or meet clients regularly at home.
T2200 Form	Must be completed and signed by employer — confirms eligibility.
Eligible expenses	Mainly utilities, rent, internet fees, and minor maintenance; commission employees can also claim insurance and property taxes.
Non-deductible items	Mortgage interest, property taxes (for regular employees), capital improvements, furniture, and decorations.
No employment loss	Home office expenses cannot reduce employment income below zero.
Documentation	Keep all receipts and calculations for CRA review.

9. Final Thoughts

The home office expense deduction for employees can provide some tax relief, but it’s far more limited than the deduction available to self-employed individuals or business owners.

As a tax preparer, your role is to:

Verify eligibility using the T2200,
Confirm that the “more than 50%” rule is met, and
Ensure that only allowable expenses are claimed correctly on Form T777.

Understanding these fundamentals will help you avoid common mistakes and prepare accurate tax returns for clients who work from home.

🏠 Example of Home Office Expense Deductions (T2200 & T777)

Working from home has become increasingly common in Canada, and some employees may be eligible to claim home office expenses on their income tax return. To do this correctly, two key forms are involved: T2200 and T777.

Let’s go step-by-step.

1️⃣ Step 1: The Employer’s Declaration (Form T2200)

Before an employee can deduct any home office expenses, their employer must first confirm that working from home was a required condition of employment.

This confirmation happens through the T2200 – Declaration of Conditions of Employment form.

What the T2200 Tells the CRA

The employer must answer Question 10:
“Did this employee’s contract of employment require them to use a portion of their home for work?”
This question must be marked “Yes” for the employee to be eligible.
The employer should also indicate the percentage of time the employee was required to perform duties from home.

Important Threshold

If the employee worked less than 50% of the time from home → it’s not considered their principal place of work, and they usually cannot claim home office expenses.
If the employee worked more than 50% of the time from home → they can proceed to claim eligible expenses.

Employer Reimbursements

The T2200 also shows whether the employer reimbursed any portion of the home office costs:

If the employer reimbursed the expense and did not include it on the employee’s T4, the employee cannot deduct it (since they weren’t out of pocket).
If the amount is included on the T4, it becomes taxable income — and the employee can deduct the related expense.

2️⃣ Step 2: The Employee’s Claim (Form T777)

Once the T2200 is properly completed and signed by the employer, the employee fills out the T777 – Statement of Employment Expenses form to calculate and claim the deduction.

Calculating the Workspace in the Home

The employee needs to figure out what percentage of their home was used as a workspace.

Measure the area of the workspace (e.g., home office room).
Divide it by the total square footage of the home. Example: If your home is 1,000 sq. ft. and your office is 100 sq. ft., then 10% of your home is used for work.

This percentage is used to calculate how much of your home expenses can be claimed.

3️⃣ What Expenses Can Be Deducted?

It depends on the type of employee you are:

For Regular (Salaried) Employees

You can typically claim:

Electricity
Heat
Water
Home Internet access fees
Small maintenance items for the workspace (e.g., cleaning supplies, light bulbs)

💡 Note: You cannot claim large renovation costs or improvements to the home — only expenses that directly relate to the work area.

For Commissioned Employees

In addition to the above, commissioned employees may also claim:

Home insurance
Property taxes

For Employees Who Rent Their Home

Renters can claim a portion of their annual rent based on the same workspace percentage.

Example: If your rent is $12,000 a year and your workspace is 10% of your home, you may claim $1,200 as a home office expense.

4️⃣ Important Limits and Conditions

Expenses can only be claimed up to the amount of employment income earned from that job.
If the home office is shared with other purposes (for example, a dining table used for both work and meals), deductions may need to be reduced proportionally based on time used for work.
You cannot create or increase a loss with these deductions — unused amounts may sometimes be carried forward to a future year.

5️⃣ Summary

Form	Purpose	Who Completes It
T2200	Confirms the conditions of employment and that working from home was required	Employer
T777	Calculates and claims eligible home office expenses	Employee

6️⃣ Quick Example

Let’s say:

You worked from home 75% of the time in 2024.
Your home is 1,000 sq. ft., and your workspace is 100 sq. ft. (10% of the home).
Your annual rent is $18,000.
You paid $2,400 for utilities and $600 for internet.

Calculation:

Rent portion: 10% of $18,000 = $1,800
Utilities: 10% of $2,400 = $240
Internet: 10% of $600 = $60

Total Claim: $1,800 + $240 + $60 = $2,100

That $2,100 would be entered on the T777 under “Work-space-in-the-home expenses”.

✅ Key Takeaways

You must have a signed T2200 before claiming home office expenses.
The workspace must be used more than 50% of the time for employment duties.
Only expenses directly related to the work area can be claimed.
Regular and commissioned employees have different eligible expense lists.
Always keep supporting documents and receipts in case the CRA asks for proof.

