When are expenses deductible?
Under Canadian tax rules, employees can only deduct expenses that are specifically allowed. Unlike individuals who run their own business, there is no general rule allowing employees to deduct any reasonable expense incurred to earn employment income. This makes tax minimization more challenging for employees.
Except for expenses such as pension contributions, union and professional membership dues, before any employee can deduct expenses, a basic test must always be met: the employee must be required by the contract of employment to pay his/her own expenses. This means that the employee needs to ensure that their employer signs Form T2200, Declaration of Conditions of Employment, certifying that this requirement indeed exists. The form does not need to be filed with the CRA, but it should be kept by the employee in case of an audit.
Expenses of commissioned salespeople
The rules for commissioned salespeople are somewhat more generous. In addition to being allowed to deduct specific expenses, they can deduct any reasonable expense incurred to earn income (such as commissions) that is based on the amount of sales they generate.
To be able to deduct expenses as a salesperson, the following tests must be met:
- You must be required to pay your own expenses by virtue of your contract of employment;
- You must ordinarily be required to carry on the duties of your employment away from your employer’s business location (e.g., at customer locations);
- Your remuneration must be wholly or partly based on commissions or other amounts, such as bonuses, which are calculated by reference to the volume of sales made or contracts negotiated;
- You are not in receipt of a tax-free travel allowance for your expenses; and
- You keep a copy of Form T2200, which has been signed by your employer.
If you are deducting expenses as a commissioned salesperson, there are a couple of points you should keep in mind. First, you can only deduct expenses to the extent of your commission income. If your expenses exceed this income, you will lose the ability to deduct any excess amounts. And any excess can’t be transferred to another year to deduct against income earned then.
This leads to the second point: you can always deduct certain expenses as a regular employee against your salary. You only need to use the rules that allow you to deduct certain expenses as a commissioned salesperson if you couldn’t deduct them as a regular employee. A good example of an expense that is only deductible by a salesperson is meals and entertainment. Therefore, to minimize the likelihood that your expenses will exceed your commission income, you should always consider the rules for regular employees and then only use the rules for commissioned salespeople if the expense deduction is higher.
What’s deductible?
Let’s review the specific expenses that are deductible. We’ve prepared a chart below outlining various expenses, comparing what’s deductible for regular employees, commissioned salespeople, and self-employed individuals. Near the end of the bulletin, we’ll briefly discuss the possibility of rearranging your affairs to become self-employed as an independent contractor.
We discuss many of the items in more detail below. Be sure to read the commentary for each item to determine if a particular expense will be deductible for you. We’ve also included a separate section on home office expenses. The rules for this area are complicated and the types of expenses you can deduct vary depending on whether you are a regular employee, commissioned salesperson, or an independent contractor.
| Expense | Regular employee | Commissioned salesperson | Independent contractor |
|---|---|---|---|
| Professional dues | Yes | Yes | Yes |
| Union dues | Yes | Yes | N/A |
| Salary paid to an assistant | Yes | Yes | Yes |
| Supplies consumed | Yes | Yes | Yes |
| Travel expenses | Yes | Yes | Yes |
| Capital expenses | See below | See below | Yes |
| Rental or leasing costs of office equipment | No | Yes | Yes |
| Interest expenses | No | No | Yes |
| Meals and entertainment | No | Yes | Yes |
| Office rent/home office expenses | Yes | Yes | Yes |
We discuss many of the items in more detail below. Be sure to read the commentary for each item to determine if a particular expense will be deductible for you. We’ve also included a separate section on home office expenses. The rules for this area are complicated and the types of expenses you can deduct vary depending on whether you are a regular employee, commissioned salesperson, or an independent contractor.
In certain circumstances an employee can deduct the costs of hiring an assistant. An employee hiring their own assistant is unusual, because most assistants are hired directly by their employer. However, there are situations where it may make sense for an employee to hire their own assistant.
