Employees have tough hill to climb for business expenses
If you're an employee, you are no doubt well aware of the discrimination imposed on you by the Income Tax Act. Compared with your self- employed neighbour, the Act severely restricts your ability to write off myriad legitimate expenses.
This unfairness came to light yet again last week when the Canada Revenue Agency responded to a question posed by a taxpayer as to whether ski equipment is deductible as an employment expense by ski instructors who earn salaries and commissions.
Under the Tax Act, an employee may only deduct "the cost of supplies that were consumed directly in the performance of the duties of ... employment and that the ... employee was required by the contract of employment to supply and pay for."
CRA's Interpretation Bulletin IT-352R2 "Employee's Expenses, Including Work Space in Home Expenses," discusses employment expenses and states specifically that "supplies" will "not include special clothing ... worn by employees in the performance of their duties ... and any types of tools."
Since ski equipment is not a supply "consumed directly in the performance" of the job, the cost of the skis were ruled not deductible.
There are additional deductions permitted for commissioned employees who may be required to pay their own expenses and work away from an employer's place of business, but those specifically exclude capital expenses other than for automobiles and airplanes.
Even if the ski instructors were commissioned employees, the CRA views the cost of ski equipment as a capital expense and therefore not deductible.
This inequity is not new and even reached the Supreme Court of Canada in a 2004 decision, which concluded that a broker who paid $100,000 to purchase a client list from a departing broker was not permitted to deduct any of it as an employment expense. As the Court wrote: "That employees are treated differently than taxpayers earning income from business ... is not novel nor readily seen as fair ... This seemingly inequitable result ... is the result of the structure of the [Income Tax] Act."
The 2006 federal budget attempted to address this inequity by introducing the non-refundable Canada Employment Credit. As Jim Flaherty, the Finance Minster, said at the time: "This new tax credit gives Canadians a break on what it costs to work, recognizing expenses for things such as home computers, uniforms and supplies."
To claim the credit, no expenditures need actually be made. Rather, this credit is available to anyone who reports employment income. The amount for 2009, on which the credit is based, is the lower of your 2009 employment income or $1,044.
Since it is a tax credit, the actual tax savings are calculated with reference to the federal credit rate for 2009, which is 15%, equating to a maximum credit of $157.
Considering that a decent pair of boots, bindings and skis can run well over a thousand bucks, the credit is small solace to these alpine workers.