💼 Example of a Straightforward T2200 and T777 with Other Expenses

To understand how employment expenses work in Canada, let’s walk through a real-life-style example. This will help new tax preparers see how the T2200 and T777 forms connect, and how an employee might calculate what they can deduct.

👩‍💼 Meet Amanda

Amanda works for a cosmetics company as a sales associate.
She:

Earns a regular salary (not commission-based)
Works mostly from home — about 90% of the time
Uses her own vehicle, phone, and home office for work
Is not reimbursed for any of her employment-related expenses

Her situation is a typical “straightforward” example where an employee pays out-of-pocket for expenses that are required for her job.

🧾 Step 1: The Employer’s Declaration (T2200)

Before Amanda can claim anything, her employer must complete and sign Form T2200 – Declaration of Conditions of Employment.

The T2200 tells the CRA that:

Amanda’s employment contract requires her to work from home and use part of her home as an office.
She must use her own vehicle to deliver and mail product samples.
She is not reimbursed for any expenses.
She is also required to pay for:
- Cell phone use for business calls
- Parking when visiting clients
- Office supplies and postage
- Cleaning and small maintenance for her home office

This form acts as proof that the expenses were a required condition of employment — not just personal choices.

💡 Without a signed T2200, an employee cannot claim any employment expenses on their tax return.

📄 Step 2: The Employee’s Expense Statement (T777)

Once Amanda has her signed T2200, she uses Form T777 – Statement of Employment Expenses to calculate the deduction.

This form breaks expenses into categories. Let’s go through each one Amanda claimed.

🚗 1. Motor Vehicle Expenses

Amanda drives her 2019 Honda Accord for work-related travel. She tracks her total and business kilometres to determine the deductible percentage.

She doesn’t receive a car allowance, so she can claim a portion of:

Fuel
Lease payments
Insurance
Maintenance
Licensing fees

After applying the percentage of business use, Amanda’s deductible vehicle expenses total $5,815.

✅ Always keep a detailed mileage log showing business vs. total kilometres — CRA may ask for it.

📱 2. Other Employment Expenses

From her T2200, Amanda was required to pay for:

Cell phone usage for work (only the business-use portion)
Parking when visiting clients
Postage and office supplies used for work (e.g., stationery, envelopes)

After adding these up, her “other expenses” total $1,616.

🏠 3. Home Office Expenses

Because Amanda works 90% from home, she qualifies to deduct workspace-in-the-home expenses.

To calculate this:

Measure the size of her workspace versus her total home size.
- Example: 120 sq. ft. office ÷ 2,150 sq. ft. home = 5.6% of home used for work.
Apply this percentage to eligible home expenses.

Eligible for salaried employees like Amanda:

Electricity
Heat
Water
Internet access fees
Cleaning and small maintenance items (e.g., light bulbs, supplies)

Not eligible (since Amanda is not commissioned):

Home insurance
Property taxes
Mortgage interest

Her total workspace expenses came to around $275 after applying the percentage.

🚨 Important Notes on Limitations

Mortgage interest is never deductible for employment expenses — only for self-employed business income.
Alarm systems or security monitoring related to the home office are deductible, but only for the portion used for work.
Employees can only deduct expenses up to their employment income — these deductions can’t create or increase a loss.

🧮 Step 3: Total Employment Expense Deduction

Here’s a summary of Amanda’s eligible deductions:

Type of Expense	Deductible Amount
Motor vehicle expenses	$5,815
Cell phone, parking, supplies, postage	$1,616
Home office expenses	$275
Total Deduction (Line 22900)	$7,706

This $7,706 total appears on Line 22900 – Other Employment Expenses on her tax return.

📚 What This Example Teaches You

For new tax preparers, Amanda’s case illustrates several key principles:

Always confirm eligibility through the T2200.
Only unreimbursed expenses are deductible.
Different types of employees (salaried vs. commissioned) have different deduction rights.
Keep records and receipts — CRA often requests documentation.
Use reasonable business-use percentages for shared items like cell phones or internet.

✅ Summary Table

Form	Purpose	Completed By	Key Info
T2200	Confirms employment conditions (required to work from home, pay own expenses, etc.)	Employer	Confirms eligibility
T777	Calculates and reports deductible expenses	Employee	Used to claim the deductions on the tax return

🧭 Final Thoughts

Amanda’s situation is a textbook example of a straightforward employment expense claim.
She:

Had clear documentation (T2200)
Paid expenses out-of-pocket
Worked primarily from home
Claimed only allowable deductions

Understanding simple cases like this will help you confidently prepare more complex ones later — such as situations where employees receive partial reimbursements or have commission income.

