CRA denied taxpayer’s deduction claim on travel expenses
Under section 8 of the Income Tax Act, employees can deduct certain employment expenses such as meal, travel and entertainment expenses if they meet certain conditions. A case decided in October 2022 sheds some light on the deductibility of non-reimbursed employment travel expenses a taxpayer incurred to get to work.
In this case, an Ontario industrial engineer who worked for the Canadian division of a multinational corporation was required by his employer to assist a sister company in the US from August 2017 to April 2019. During this period, the taxpayer was required to spend two to three weeks each month in the US branch, an eight-hour drive from his home in Canada.
In July 2017, the taxpayer signed an addendum to an employment contract that provided an additional $100,000 in salary but stated he would be responsible for costs related to food, beverage, entertainment and travel to the US work location. The taxpayer then claimed employment expenses of $23,599 and $10,791 in 2017 and 2019, respectively.
CRA claimed expenses claimed by the taxpayer were personal expenses
The CRA generally allow claiming travelling expenses for work in Canada which include food, beverage, lodging and transportation expenses, if a taxpayer meets the following conditions:
- The taxpayer was normally required to work away from his or her employer’s place of business or in different places,
- Under the contract of employment, the taxpayer had to pay his or her own travelling expenses,
- The taxpayer did not receive a non-taxable allowance for travelling expenses, and
- The taxpayer must keep records of a copy of Form T2200 that has been completed and signed by the employer.
The CRA denied the taxpayer’s claim on lodging, food, beverage and automobile expenses incurred for him to travel to the US work location because the taxpayer had two regular places of work from 2017 to 2019. Therefore, the CRA argued that allowing the taxpayer to deduct these expenses would allow him to deduct personal expenses.
The court found the taxpayer was ordinarily required to work away from the employer’s place of business
The court reviewed the relevant provisions in the Income Tax Act and confirmed that an employee was allowed to claim a deduction if the employee was ordinarily required to work away from the employer’s place of business or in different places. The court then reviewed tax case law and focused on the definitions of employer, ordinarily required and employer’s place of business or in different places.
Because the taxpayer only had an employment contract with the Canadian company which paid the taxpayer’s salary, the Tax Court judge found the Canadian company, not the US branch, was the employer. As for the words “ordinarily required”, the court reviewed case law and found that it meant a matter of regular occurrence, commonly and usually. Since the taxpayer was required to carry on his duties in the US branch which was mentioned in the addendum, the job was clearly away from his place of employment in Ontario.
As for the employer’s place of business, the court found that despite the fact the taxpayer had to travel back and forth to the US location from 2017 to 2019, his place of business was still at the location of the Canadian company in Ontario. Therefore, the taxpayer’s travel to the US branch should be considered as travelling away from his employer’s place of business, and his eight-hour drive to the US branch was fulfilling an employment obligation.
Pro tax tips – only employment expenses set out in s.8 of the Income Tax Act are deductible
Employment expense deduction is specifically governed by section 8 of the Income Tax Act, and taxpayers cannot deduct any other employment expense that falls outside the scope. In this case, the taxpayer won the case because he was able to show the addendum to prove he never received any non-taxable allowance for travelling expenses. For taxpayers who intend to claim travel expenses, our experienced Toronto tax law firm would recommend them to keep such records in case of any future CRA tax audit or reassessment.
When can a taxpayer claim travelling expenses such as lodging, food and transportation?
A taxpayer must meet the following conditions to claim travelling expenses:
- You were normally required to work away from your employer’s place of business or in different places
- Under your contract of employment, you had to pay your own travelling expenses
- You did not receive a non-taxable allowance for travelling expenses. Generally, an allowance is non-taxable as long as it is a reasonable amount
- You keep with your records a copy of Form T2200, Declaration of Conditions of Employment, which has been completed and signed by your employer
When can you deduct food and beverage expenses?
You can deduct food and beverage expenses if your employer requires you to be away for at least 12 consecutive hours from the municipality and the metropolitan area (if there is one) of your employer’s location where you normally report for work. The most you can deduct for food and beverage expenses is 50% of the lesser of:
- the amount you actually paid
- an amount that is reasonable in the circumstances
The 50% limit also applies to the cost of food and beverages you paid when you travelled on an airplane, train, or bus, as long as the ticket price did not include these amounts.
"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."