Can you deduct your cell phone on your tax return?

Claiming your cell phone as an employee

Employees who are required by their employers to use their cell phone for employment purposes and who have a Form T2200 Declaration of Conditions of Employment signed by their employer may be eligible to claim a portion of their cell phone costs. This presumes they were not reimbursed by the employer.

Canada Revenue Agency (CRA) guidelines are that you can deduct a portion of your cell phone service cost if all conditions below are met:

• The cost is reasonable
• You can document the cell minutes or data that were part of your employment duties
• You divide the cost between employment and personal use on a reasonable basis

Connection fees are not deductible. 

If you buy a cell phone, the cost of the purchase is not deductible. This applies whether the phone is purchased outright or financed. A lease, however, can be deductible for commissioned employees who earn commission income reported in box 42 of their T4 slip. Like minutes and data, you can deduct the portion of the lease payment that reasonably relates to employment income. 

Employer-provided cell phone

In some cases, an expense paid by your employer may be a taxable benefit. A taxable benefit is reported as employment income on your T4 slip just as if you had received income. 

If your employer buys you a cell phone that they own and you are required to use it for work purposes, this is not considered a taxable benefit. You are simply using their equipment. 

A cell phone service plan is not a taxable benefit to the employee either as long as the following conditions all apply:

• An employee must use the phone as part of their employment duties
• There is a reasonable fixed cost for the cell phone plan
• An employee’s personal use does not result in incremental costs (the total charges are not more than the monthly plan cost)

Reimbursement by employer

Employer reimbursement of cell phone costs is subject to different rules than employee deductions. If an employee pays for their own phone, a reimbursement may be tax-free to them if CRA’s conditions for a non-taxable benefit are met:

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• If a cell phone purchase is reimbursed, it is generally a taxable benefit if the employee owns the phone
• If monthly fees are reimbursed and the plan is reasonable, required for employment, and personal use does not create additional costs, the reimbursement may be tax-free

A set monthly cell phone allowance paid regularly to an employee is generally taxable employment income, even if the intention is to compensate the employee for business use. But they may then be able to deduct employment expenses to reduce that income. 

Cell phone expenses when you are incorporated

An incorporated owner-manager has similar tax treatment to any other employee. A cell phone purchase is not a taxable benefit if the corporation owns the phone, and reasonable fixed monthly costs are not either. 

The corporation cannot deduct the full cost of a cell phone purchase up-front on its corporate tax return, but can depreciate it by claiming capital cost allowance (CCA) annually. 

Cell phone expenses for a sole proprietor

Like a corporation, a sole proprietor can claim CCA to depreciate a cell phone purchase over time as a business expense to reduce their personal income. 

An unincorporated business owner can also claim the percentage of airtime expenses related to business income as a business expense. Airtime expenses are claimed as a utility expense (line 9220) as opposed to a home office expense. 

Of note is the basic monthly cost of a personal landline is not deductible. You can only deduct long-distance costs for business, or the full cost of a dedicated business line. 

What if you missed your cell phone on a past tax return?

You can generally file a T1 Adjustment to amend a past personal tax return up to 10 years after the fact. So, if you had cell phone expenses you missed claiming in the past, fear not—you may still be eligible to claim a deduction and receive a refund today. 

Summary

If you are an employee who is required to use their cell phone as part of your employment, or a self-employed business owner, it pays to know your tax deductions if you are filing your own tax return. Even if you work with an accountant, they only know what you tell them, and may not always ask all the right questions. So, a little awareness of your own can go a long way to saving you tax.

Read more from Ask a Planner:

• Should you incorporate to avoid CPP contributions?
• Can you put an inheritance into a joint account?
• How much cash should you keep in your portfolio?
• How do you take RDSP withdrawals?

About Jason Heath, CFP

Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. and Objective Tax & Accounting Inc. in Toronto. He does not sell any financial products whatsoever.

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