🚗 Example: T2200 and T777 with Reimbursed Expenses

In this example, we’ll build on what you learned in the previous post by looking at a slightly more complex situation — where an employee receives some reimbursements from their employer.

Understanding how reimbursements affect deductions is one of the most important parts of preparing Canadian tax returns. Let’s look at how this works through the story of Suresh, another employee example.

👨‍💼 Meet Suresh

Suresh works as a sales associate for a company based in southern Ontario.
His job requires him to:

Travel around Hamilton and Burlington to meet clients
Use his own vehicle for business travel
Occasionally work from home one day a week to handle paperwork
Use his personal cell phone for business calls

Suresh’s situation introduces a new element — reimbursed expenses.
That means his employer pays him back for certain costs related to his job.

🧾 Step 1: Review the T4 Slip

When preparing taxes, one of the first clues that an employee may have received reimbursements or allowances comes from the T4 slip — specifically Box 40 (Other taxable benefits).

In Suresh’s case, Box 40 shows $5,400.
This tells us that his employer paid him a taxable vehicle allowance — a flat amount of $450 per month to help with car expenses.

Because this allowance is taxable and already included in his employment income (Box 14), Suresh can now claim related vehicle expenses on his tax return.

💡 Tip: When Box 40 contains a larger amount (over $1,000), it’s worth checking if it includes vehicle allowances, parking, or other taxable reimbursements that might relate to employment expenses.

📄 Step 2: Employer Declaration (T2200)

Suresh’s employer must complete Form T2200 – Declaration of Conditions of Employment confirming his work conditions.

Here’s what his T2200 says:

✅ He is required to travel for work using his personal vehicle.
✅ He receives a flat monthly vehicle allowance ($450/month).
✅ He is required to use his personal cell phone for business calls.
🚫 He is reimbursed for parking, postage, and office supplies — meaning these are not deductible.
🚫 He is reimbursed for part of his home internet and alarm system.
⚠️ He works from home only 20% of the time, which is below the 50% rule, so he cannot claim home office expenses.

💡 Understanding Reimbursed vs. Non-Reimbursed Expenses

This is a crucial distinction for new tax preparers:

Type of Expense	Reimbursed by Employer?	Deductible by Employee?	Explanation
Vehicle allowance	Yes, taxable (Box 40)	✅ Yes	Included in income, so can claim expenses
Parking, supplies, postage	Yes	🚫 No	Employer repaid the full amount
Cell phone (business use)	No	✅ Yes	Employee paid this personally
Internet and alarm system	Yes	🚫 No	Employer reimbursed directly
Home office (used 20%)	N/A	🚫 No	Does not meet the 50% usage test

If the employer reimburses the employee and does not include the reimbursement on the T4, the employee cannot deduct those amounts — because they were already paid back and are not out of pocket.

📑 Step 3: Completing the T777 – Statement of Employment Expenses

Now let’s look at how Suresh’s T777 would be filled out based on the T2200 information.

✅ Claimable:

Vehicle expenses (portion used for work)
Cell phone (business-use percentage)

🚫 Not claimable:

Reimbursed parking, supplies, or postage
Reimbursed internet and alarm system
Home office (since he only works from home 1 day per week)

🚗 Vehicle Expense Calculation

Suresh drives a Honda Accord that he owns (not leased).
He uses it 36% for work.

His deductible expenses include:

Fuel
Insurance
Maintenance and repairs
Vehicle registration fees
Capital Cost Allowance (CCA) – this is depreciation for tax purposes

Since Suresh owns his car, he can claim CCA instead of lease payments.

Quick overview of CCA:

It represents the decline in value of the car over time.
The CRA assigns vehicles to Class 10, which allows a 30% depreciation rate each year.
Only the employment-use portion of that depreciation can be claimed.

In Suresh’s case, the CCA claimed for the year is $5,605, based on his car’s value and work-use percentage.

🧮 Step 4: Total Employment Expense Deduction

Here’s what Suresh can claim:

Expense Type	Amount	Deductible?	Notes
Vehicle expenses (gas, insurance, etc.)	$4,344	✅	Based on 36% work use
Vehicle CCA (depreciation)	$5,605	✅	Class 10, 30% rate
Cell phone (work-use portion)	Yes	✅	Not reimbursed
Parking, postage, supplies	$3,485	🚫	Fully reimbursed
Home office	–	🚫	Below 50% rule, also reimbursed
Internet and alarm system	–	🚫	Reimbursed by employer

Only the eligible and non-reimbursed expenses are added together on Form T777 and claimed on Line 22900 of the tax return.

⚠️ Common Mistakes Beginners Make

Double-counting reimbursed expenses
→ If the employee was reimbursed and it’s not on the T4, don’t claim it again.
Ignoring Box 40 on the T4
→ Taxable allowances (like vehicle allowances) must be included in income but also allow you to claim related expenses.
Claiming home office expenses under 50% use
→ The CRA requires the workspace to be your principal place of work (more than 50% of the time) to claim it.

