Finally, an overview of the T2200 tax form and what information you'll need to include on it.
Just like you, your employees want to save as much as possible on their income taxes too.
Luckily, the Canadian government allows employees to deduct certain employment expenses from their taxable income for the year—something that may be especially helpful if your team transitioned to remote work during the COVID-19 pandemic.
But in order to do so, you’ll first need to provide them with the T2200 tax form. Here, we’ll give you an overview of this document and what information you’ll need to include.
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What Is the T2200 Tax Form?
The Income Tax Act allows employees to claim eligible expenses on their employment income through a form that their employer signs. This document, Form T2200, is also known as the Declaration of Conditions of Employment form.
Compared to self-employed individuals and business owners, employees are much more limited in the tax deductions they can take on their Income Tax and Benefit Return. They’ll need their employer to provide them with a T2200 form if they want to deduct work expenses on their tax return and reduce that financial burden.
As an employer, it’ll be your duty to give this form to your employees and certify that they have satisfied the conditions needed to take these income tax deductions.
For employees in Quebec, the equivalent of this tax document is called TP-64.3-V, or General Employment Conditions.
How Important Is the T2200 Form?
This form is crucial if your employees want to deduct eligible employment expenses from their taxable income and lower their tax liability. They’ll need to present this to the Canada Revenue Agency (CRA) to prove that their various deductible expenses are indeed work-related and approved by you.
Of course, if they’re required to pay expenses as a part of their job, your employees are also legally entitled to make those deductions—and are therefore entitled to receive a T2200 form from you as well.
Who Is the T2200 Form Designed For?
Form T2200 is specifically designed to help those who can’t do their jobs unless they take on certain employment expenses that aren’t reimbursable—think salespeople, traveling employees, tradespeople, and remote workers. As a result, some of the most common deductions these employees take are for expenses like home office expenses, cell phone fees, and travel costs.
What’s in the T2200 Tax Form?
If your employees work from home or take on expenses as a part of their job, you should provide them with a Form T2200 that lists both their taxable and nontaxable expenses, as well as any allowances you gave them throughout the tax year.
Part A of this tax form asks for employee information such as their full name, their job title and responsibilities, and your work address. Part B includes 13 questions that aim to understand your employees’ work responsibilities and whether they’re eligible to deduct any of their work-related expenses.
For instance, the form’s first and most important question asks, “Did this employee’s contract require them to pay their own expenses while carrying out the duties of employment?”
If you answer no, then you simply check the box and fill out the employer declaration box, leaving the rest of the form blank. If your answer is yes, you’ll need to complete the entire form so your employee can claim their work-related expenses and recoup some of their hard-earned money.
Pay Special Attention to Item 9
The second part of question 9 on Form T2200 asks if and how much you have reimbursed your employees for any work-related expenses. Your employees will want to ensure that they aren’t claiming reimbursed expenses on their tax returns, because they could get penalized by the CRA for doing so.
How Do I File the T2200 Form?
The T2200 is a supplemental document that doesn’t need to be filed along with your employees’ taxes. Although the CRA doesn’t require a copy, your employees will need it if the CRA requests it.
Your employees must also fill out a separate form—the T777 Statement of Employment Expenses—and itemize their eligible expenses. Unlike the T2200, the CRA requires a completed copy of this form with their tax return every year.
Because there isn’t an actual filing deadline for Form T2200, it can be completed any time of the year. But to make things easier for everyone involved, most business owners tend to send this form to employees with their T4s before February 28th.
It’s essential to remember that both you and your employees can be penalized for turning in any false statements to the CRA, so the answers on this form should be as accurate as possible. Also, make sure that the information is supported by documentation—like a written contract of employment—when possible.
Ask your employees to keep a record of all the expenses they claim in case the CRA requests it, and ensure that they review the T2200 with their tax professional once they receive it in case they need any clarifications or corrections.
What Employment Expenses Can My Employees Claim on the T2200 Form?
When the CRA reviews your employees’ tax returns, the only expenses that are eligible for tax deductions are the ones that you approve—even if they paid more out of pocket to earn their income. This is why the T2200 is so important for their income taxes.
The expenses that most qualifying employees will incur include vehicle expenses, work-related entertainment purchases, and office rent (or a portion of their total home expenses if they work from home regularly).
We’ve listed some of the most common expenses that employees claim below, but the CRA also offers deductions for other employment expenses. Check out the T77 for the full list. For more details on home office expenses specifically, you can also check out the information provided on the CRA website.
Employees can deduct fees paid to an accountant to file their T777 with their tax return.
Commission-based employees can claim expenses used to advertise for their work. Salaried employees, on the other hand, cannot.
Allowable Motor Vehicle Expenses
If your employees received a nontaxable allowance for their vehicle but incurred expenses greater than that allowance, they can deduct those additional automobile expenses. Additionally, they can also claim a capital cost allowance for the vehicle they use to earn their income.
Computers, Cell Phones, and Other Equipment
Although the CRA doesn’t allow employees to deduct the cost of buying a computer or business cell phone, they can deduct the cost of leasing them from their taxable income.
Commissioned employees can deduct 50% of their food, beverage, and ticket expenses while entertaining clients. However, keep in mind that club membership fees and the costs associated with a yacht, camp, sporting event, or golf course don’t count as deductible expenses.
Food and Beverages Expenses
Employees can claim 50% of their meal expenses if they’re required to be away from home (and away from the municipality they live in) for 12 hours or more.
Employees who need licences to do their work, such as real estate agents, can deduct their annual licensing fees from their taxable income.
If you require your employees to travel for their work, they can claim their lodging costs as an expense.
Medical Underwriting Fees
Employees who pay for certain exams—like X-rays and heart diagrams—to underwrite your customers’ risks can deduct these work expenses with T2200.
Office Rent or Home Office Expenses
Employees who work from home can deduct home office expenses such as rent, heating, utilities, and repair costs for the area of their house they use to earn income. Employees who work on a commission basis are also allowed to deduct the insurance costs and property taxes related to that area.
Commission-based employees can deduct work-related parking expenses from, say, meeting a customer at their office or working at an offsite location. However, parking fees incurred from working at your place of business aren’t eligible for this deduction.
As a general rule, employees can only deduct clothing expenses if they can’t wear the items outside of work. But if you require them to buy a costume, special shoes, or items of clothing that can’t be worn outside of work, they can deduct those specific unreimbursed expenses.
Certain workers, such as apprentice mechanics and tradespeople, can deduct the cost of the tools they buy to do their work.
Employees who must pay for training courses in order to perform their job can deduct those costs with the T2200.
Commission-based employees can deduct their work-related travel fares from their income.
Use T2200 to Reduce Employment Expenses for Your Workers
As a business owner, you’re probably very familiar with the idea that you need to spend money to make money. However, your employees who need to spend their own money in order to get their job done may feel less enthusiastic about doing so.
Filling out Form T2200 and sending it to your employees in a timely manner will help them save money on their taxes, and ultimately, allow them to continue doing great work for your company.
This post was updated in July 2022.
Written by Feli Oliveros, Freelance Contributor
Posted on January 5, 2022
This article was verified by Melanie Schroeder, CPA, Founder and CEO, Out Of The Box Chartered Professional Accounting