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Work-Related Expenses, what can you deduct

A major portion of your tax planning and tax prep could be work-related expenses. Therefore, it is imperative to understand what qualifies and what does not. Many employees and business-owners (such as those who are self-employed) can claim deductions in their tax return as work-related expenses. But there is certainly some confusion on what really can be claimed.  

What is a work-related expense? 

As an employee, there are three “golden rules” for determining a work-related expense: 

  • You have spent your own money on something and you haven’t been reimbursed in any way 
  • The expense is directly related to earning your income 
  • You have receipts/proof to support your claim 

Remember your employer must issue your appropriate documentation such as T2200 (for Canadians), which states they expect you to make certain expenses in order to perform your job for them. 

If you run a business, you can claim tax deductions for most costs that you incur when running your business. These tax deductions are then used to reduce your taxable income. It is important to note that when you are claiming items as tax deductions for your business, you will need to ensure you have complete and accurate records.  

As a business owner, it’s also important to give your employees the right advice and they understand what they can and cannot claim as a work-related expense in their tax return.  

What can be claimed as a work-related expense? 

There will be times when you have paid for items, goods or services as a work-related expense, but it is also used for personal use. For example, you may use a mobile phone to complete your work on, but you use it outside office hours to send personal emails or make personal calls. In this case, you can only claim a deduction for the work-related portion. This may be calculated as a percentage of the overall costs. 

Some of the most common expenses include: 

  • Travel and vehicle costs 
  • Home office expenses 
  • Self-education costs if applicable 
  • Equipment, tools and other assets related to your work 
  • Cell phone costs 

For most cases, having an accurate record of the deductions you are claiming is a must. This could be travel records, kilometres driven or phone bills. So long as your expense is directly related to your occupation and is not paid for via other means and you have sufficient evidence of the cost, you may be able to claim it as a tax deduction.  

What can be claimed as a work-related expense for your business? 

When you’re running a business, there are often a lot of costs involved in keeping your doors open. That’s why it’s even more important to know what you can (and can’t) claim as a deduction.  

In general, you can claim: 

  • Operating expenses throughout the year incurred (such as staff wages and office stationery) 
  • Capital expenses over a longer period of time (such as equipment costs and machinery) 

Operating expenses are usually those costs that are incurred whereby it is a legal obligation for you to pay for the goods or service. You don’t necessarily have to have an invoice for those expenses, but you will need to have a record of the expense. 

What cannot be claimed as a deduction? 

There are a number of items that aren’t tax-deductible. These include, but aren’t limited to: 

  • Traffic fines and non-business meals and entertainment expenses 
  • Childcare fees and clothing for your family (private and/or domestic fees) 
  • Expenses for non-assessable income 
  • Sales tax amounts on a purchase made if you’re a sales tax filer 

If your earnings are classified as personal services income, your deductions could be limited, so it is best to check a professional when you’re in doubt. 

Who can claim expenses? 

All employees can claim work-related expenses in their tax return as long as they can prove these were a requirement to perform their job. This includes those who are employed on a casual basis.  

Anything else I should know? 

If you need assistance understanding more about work-related expenses, run[Accounting] can assist you. Give us a call today to discuss your business needs.