Let’s consider a mutual fund salesperson who is an employee of a financial planning firm. The person makes a small base salary but also earns sales commissions based on the dollar value of mutual funds sold in the year. The more time the individual has to meet clients and make sales, the higher their commissions will be. In this case, an assistant could be invaluable. The assistant could perform a lot of the administrative duties, freeing up the salesperson to make sales and therefore earn higher sales commissions.
If the contract of employment requires that the salesperson pay their own expenses, and the employer does not agree to hire an assistant, the salesperson could hire the person and deduct the cost of paying them, including all related payroll costs (such as Canada Pension Plan contributions and Employment Insurance premiums).
It’s important that the amount you pay an assistant is reasonable. This is extremely important if you want to hire a relative such as a spouse or a child. You will only be allowed to deduct a reasonable salary for any services performed.
You should also note that this provision does not allow you to deduct amounts paid to someone to take care of your children to allow you to work. You can deduct these costs up to certain limits but only under the childcare expense rules. These rules allow the lower income spouse to deduct expenses incurred up to two-thirds of their earned income to a maximum amount. The maximum amount currently deductible is $8,000 per child under seven, $5,000 for a child between seven and 16, and $11,000 for each child having a severe and prolonged physical or mental impairment.
- Paper
- Office supplies
- Long-distance telephone charges
- A basic cellular phone plan if the cost is reasonable, the cost has been reasonably apportioned between employment and personal use, and you can show the cellular minutes or data (as well as their cost) that you consumed directly while performing your employment duties. Note that you cannot deduct cell phone connection or licence fees.
This list is not exhaustive. For example, a medical practitioner who is an employee and required to buy his/her own medical supplies is allowed to deduct these costs as a supply.
Note that special clothing may be considered a supply, but it is not consumed and therefore the cost of special clothing is not deductible. However, as with some other employment benefits, if your employer provides you with specialty clothing for work, the provision of this clothing does not represent a taxable benefit.
Employees are allowed to deduct travel expenses if they are required to pay these expenses under their contract of employment and they don’t receive a tax-free allowance for these expenses. These rules also allow employees to deduct automobile expenses.
There are a couple of points you should note. Most allowances you receive from your employer will be taxable, except for reasonable automobile allowances that are calculated by reference to the kilometres you drive for employment purposes. In certain circumstances, other reasonable allowances can be considered tax-free, such as allowances paid to cover travel expenses for salespeople and for ordinary employees if they are required to travel away from the place in which they ordinarily report to work. Keep in mind that if these allowances are reasonable and therefore not taxable, you cannot deduct any of the travel expenses that you incur.
The most common travel expenses are for your automobile. Many employers require their employees to have a car and do not reimburse them on a tax-free basis for their expenses. Read How to track automobile expenses for tax deduction purposes to learn what expenses you can deduct and the records you need to keep.
Capital expenses include any amount paid for a capital asset. For example, office furniture or equipment (such as a computer) are capital assets. Businesses (including independent contractors) can deduct the cost of capital assets through the tax depreciation system called capital cost allowance (CCA). Generally, as an ordinary employee or a salesperson you cannot deduct the cost of capital assets.
There is one common exception. An employee can deduct CCA on their car if they are eligible to deduct automobile expenses. However, there are limits on the amount of CCA you can claim on your automobile depending on the year the vehicle was acquired. The rules are complex, but for passenger vehicles acquired on or after January 1, 2025, basically you cannot deduct CCA on any purchase price greater than $38,000 plus applicable GST/HST, PST, or QST.
If the cost of your automobile is less than the limit above, it is considered a Class 10 asset. Your purchase price (including sales tax) is added to a pool of costs with any other Class 10 assets you own. Each year you are entitled to claim up to 30% of the pool’s balance as CCA (only 15% on assets in the year of purchase). Any amount claimed in one year reduces the pool balance for the next year’s calculation.