🧭 Final Thoughts

Suresh’s case shows how reimbursements change everything when claiming employment expenses.
As a tax preparer, your job is to:

Carefully read the T2200 questions 6 and 7, which indicate which expenses were reimbursed.
Cross-check the T4 Box 40 for taxable benefits.
Include only out-of-pocket, non-reimbursed, work-related expenses on the T777.

Mastering this distinction early will prevent errors and ensure your client only claims what they are entitled to — no more, no less.

Additional Eligibility for Expenses for Commissioned Salespeople

When it comes to claiming employment expenses, commissioned salespeople have a few extra deductions available to them compared to regular salaried employees. This is because their income is often tied directly to how much they sell — meaning they may need to spend their own money to earn that income.

Let’s break down what makes commissioned employees different, and what extra expenses they can claim on their tax return.

1. Who Qualifies as a Commissioned Salesperson?

Not everyone who earns a commission automatically qualifies for these extra deductions. To be eligible, a taxpayer must meet the following conditions:

✅ They pay for their own employment expenses – The employee must personally cover certain costs related to their job (for example, fuel, advertising, or meals) without full reimbursement from their employer.

✅ They are required to work away from their employer’s place of business – This rule generally applies to employees who spend much of their time traveling to meet clients, visit sales territories, or work independently outside the office.

✅ Their income includes commissions based on sales or contracts negotiated – The commission must be tied to actual performance, such as the number or value of sales made.

✅ They do not receive a non-taxable allowance – If the employer provides a non-taxable allowance meant to cover these same expenses, the employee cannot also deduct them.

✅ They have a signed Form T2200 (“Declaration of Conditions of Employment”) – This form must be completed and signed by the employer. It confirms that the employee meets the conditions required to deduct employment expenses.

2. Important Limitation: Expenses Are Limited to Commission Income

Commissioned employees can only deduct eligible expenses up to the amount of their commission income — not their total employment income.

For example:

If a salesperson earned $3,000 in commissions but spent $10,000 in eligible expenses, only $3,000 can be deducted.
The remaining $7,000 cannot be used to reduce other income such as salary or wages.

This rule helps ensure that deductions only apply to income earned from commissions, not from other employment sources.

3. Additional Expenses That Can Be Claimed

Commissioned salespeople can deduct many of the same expenses as other employees — such as vehicle costs, travel, and cell phone use — but they also qualify for a few extra ones.

Here are some examples:

🧾 Advertising and Promotion
Expenses related to promoting sales, such as business cards, flyers, online ads, or promotional events, may be deductible if they help generate commission income.

🍽️ Meals and Entertainment
Taking a client out for lunch or a business event may be deductible, usually at 50% of the cost, as long as it directly relates to earning commissions.

🏠 Home Office Expenses (Expanded Eligibility)
Unlike regular employees, commissioned salespeople can also deduct:

Mortgage interest
Property taxes
Home insurance

These are in addition to the usual utilities and maintenance costs, as long as the home workspace meets CRA’s eligibility rules (used regularly and exclusively for work or meeting clients).

🚗 Vehicle Expenses
Just like other employees, they can claim fuel, maintenance, insurance, and lease or depreciation (capital cost allowance) for the portion of the vehicle used to earn commission income.

📦 Supplies, Licenses, and Fees
Items needed for work — such as office supplies, trade licenses, or professional fees — can also be deducted.

🏨 Travel and Lodging
If traveling away from the regular work area is required to earn commissions, reasonable travel and lodging expenses may be deductible.

4. Why Commissioned Employees Are Treated Like “Mini Businesses”

In many ways, a commissioned salesperson operates similarly to a self-employed business owner — they earn income based on performance and often cover their own expenses to make more sales.

Because of this, the CRA allows a broader range of deductions for these employees. When you review their expenses, their T777 (Statement of Employment Expenses) may look quite similar to a business income statement.

5. Where to Learn More

For detailed explanations of each deductible expense, refer to the CRA’s official guide:
📘 Guide T4044 – Employment Expenses

This guide provides examples, definitions, and clarifications on what is and isn’t deductible for different types of employees, including those earning commissions.

🧠 Key Takeaway

Commissioned salespeople can deduct more employment expenses than regular employees — but only if they meet all CRA conditions, have a signed T2200, and do not receive non-taxable allowances for those costs.

Their eligible deductions are limited to their commission income, and the types of expenses they can claim often resemble those of small business owners.

Example of a T2200 and T777 for a Commissioned Salesperson

Let’s look at a practical example of how employment expenses work for a commissioned salesperson — someone who earns income based partly or entirely on commissions rather than just a regular salary.

