Tax Advice

Understanding T777: Statement of Employment Expenses

As you might already know, some employees need to pay for their own expenses in order to fulfill their job responsibilities—but for many of them, this arrangement isn’t ideal.

The government offsets this burden by offering eligible employees the opportunity to deduct expenses their employer requires them to pay. These employees can use the T777 tax form to claim eligible expenses on their tax returns and reduce their overall tax bill.

Keep reading to learn more about this important tax document, why it’s needed, and what your employees (and you) need to do to complete it.

What Is the T777 Tax Form?

Also known as the Statement of Employment Expenses, the T777 tax form is found on the Canada Revenue Agency’s (CRA) official website. It’s used to help commission-based and salaried employees claim eligible employment expenses that haven’t been reimbursed by their employer.

These personal costs include, but aren’t limited to:

• Accounting and legal fees
• Allowable motor vehicle expenses
• Business advertising and promotion expenses
• Entertainment expenses
• Equipment leasing costs
• Home office expenses
• Lodging expenses
• Long-distance phone charges and airtime
• Meals
• Office rent
• Parking costs
• Property taxes
• Training costs
• Traveling expenses

If your company is registered for GST/HST, tracking these costs also allows eligible employees to receive a GST/HST rebate when they file their taxes at the end of the tax year.

Salaried and commission-based employees in Quebec will use the TP-59-V form to claim their employment expenses.

Why Do Some Employees Need a Statement of Employment Expenses?

There are 2 conditions that, together, determine whether a salaried or commission employee is allowed to claim employment expenses on their taxes with the T777 employment expense form:

• You, as the employer, require these expenses while your employee fulfills their employment duties
• You, as the employer, did not reimburse (or only partially reimburse) your employee for these purchases

Additionally, if they claim any employment expenses for their home office, they must use that space specifically for their work.

In order for your employees to prove that these expenses are legitimate and required as a condition of their employment (and that they aren’t just trying to lower their tax bill), you’ll need to provide them with a completed and signed T2200 form, or Declaration of Conditions of Employment. This document outlines the work they do for you, any allowances you give them to cover their employment expenses, and any additional expenses you didn’t reimburse.

For more information on which employees can deduct expenses on their taxes, see publication T4044 on the CRA’s website.

What Does the T777 Form Look Like?

This form contains 4 sections, and your employees will need to fill out the relevant parts in order to claim their employment expenses on their income tax and benefit return.

Expenses

In this section, your employees must list out all of their work-related expenses incurred during the tax year. This will allow them to deduct reasonable accounting fees, legal fees, supplies, food and beverage expenses, apprentice mechanic and tradesperson tools, daily parking fees, entertainment expenses, equipment leasing costs, and even musical instruments from their taxes.

Note that your employees will need to calculate their home office expenses, allowable motor vehicle expenses, and capital cost allowance (CCA) in the following sections before adding those figures here.

Then, they add the total amount on line 22900 of their income tax return.

Calculation of Allowable Motor Vehicle Expenses

This section indicates the motor vehicle expenses your employees incurred during the year and how much of it can be written off for work. Other expenses to add here include repair and maintenance costs, fuel, licence and registration fees, insurance, and leasing expenses.

Employees will need to report the number of kilometers driven for work to calculate what percentage of their motor vehicle expenses can be deducted. This is why keeping a regular log of the vehicle’s odometer readings is so important.

Calculation of Work Space-in-the-Home Expenses

Employees who have a home office or converted part of their home into one will use this section to claim their work-from-home expenses. These can include rent, utilities, property taxes, and maintenance fees for that area of their home. The eligible work space-in-the-home expenses differ between salaried and commission-based employees, so be sure to know which applies to their employment.

This section also helps taxpayers calculate what percentage of their home is used for work purposes based on how big the space is and how much of their work time is spent there—similar to how their allowable vehicle expenses are calculated.

Capital Cost Allowance (Depreciation) Schedule for Employees

Capital cost allowance, or depreciation, allows eligible employees to claim a percentage of the cost of any high-ticket items or assets they use to earn income and that depreciate in value over time. Examples of these other employment expenses include motor vehicles, equipment, and musical instruments.

How to Fill Out the T777 Statement of Employment Expenses Form

As mentioned earlier, your employees won’t be able to fill out this form unless they receive a T2200 from you. They’ll then use that information to complete the T777 and submit it to the CRA along with their tax return.

Once you send the T2200 to your employees, they can visit the Canada Revenue Agency website to download the saveable T777 form and fill it out right on their computer. Alternatively, they can hire a tax preparer to submit their return on their behalf at the end of the tax year. If they file on their own, employees should only include their eligible expenses.

Taxpayers who are eligible for the GST/HST rebate and want to claim it will also need to complete the GST370 tax form and claim the rebate on line 45700 of their income tax return.

Once all relevant tax forms are complete, they can submit the documents to the CRA via NETFILE (or have their tax professional do so with EFILE).

Understand Your Tax Forms to Help You Save on Taxes

Admittedly, filling out tax forms isn’t exactly the most exciting way to spend your free time. Still, it’s important for you and your employees to understand how they work in order to maximize the amount you save on your tax bill each year.

Understanding all forms to properly report your employment income and everything else required by the Canada Revenue Agency can be taxing, to say the least. However, preparing for tax season is a year-round activity, and using the right accounting tool can make life easier. You’ll not only have more time to understand and sort out forms like the T777 and T2200 (Declaration of Conditions of Employment) but find opportunities to save your business more money while submitting your taxes.

This post was updated in November 2023.