For vehicles acquired after Nov. 20, 2018 and available for use before 2028, an accelerated rate of depreciation is available under a federal government program called the accelerated investment incentive (AII). The AII accelerates the amount of CCA that can be deducted for the year in which qualifying depreciable property is acquired. The 2024 Fall Economic Statement proposes to reinstate the AII for qualifying property acquired on or after Jan. 1, 2025, and that becomes available for use before 2030. It would be phased out starting in 2030 and be fully eliminated for property that becomes available for use after 2033. However, legislation has not been released.
If the cost of your car exceeds the limit, the maximum deductible amount will go into its own separate CCA class, known as Class 10.1, which is eligible for the CCA deductions at the same rate of 30% as Class 10 vehicles. New acquisitions may qualify for enhanced first-year CCA under the AII program.If the vehicle is a zero-emission passenger vehicle purchased after March 18, 2019 and before 2028, then it will go into Class 54. This class allows for a standard CCA rate of 30%. However, under incentives similar to the AII program, assets acquired may qualify for enhanced first-year CCA. The 2024 Fall Economic Statement also proposes to reinstate this measure for qualifying property acquired on or after Jan. 1, 2025and that becomes available for use before 2030. Phasing out would begin in 2030 and would be fully eliminated for property that becomes available for use after 2033. However, legislation has not been released.
In 2025, the limit for Class 54 is $61,000 (plus sales tax) per eligible zero-emission passenger vehicle. If you received an up-front federal government incentive to purchase a zero-emission vehicle, then the vehicle will not go into Class 54, but will default to either Class 10 or Class 10.1 depending on its cost, type of vehicle, and business use.
There are additional differences between Class 10.1 and other CCA classes, in particular regarding the tax result when such vehicles are disposed of. The rules are complicated so we suggest you discuss the consequences with your BDO advisor.
Similar rules also allow employees to deduct CCA on an aircraft, if they are required to own a plane and use it in their employment duties.
Finally, note that special rules for employed artists and employed tradespersons may allow for additional deductions for certain capital expenses (see the Special Situations section).
Ordinary employees cannot deduct the cost of renting equipment, such as office equipment or a computer. The CRA does not consider the rental payment to be a supply consumed in the course of performing employment duties and therefore it’s not deductible. The same rationale also means that an employee can’t deduct the monthly cost of leasing a cellular phone—even if the only reason for the phone was for employment purposes.
The fact that these rental costs are not deductible for ordinary employees is often misunderstood. This is probably because commissioned salespersons can deduct these expenses against their commission income. Remember that salespeople have more flexibility in what they can deduct. They can deduct rental payments under the rule that allows them to deduct any reasonable expense incurred to earn commission income provided it is not a capital payment.
Planning tip for ordinary employees: You should avoid paying for the cost of equipment needed for employment purposes. Instead, you should have your employer purchase or rent the equipment you need. Your employer can deduct these costs as a business expense. There will be no tax consequences for you as long as you don’t use the equipment for personal purposes. If you do, you will be taxed on the value of the personal use.
Planning tip for commissioned salespeople: If you have to provide your own equipment for your job such as a computer, you should always lease this equipment. If you buy the equipment, you cannot deduct the cost as CCA. If you lease the equipment, however, you can deduct the lease payments as an expense incurred to earn commissions.
Ordinary employees had better hope their employer reimburses them for that business lunch. If they don’t, they can’t deduct anything as an employment expense.
Commissioned salespeople, however, have more flexibility. Meal and entertainment expenses are deductible against their commission income. However, only 50% of the cost is deductible.
Office rent/home office expenses
As an employee, you can deduct the cost of renting an office if your employer requires you to pay for your own space to work. This isn’t very common. It is more common for individuals to work for their employers out of a home office. To deduct the cost of maintaining a home office, your employer must have required you to work from home pursuant to either a written or verbal agreement. In response to the increased prevalence of hybrid work arrangements, the CRA indicated that if an employee has voluntarily entered into a formal telework arrangement with their employer, the employee is considered to have been required to work from home. In addition to this requirement, you must pass one of the following two tests:
- Your home office is the principal place of your employment. The CRA’s guidance is that you must work more than 50% of the time from your home office for a period of at least four consecutive weeks in the year. If you have more than one eligible period in the year, you can claim eligible expenses for each period. However, this can be a difficult test to meet for some employees who have home offices. For example, a commissioned salesperson might use a home office to carry out administrative duties. If they are on the road at customer sites for a majority of their time, however, they likely won’t meet the 50% test and therefore aren’t eligible to deduct home office expenses.