Meet Michael – A Commissioned Financial Advisor

In this example, Michael works as a financial advisor for a large bank.
He sells financial products such as mutual funds, mortgages, and insurance policies.
Although he’s employed by the bank, he earns most of his income from commissions on what he sells.

Because he works on commission, he must pay for many of his own business-related expenses — things like advertising, office rent, client meals, and even the salary of an assistant.

To claim these expenses, two main forms come into play:

T2200 – Declaration of Conditions of Employment (filled out and signed by the employer)
T777 – Statement of Employment Expenses (completed by the employee when filing taxes)

1. The T2200 – Declaration of Conditions of Employment

The T2200 confirms that Michael is required to pay his own expenses to do his job. It must be signed by his employer each year.

Here are the important sections for Michael’s situation:

Travel Requirements: The form shows that Michael travels across Southern Ontario to meet clients.
No Allowance Received: His employer doesn’t pay him a non-taxable car or expense allowance. Since he covers his own costs, he can claim deductions.
Pays His Own Work-Related Expenses: The form confirms that Michael must pay for his own supplies, cell phone, and any space he rents for work.
Commission Income: The key question asks whether the employee is paid “wholly or partly by commission.” This must be checked “Yes”, and the employer should indicate how much commission was paid.
- This number must also appear in Box 42 on the employee’s T4 slip.
- If Box 42 is blank, the CRA may disallow the commission expense claim during review.

2. The T4 Slip – Showing Commission Income

Michael’s T4 slip shows:

Total employment income: $318,000
Commission income (Box 42): $275,000

That means most of his pay is based on commissions from the financial products he sells.

This link between the T4 and the T2200 is critical — it proves to the CRA that Michael qualifies to claim additional commission-related expenses.

3. The T777 – Statement of Employment Expenses

Now let’s see what types of expenses Michael can deduct on his T777.
His total expenses came to about $81,000 for the year.

Here’s how those break down:

Common Deductions for Commissioned Employees

Type of Expense	Example
Vehicle expenses	Fuel, maintenance, insurance, and lease payments for the portion used to meet clients
Accounting fees	Paying a tax professional to calculate and prepare employment expenses
Advertising & promotion	Flyers, ads, or marketing costs to attract new clients
Meals and entertainment	Taking clients out to lunch or business events (usually 50% deductible)
Assistant’s salary	Paying a full-time assistant to help with sales and paperwork
Licenses & memberships	Fees for professional organizations or financial certifications
Office rent	Renting an external office space used exclusively for business

In Michael’s case, his largest single expense was the salary he paid to his assistant — about $40,000.

4. Home Office vs. Rented Office

Michael does not claim home office expenses.
Even though he sometimes works from home, his main workspace is a rented office outside his home.

Because of this:

He can deduct office rent as a business expense.
But he cannot claim home office utilities, insurance, or property taxes.

If Michael’s main workspace were at home, then he could claim:

A portion of utilities and maintenance, plus
Mortgage interest, property taxes, and home insurance (these are allowed for commissioned employees only).

5. What Happens on the Tax Return

On his T1 return, Michael reports:

Employment income: $318,000 (from T4)
Employment expenses (from T777): $81,000

These expenses reduce his taxable income.
Even though $81,000 might seem like a large deduction, it’s reasonable because he truly incurs those costs to earn his commissions.

In fact, such claims are common among financial advisors, real estate agents, and other professionals who earn commission-based income.

Of course, large expense claims often attract CRA reviews, so it’s crucial that:

The T2200 is correctly completed and signed by the employer,
Box 42 on the T4 shows the commission income, and
Receipts are kept for every claimed expense.

🧠 Key Takeaways

Commissioned salespeople can claim a wider range of employment expenses than regular employees.
The T2200 must confirm commission income and the requirement to pay expenses.
Deductions can include advertising, client meals, home office (if eligible), and even assistant wages.
Expenses are only deductible up to the amount of commission income.
Documentation and receipts are essential in case of a CRA review.

🔗 Want to Learn More?

For more detailed information, review the CRA Guide T4044 – Employment Expenses:
👉 https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4044.html

Expenses You Cannot Deduct as an Employee (and Other Important Details)

When you prepare employment expense deductions for clients—or even for your own tax return—it’s equally important to know what you cannot deduct as it is to know what you can. The Canada Revenue Agency (CRA) has strict rules on employment expenses, and many common items that might seem deductible at first glance are actually not allowed. This section will help you understand which expenses are non-deductible and highlight some key details to watch for.

1. Personal Expenses Are Never Deductible

Any expense that is personal in nature cannot be claimed. The most common example is travel to and from work.

