4.6 How are the following common employment deductions calculated and treated for tax purposes: legal expenses, sales expenses, automobile expenses, meals, entertainment and professional dues?

Employees don’t tend to have access to as many deductions as individuals that are self-employed.  That said, there are some expenses that may be deductible to employees.   The Income Tax act section 8 covers the common deductions that employees can have on their employment income.

Legal Expenses

• Under section 8(1)(b) in the Income Tax Act, legal expenses are amounts paid by a taxpayer regarding legal inquiries.
• The amounts paid are to be collected or established if incurred by the taxpayer and should be included in the Taxpayer’s income if received.

Sales Expenses

• Under section 8(1)(f) in the Income Tax Act, sales expenses are limited to commission-based income.
• A taxpayer can deduct sales expenses if their income comes from commission of selling goods or negotiating a service if these expenses are for the purpose of earning their commission.

Automotive Travel Expenses

• Under section 8(1)(h.1) in the Income Tax Act, motor vehicle expenses can be deducted when a taxpayer is required to carry out their duty of their employment away from the office and the contract of their employment states that they are required to pay for motor vehicle expenses that are incurred.

Meals

• Under section 8(4) in the Income Tax Act, meals expenses cannot be deducted by an individual unless a meal was eaten while away from the office and the individual was required by the duties of the job to be away at that time and that time has to be for a period not less than twelve hours.

Entertainment

• Entertainment expenses incurred by an employee are not usually deductible.  That said, if the business reimburses the employee for the entertainment expense and the expense was incurred for the purpose of generating income (usually client retention or development) then 50% of the expense will be deductible by the business.

Dues

• Under section 8(1)(I) in the Income Tax Act and according to the CRA, dues expenses that can be deducted are: professional or malpractice insurance, professional board dues and annual dues for memberships that are in a trade union.

Interactie content (Author: Parvir Haer, January 2020)

References and Resources

• Income Tax Act, RSC 1985, c1, (5th Supp.)
• Article – “Meals and entertainment expenses” (Author: Government of Canada)
• Article – “Line 21200 – Annual union, professional, or like dues” (Author: Government of Canada)