- Your home office is used exclusively for employment purposes and is used on a regular or continuous basis for in-person meetings with clients, customers, or patients. This test is designed primarily for individuals such as doctors, chiropractors, and massage therapists. They might have an office where they usually work away from their home but they might also see clients or patients at home. These individuals can deduct home office expenses if they use the office space exclusively in their employment duties (in other words, the office is not part of their living space).
There is an important difference in these tests to note. Under the first test, if you work primarily out of your home office (more than 50% of the time), you don’t have to use your home office exclusively for your job. The office can be combined with personal living space. What you have to do is prorate the expenses related to your workspace between its use for employment and personal purposes. For example, if you work in a common area (such as a dining room) that represents 10% of the total square footage of your home and you work 28 hours a week from home out of a total 168 hours in a week, then only about 1.67% (10% x 28 hours/168 hours) of the expenses related to the maintenance of the home workspace are deductible.
What expenses can you deduct?
As an employee, you can deduct the cost of renting an office. If you own the space in which the office is located (i.e., it’s a home office that meets one of the two tests), you can only deduct the expenses of the office that are considered to be supplies consumed in your employment activities. The CRA maintains a list of common home office expenses on its website.
How will these rules apply to you?
Let’s first consider the situation where you rent your living space and it contains a home office. You’ll be able to deduct a portion of your rent as a cost of renting an office. If you have to pay for utilities or minor repairs, you can also deduct these expenses as supplies consumed in your employment duties.
For example, assume you rent a two-bedroom apartment for $2,000 a month and you use the second bedroom as a home office. You also have to pay $300 a month for utilities. The office is 25% of the total apartment and since this is a designated room, you don’t need to further prorate based on hours. You will be able to deduct $575 a month for home office expenses, which is calculated in the chart below:
| Expense | Price |
|---|---|
| Monthly rent | $2,000 |
| Utilities | $300 |
| Total | $2,300 |
| Office portion @ 25% | $575 |
| Tax savings @ 45%* | $259 |
*Assumes your marginal tax rate is 45%
Now let’s assume you own a house with a home office that you use for employment purposes. You can deduct the portion of your utilities and maintenance costs that relate to the business use of your home office as supplies consumed in your employment. However, the deductible portion of these expenses is probably not significant.
What about other costs you pay for your home, such as property taxes, insurance, and mortgage interest? As an ordinary employee, you are not allowed to deduct these expenses as there is no provision in our tax law that allows this. In particular, these expenses are not considered supplies consumed in your employment duties and therefore are not deductible (the CRA does consider items such as basic repairs and utilities to be supplies).
Commissioned salespeople have a bit more flexibility in what they can deduct. Remember that they can deduct any reasonable expense they incur to earn commission income. Because of this provision, they are allowed to deduct a portion of their property taxes and home insurance that relates to their home office. However, they also cannot deduct any of their mortgage interest since employees generally cannot deduct capital expenses, such as interest. The office expenses chart below shows what expenses are deductible for a home office, comparing an ordinary employee, commissioned salesperson, and independent contractor. As the chart shows, independent contractors have the most flexibility in what they can deduct.