Non-deductible: The cost of commuting from your home to your regular place of work and back.
Deductible example: If you travel from home directly to a client’s location, then to your office afterward, that portion of travel may be deductible—because it’s directly related to performing employment duties.

Other personal expenses that are not deductible include:

Grooming or dry-cleaning of regular clothing
Business attire or uniforms that can also be worn personally
Any cost that has both a personal and work-related component unless it’s properly prorated

2. Personal Component of Shared Expenses

For shared expenses—like your cell phone or internet bill—you can’t claim 100% of the cost.
You must separate and deduct only the employment-related portion.
For example:

If 30% of your phone calls are work-related, you can claim only 30% of your phone bill.
CRA auditors may even ask to see your phone logs to verify how you arrived at this percentage.

3. Capital Expenditures Are Not Deductible

Capital expenditures are large purchases that provide a benefit lasting more than one year. These are not deductible as employment expenses.

Examples include:

Computers and laptops
Printers or scanners
Office chairs or desks
Tablets or smartphones
USB drives and other durable accessories

You also cannot claim Capital Cost Allowance (CCA) on these items as an employee.
CCA is the tax term for depreciation, which allows business owners to write off the cost of long-term assets over time—but this does not apply to regular employees claiming employment expenses.

Exceptions:
Some types of workers have limited CCA options. For example:

Musicians may claim depreciation on instruments.
Tradespeople may deduct the cost of tools.
But for most salaried or commissioned employees, these capital expenses remain non-deductible.

4. Home Office Expense Complexities

When claiming home office expenses, the CRA distinguishes between a designated workspace and a shared/common space.

Designated Workspace

If you have a separate room used exclusively for work (like a dedicated office), you calculate the employment portion based on square footage of that room versus the total area of your home.

Common or Shared Space

If you use a shared space—like a dining table or living room—you must also prorate for the hours used for work during the week.

Example:

Total hours in a week: 168
Work hours per week: 40
Space used for work: dining table (shared)
Then your deductible percentage is:

(40÷168)×(percentage of home used for workspace)(40 ÷ 168) × \text{(percentage of home used for workspace)}(40÷168)×(percentage of home used for workspace)

In practice, this can make the final deduction very small.
For instance, if your rent is $1,200/month, your eligible deduction could be as little as $30–$35 per month once all prorations are applied.

5. When Commission Income Is Too Low

Commissioned employees have additional deduction options (like advertising and promotion, or insurance and property taxes).
However, in some cases, a salesperson’s commissions may be lower than their expenses, making it disadvantageous to claim them.

In such cases, the employee can choose to claim only the deductions allowed for salaried employees instead.
This isn’t common, but it’s important to know that CRA provides this flexibility.
You can find details on this scenario on the CRA’s website under “Employment Expenses – Commission Employees.”

6. Why CRA May Review These Claims

Employment expense deductions are often reviewed by CRA because many taxpayers incorrectly claim personal or capital items.
To minimize issues:

Keep detailed receipts.
Prorate mixed-use items carefully.
Ensure that your T2200 (Declaration of Conditions of Employment) form clearly shows the employer’s authorization to incur these expenses.

Key Takeaway

As a tax preparer, always apply the “directly related to earning employment income” test.
If the expense isn’t clearly required by the employer, used for work more than 50% of the time, or consumed during the tax year, it’s most likely non-deductible.

Understanding these boundaries will help you prepare more accurate tax returns and prevent costly reassessments for your clients.

Filing Requirements for Employment Expenses – What You Need to File with the CRA

When claiming employment expenses in your Canadian income tax return, it’s important to know which forms need to be filed and what documents you should keep in your records. Many new tax preparers — and even experienced employees — get confused about whether they need to send receipts or employer forms directly to the Canada Revenue Agency (CRA). Let’s break this down clearly and simply.

1. The Two Key Forms: T2200 and T777

When you claim employment expenses, two main forms come into play:

🧾 Form T2200 – Declaration of Conditions of Employment

This form is completed and signed by your employer.
It confirms that your job required you to pay certain expenses, such as using your own vehicle or home office for work.
Important: The T2200 does not get sent to the CRA when you file your tax return.
You keep this form in your records as proof that you were eligible to claim employment expenses.
Only submit it if the CRA specifically asks for it later (for example, during a review or audit).

📄 Form T777 – Statement of Employment Expenses

This is the form that you, the employee or tax preparer, actually file with the tax return.
It lists all the employment expenses being claimed, such as vehicle, home office, supplies, or other eligible costs.
The T777 form is filed together with the T1 personal income tax return — either electronically or on paper.
When you file electronically (which most Canadians do), the T777 data is automatically transmitted to the CRA as part of the return.

2. Do You Need to Send Receipts?

No — you do not send receipts when you file your return.
Whether you file electronically or on paper, the CRA does not require you to mail in supporting receipts at the time of filing.

However, you must keep all receipts and records that support your claim. This includes:

Expense receipts (for fuel, office supplies, repairs, etc.)
Detailed mileage logs (if claiming vehicle expenses)
Utility bills or rent receipts (if claiming home office expenses)
Copies of the signed T2200

You should keep these documents for at least six years after filing, as the CRA may request them for verification.

3. When the CRA Might Ask for More Information

It’s common for the CRA to review employment expense claims after you’ve filed your return.
If this happens, the CRA will send a letter or notice to the taxpayer (or their representative) asking for:

A copy of the signed T2200
Details from the T777
Receipts and supporting documents for all expenses claimed

This type of review is often referred to as a “desk audit”, meaning the CRA checks your documentation without an in-person visit.

4. Best Practices for Tax Preparers and Employees

If you are preparing taxes for clients or for yourself, here are some key habits to follow:
✅ Make sure the T2200 is signed and complete before claiming expenses.
✅ Review the T777 carefully — all amounts should be backed by receipts or reasonable estimates.
✅ Advise your clients (or yourself) to store receipts and logs safely for at least six years.
✅ Keep digital copies — scans or photos of receipts are acceptable as long as they are clear and readable.
✅ Stay consistent: the amounts claimed should match what’s reasonable based on the person’s employment situation.

5. In Summary

Document	Sent to CRA with Return?	Keep for Records?	When to Provide to CRA
T2200	❌ No	✅ Yes	Only if requested during review/audit
T777	✅ Yes	✅ Yes	Filed with tax return
Receipts & Logs	❌ No	✅ Yes	Only if requested during review/audit

🧠 Key Takeaway

When claiming employment expenses, only the T777 is filed with your tax return.
The T2200 and receipts are kept in your records and sent to the CRA only if requested.
Good record-keeping and accuracy are essential — CRA audits employment expense claims quite frequently, so always be prepared to show your documentation later.

CRA Guide T4044 for Employment Expenses

If you’re new to preparing Canadian income tax returns, one of the most valuable resources you’ll come across is the CRA’s Employment Expenses Guide (T4044). This official guide is published by the Canada Revenue Agency (CRA) and explains, in detail, how employees can claim work-related expenses on their personal tax returns.

1. What Is the CRA T4044 Guide?

The T4044 – Employment Expenses Guide is a comprehensive document created by the CRA to help employees and tax preparers understand which employment expenses are deductible, how to calculate them, and what records need to be kept.

You can easily find the guide online by searching:

“CRA T4044 Employment Expenses”

It’s a free PDF (usually around 40 pages) that is updated regularly — often once a year — to reflect any new tax rules, limits, or clarifications. Even if some years have only minor changes, it’s always a good idea to refer to the latest version when preparing returns.

2. Why This Guide Is Important for Tax Preparers

As a tax preparer, especially if you’re just starting out, this guide is one you’ll want to read cover to cover.

Here’s why:

It provides official CRA explanations — not just summaries from third-party sources.
It includes step-by-step examples and tables to help you calculate deductions correctly.
It covers both common situations (like home office and vehicle expenses) and specialized cases (such as artists, tradespeople, and transportation employees).
It helps you understand how to support a client’s claims during a CRA review or audit.

Think of the T4044 as your employment expenses handbook. It’s not something you just use once — it’s a reference you’ll keep coming back to as you gain experience.

3. What You’ll Find Inside the T4044 Guide

Here’s a quick overview of what’s included in the T4044 guide:

🔹 General Employment Expense Rules

Who can claim employment expenses
The role of Form T2200 – Declaration of Conditions of Employment
How to complete Form T777 – Statement of Employment Expenses
What receipts and records to keep

🔹 Detailed Expense Categories

Motor vehicle expenses: Includes fuel, insurance, repairs, leasing, and how to calculate the business-use portion.
Home office expenses: Explains eligibility rules and how to divide household costs between personal and work use.
Supplies and tools: Which items can be deducted and which cannot.
Capital Cost Allowance (CCA): How to claim depreciation for eligible work-related assets (e.g., a car or computer).

🔹 Specialized Employees

The guide also has dedicated chapters for certain types of employees, including:

Commission employees (with special rules for meals and entertainment)
Employed artists
Tradespeople and apprentices (including tool deductions)
Transportation employees (like truck drivers and couriers)

Even if these situations don’t apply to you right away, it’s helpful to be aware of them — you may encounter such clients later in your career.

4. How to Use the T4044 Guide in Practice

Here’s how new tax preparers can make the most of this guide:

✅ Download and save the latest version from the CRA website.
✅ Use it as a reference while learning each expense category in your tax course.
✅ Revisit it often when preparing real returns or practice cases — especially if you’re unsure about eligibility or calculation rules.
✅ Cross-reference with other CRA forms (like the T2200 and T777) for a full picture of how employment expenses are reported.
✅ Keep it handy for future audits or client questions — CRA guidance is always your best source.