If these differences probably seem unfair to you, you’re right. Employees who rent a home office have much more flexibility in the expenses they can deduct (since they can deduct office rent, they can effectively deduct all the costs that are built into the rent such as property taxes, insurance and interest). And commissioned salespeople and independent contractors are able to deduct more expenses for a home office if they own their own home as compared with an ordinary employee.
| Expense | Regular Employee | Commissioned salesperson | Independent contractor |
|---|---|---|---|
| Rent | Yes | Yes | Yes |
| Utilities | Yes | Yes | Yes |
| Repairs and maintenance | Yes | Yes | Yes |
| Insurance | No | Yes | Yes |
| Property taxes | No | Yes | Yes |
| Interest | No | No | Yes |
| Capital cost allowance | No | No | Yes |
Special considerations for owner-managers
For employees who are shareholders of a business, the CRA states that two conditions must be satisfied for employment expenses to be claimed:
- The expenses were incurred as part of their employment duties and not in their capacity as a shareholder.
- They were required to pay for the expenses as part of their employment duties.
To satisfy these conditions, the owner-manager must be able to show that the expenses are comparable to expenses incurred by other employees (who are not shareholders or related to a shareholder) who have similar duties at the company or at other businesses that are similar to the company in size, industry, and services provided.
Planning to increase tax breaks
If you’re an employee, you are limited in what you can do to increase your tax breaks. However, there are some measures you could consider.
Are you involved in sales? Do you often negotiate contracts on your employer’s behalf? If you do, consider renegotiating your salary package so that at least some of your income is based on the revenue you produce. This could be as simple as receiving a year-end bonus that is based on the sales you are responsible for. If you can rearrange your affairs, you’ll be eligible to deduct expenses as a commissioned salesperson. Make sure your employer reports your commission or bonus separately as a commission on your T4. Otherwise, the CRA will likely question your expense deductions as a commissioned salesperson.
You’ll have to assess whether this makes sense for you. Are you willing to accept the risk that part of your remuneration package will be based on the sales you produce? Also, consider the amount of expenses you currently must pay that would become deductible if you became a commissioned salesperson. If you have minimal deductible expenses anyway, it’s probably not worthwhile. For example, you could increase the amount of deductible home office expenses, deduct the lease costs of equipment you have to pay for, and deduct business meals and entertainment if part of your remuneration is based on sales.
Self-employed individuals have the most flexibility in deducting expenses. It may be possible to contract with your employer so that you will be considered to be self-employed rather than an employee.
A few words of caution: You can’t just state that you’re an independent contractor to be treated that way for tax purposes. There is a series of tests used by the CRA in determining whether you are self-employed or an employee. For example, the CRA looks at who controls the work (whether you have the flexibility to determine when and how you do the work). It also checks whether you take on financial risk, such as being financially liable if obligations of the contract are not met or incurring losses as a result of fixed costs of maintaining a workspace or hiring helpers.
The CRA also considers the intention of both the worker and the payer when a working arrangement is entered into. Specifically, the CRA considers if the two parties intended to enter into a contract of service (employer-employee relationship) or if they intended to enter into a contract for services (a business relationship). You should note that the factors to be considered when determining whether you are independent contractor differ in Quebec so you should always consult with your BDO advisor before attempting to become an independent contractor.
Self employed individuals can choose to pay Employment Insurance (EI) premiums to be eligible to receive EI special benefits on a voluntary basis. To participate, you must enter into an agreement with the Canada Employment Insurance Commission through Service Canada.
You’ll have to consider a number of things to determine if becoming an independent contractor is a viable option for you. Will you have significant expenses that will now be deductible? Are you prepared to give up some of the perks of employment, such as health insurance? Do you want the protection of regular EI benefits, which are only available to employees and not to independent contractors? And finally, is it even possible to substantially change your relationship with your current employer so that you are an independent contractor? It would also be important to show that you have contracts with other businesses and not just your current employer.
For further considerations, read Self Employment: Is it for you?
Don’t forget to take advantage of the Canada employment tax credit
You may be able to claim the Canada employment tax credit, which provides recognition for work-related expenses such as home computers, uniforms, and supplies. The credit is non-refundable and is calculated at the appropriate percentage on the lesser of $1,471 (for 2025, indexed annually) and the total of your employment income that you reported on your personal tax return. You should note that self-employed individuals are not eligible to claim this credit.