5. Key Takeaways

Concept	Purpose	What to Do
CRA T4044 Guide	Explains all employment expense rules and calculations	Download the latest version and study it carefully
Updated Annually	Reflects tax law changes and new examples	Always check the year on the guide before using it
Covers Specialized Employees	Artists, tradespeople, transportation workers, etc.	Review only when relevant to your client
Essential Reference Tool	Used by all professional tax preparers	Keep it in your permanent tax resource folder

💡 Final Tip

Even though the T4044 guide might seem long, it’s one of the easiest ways to build a strong foundation in Canadian tax preparation.
By studying it early, you’ll understand not just what to claim, but also why — a skill that sets apart confident, knowledgeable tax preparers.

4 – DEDUCTING EMPLOYMENT EXPENSES

Table of Contents

Employment Expenses – What Cannot Be Claimed

1. Travel to and From Work

2. Personal Expenses

3. Work Clothing (Except Safety or Protective Gear)

4. Personal Vehicle Use (for Commuting)

5. Expenses Not Directly Related to Employment

6. Even Business Owners Face the Same Rules

🔍 Key Takeaway

Employment Expenses – Who Can Claim Them and How

🧾 1. Basic Eligibility Criteria

Condition 1: The employee is required to pay their own work expenses

Condition 2: The employee does not receive an allowance for those expenses (or includes the allowance in income)

📝 2. The Role of Form T2200 – Declaration of Conditions of Employment

What the T2200 form does:

🚗 3. Examples of Eligible Situations

💼 4. Commission Employees Have Special Rules

📄 5. The Forms Used for Claiming Employment Expenses

✅ 6. Summary – Key Points to Remember

💡 Takeaway for New Tax Preparers

The T2200 Form – Declaration of Conditions of Employment (Explained for Beginners)

🧾 What Is the T2200 Form?

📄 Overview of the Form

Part A – Employee and Employer Information

Employer Declaration (End of the Form)

🔍 Reviewing the Key Questions

Question 1 – Contract of Employment

Question 2–4 – Work Travel and Period of Employment

Question 5 – Vehicle Allowances and Vehicle Expenses

Question 6 – Reimbursed Expenses

Question 8 – Commission Income

Question 9 – Other Expenses

Question 10 – Working from Home

Special Questions – Tradespeople and Apprentices

🖊️ Reviewing and Using the Form Properly

✅ Key Takeaways for New Tax Preparers

🧾 The T777 Form – Statement of Employment Expenses

What Is the T777 Form?

Understanding the Structure of the T777 Form

1️⃣ Employment Expenses Section

2️⃣ Motor Vehicle Expenses Section

3️⃣ Work-Space-in-Home Expenses

4️⃣ Capital Cost Allowance (CCA)

Filing Tips for New Tax Preparers

Example Scenario

Summary

🧭 An Overview and the Framework for Deducting Employment Expenses on the T1

🧩 Step 1: The Foundation — Form T2200 (Declaration of Conditions of Employment)

📝 Step 2: Reviewing the T2200 to Identify What’s Deductible

🚗 Step 3: Collecting Receipts and Records from the Client

🧾 Step 4: Completing the T777 – Statement of Employment Expenses

🚘 Step 5: Vehicle Expenses — The Most Common and Reviewed Deduction

💸 Step 6: Understanding Reimbursements

Example:

⚖️ Step 7: Handling Partial Reimbursements and Allowances

🧮 Step 8: Calculating and Reporting the Final Deduction

🔍 Why the Framework Matters

🧠 Quick Recap: The Employment Expense Deduction Framework

✅ Final Thoughts

Example of a Simple T2200 and T777 with Vehicle Expense Deductions

🧰 Meet Jason — Our Example Employee

📄 Step 1: Review the T2200 Form

🧾 Step 2: Gather Expense Information

🚗 Step 3: Determine Employment-Use Percentage

🧮 Step 4: Apply the Employment-Use Percentage

🧾 Step 5: Complete the T777 Form

⚠️ Important Notes for New Tax Preparers

🧾 Quick Recap

✅ Example Summary

Overview of the Two Types of Vehicle Allowances and Their Tax Implications

🚗 1. Flat (Fixed) Allowance

💰 Tax Treatment:

✅ What the Employee Can Do:

🧾 2. Per-Kilometre Reimbursement

💰 Tax Treatment:

🧮 When Actual Expenses Exceed the Reimbursement:

🧩 Understanding the Difference — Flat vs. Per-Kilometre

🧾 Where to Find This Information

✅ Quick Recap