Special situations
For certain types of employees, there are special rules that allow them to deduct other expenses in addition to the ones described above. The special rules are an attempt by the government to recognize the special nature of these jobs and the fact that certain expenses may have to be incurred by the employee and should be allowed as a deduction from employment income.
Musicians usually have to buy their own musical instruments. They can deduct the cost of instruments using the tax depreciation rules.
Most instruments are classified as Class 8. The purchase price (including GST/HST, PST, or QST) is added to a pool of costs with any other Class 8 assets. Each year, a deduction of 20% of the pool’s balance is allowed (10% can be claimed on assets added to the class in the year of purchase). New acquisitions may qualify for enhanced first-year CCA under the AII program.
Artists who earn employment income from an artistic activity can deduct additional expenses from their employment income. Artistic activities include:
- creating paintings, prints, etchings, drawings, sculptures or similar works of art;
- composing a dramatic, musical or literary work;
- performing a dramatic or musical work as an actor, dancer, singer or musician; or
- carrying out an artistic activity in respect of which the taxpayer is a member of a professional artists association that is certified by the Minister of Canadian Heritage.
The expenses that can be deducted are limited to the lesser of:
- $1,000; and
- 20% of employment income from artistic activities
The lesser of these two amounts is then reduced by any amounts claimed as CCA on automobiles or musical instruments, musical instrument expenses (such as maintenance costs and insurance), and interest on your motor vehicle. This net amount can be deducted as an artist’s employment expense.
Individuals who work for employers whose principal business is the transport of passengers, goods, or both can deduct reasonable expenses for meals and lodging if their employer does not reimburse them for these costs. A technical amendment is proposed to also provide that no deduction is allowed if the employee received a non-taxable allowance to cover these costs. Only costs incurred while travelling away from the municipality where the individual reports to work can be deducted.
For employees who are long-haul truck drivers, meals and beverage expenses will be deductible at a higher rate than the 50% permitted for other transportation employees. During eligible travel periods, meal and beverage expenses incurred by long haul truck drivers will be deductible at a rate of 80%. A long-haul truck driver is a transport employee whose main duty of employment is transporting goods by way of driving a long-haul truck, whether the employer’s main business is transporting goods, passengers, or both.
There are several ways for an employee to calculate their meal expense. Perhaps the easiest way for transport employees to calculate their meal expense is the simplified method that is based on a daily meal rate. Under this method there is no need to keep meal receipts. Instead, a detailed list of the trips taken must be kept in a record or logbook. Transport employees can claim up to three meals per day based on the daily meal rate set by the government.
Individuals who are employed tradespersons may be eligible to claim an annual deduction of up to $1,000 to help cover the costs of new tools necessary for their trade. The maximum deduction that applies to the total cost of eligible tools is the lesser of:
- $1,000 and
- The amount, if any, determined by the formula A – 1,471 (for 2025), where A = the lesser of:
- The total cost of eligible tools purchased in the year; and
- Employment income as a tradesperson for the year plus the amount the tradesperson received in the year under the Apprenticeship Incentive Grant and the Apprenticeship Completion Grant, minus the amount of any repayments to these grants made during the year.
The cost of the tools includes any GST/HST, PST, or QST that you paid for the tools.
An eligible tool is one that was bought solely for use in the tradesperson’s job and was not used for any purpose before it was bought, the employer certified it as being necessary for your job and unless the device or equipment can be used only for the purpose of measuring, locating, or calculating, is not an electronic communication device or electronic data processing equipment.
Also, an apprentice mechanic is allowed to deduct the cost of eligible tools purchased. The deduction allowed is equal to the cost of tools purchased less the greater of:
(a) 5% of the total of
- your employment income as an eligible apprentice mechanic,
- plus the amount you received in in the year under the Apprenticeship Incentive Grant and the Apprenticeship Completion Grant programs,
- minus any claim you made for the tradesperson's deduction for tools, and
- minus the amount of any Apprenticeship Incentive Grant and Apprenticeship Completion Grant overpayments that you had to repay in the year; and
(b) $1,000 plus the Canada employment amount claimed ($1,471 for 2025).
The allowable amount deducted can’t be greater than the cost of tools purchased in the year, nor can it exceed an individual’s net income (from all sources). An unclaimed amount can be carried forward and the unused amount can be deducted against any type of income in a future year even if the apprentice mechanic is no longer employed as an apprentice mechanic at that time.
An apprentice mechanic may be able to claim the tradesperson’s tool deduction and the apprentice mechanic tools deduction. However, the tradesperson’s tool deduction must be calculated first as it is taken into consideration in the calculation of the apprentice mechanic’s tools deduction. (A deduction can’t be claimed under both rules for the same tool cost.)
If you dispose of tools on which the mechanic’s or tradesperson’s deduction was claimed, a special adjustment must be made in the year of disposition to determine if some portion of the proceeds from such disposition may be taxable as a result of the tradesperson’s or mechanic’s deduction claimed in an earlier year.
Since 2022, the Labour Mobility Deduction allows employed construction tradespersons to deduct up to $4,000 in eligible transportation, meals, and temporary lodging expenses a year for an eligible temporary relocation. To qualify as an eligible temporary relocation:
- the temporary lodging must be at least 150 km closer than the ordinary residence to the particular work location;
- the particular work location must be located in Canada; and
- the temporary relocation must be for a minimum duration of 36 hours and must not be in the same locality as the employee’s regular workplace.
The maximum expenses are limited to 50% of the tradesperson’s employment income at the eligible temporary work locations in the year.
Documentation of expenses
If you are deducting expenses for tax purposes, documenting your expenses is crucial. If you keep track of your expenses in an organized fashion, not only will this save you time when you prepare your tax return (and money on your accountant’s bill), it will also help ensure that you are prepared should the CRA decide to review your return.
Receipts are crucial for all of your expenses. If you’re a salesperson and you are deducting meals and entertainment expenses, it’s a good idea to write on the receipt who you took to lunch and why. Automobile expenses, in particular, have to be properly documented. It’s extremely important to keep a logbook of your driving to support the number of kilometres you drive for business purposes. For more information, read How to track automobile expenses for tax deduction purposes.
GST/HST/QST rebates
When you incur expenses, you also pay GST and PST or HST on some of the expenses. If your employer reimburses you and is registered for the GST or HST, your employer is eligible to recover the GST or HST. Although there are some differences, the Quebec Sales Tax (QST) essentially functions in a manner similar to the GST/HST.
If you don’t get reimbursed and are eligible to deduct the expenses for tax purposes, it only makes sense that you can recover the GST/HST and or QST as well. You do this by requesting a GST/HST rebate when you file your personal tax return. For expenses paid, the rebate is 5/105ths of your deductible expenses (including CCA) that were subject to the GST. If the expense was subject to HST, the rebate would be equal to the following:
- 15/115 for an expense incurred in Nova Scotia, P.E.I., New Brunswick, or Newfoundland and Labrador;
- 13/113 for an expense incurred in Ontario; and
- 9.975/109.975 QST and 5/105 GST for an expense incurred in Quebec.
Examples of expenses on which you won’t have incurred GST/HST are insurance and interest on a car loan. The rebate is claimed by filing CRA Form GST 370 (the QST rebate is claimed on Form VD 358-V). Note that you don’t qualify for the rebate if your employer is not a registrant or if you work for a listed financial institution. Finally, the rebates are taxable in the year of receipt. Where a rebate is claimed on capital equipment, the rebate amount will reduce the balance for CCA purposes rather than being taxable as income.
How we can help
Employees are very limited in what they can deduct for tax purposes. However, with a little planning and care, they can take advantage of the deductions that are available to them. If you have any questions, talk to your BDO advisor today.
The information in this publication is current as of June 20, 2025.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.