Newly employed? Know your tax deductions  

Most new employees can benefit from an onboarding process that includes information about claiming reimbursements for out-of-pocket expenses, pension contributions, or how to deduct unreimbursed costs. Here’s a primer to share.

A tax credit for every employee

A non-refundable tax credit is available for all people who report employment income. It’s called the Canada Employment Amount and it’s claimable without receipts to reduce taxes payable. It covers the costs of travelling to and from work, or other personal costs of working, like buying lunches, new shoes, dry cleaning and so on.

For 2026 the maximum claim is $1,501 on the federal tax return.  

What tax forms are needed?

Employees who incur additional expenses out of pocket as a condition of their employment contract will need additional forms:

• The employer must confirm those employment conditions on Form T2200 Declaration of Conditions of Employment, which can now include an electronic signature.
• The employee will complete Form T777 Statement of Employment Expenses and keep an itemized list of costs.
• If the employer is a GST/HST Registrant, a rebate for the GST/HST portion of costs may be claimable on Form GST370.  

Allowable deductions are slightly different in different sectors. Those earning commissions can claim additional deductions over those who earn salary only. Eligible educators, truckers, musicians, artists, forestry workers, personal support workers, as well as some tradespeople and construction workers can make claims with various nuances.  

Some claims are limited to the employment income (or commissions earned). Some qualify for carry forwards white others don’t. The common thread? In each case, receipts, logs, and details are required, as well as verification from the employer that the costs are necessary and any amounts of reimbursement.  

Travel expenses

Travel costs are claimable only if:

• The employee had to pay their own expenses and was not reimbursed (or was paid a reasonable non-taxable allowance)
• Was regularly required to work away from your employer’s place of business or in different places
• Has kept records of travel and expenses
• Has a completed Form T2200

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All of the above conditions must be true, in which case, the following expenses are allowed: 

• Travel costs for bus, train, airlines, Uber if travelling outside the metropolitan area
• Motor vehicle expenses, which can include operating costs as well as fixed costs like capital cost allowance (CCA), leasing costs and interest.
• Truckers – Expenses incurred by employees of a transport company for meals and lodging, while away from the employer’s establishment and metropolitan area (form TL2) 
• Railway Employees – Expenses incurred for meals and lodging when away from the taxpayer’s ordinary place of residence, municipality, and metropolitan area
• Costs of flying an aircraft required in employment

Meals while traveling

The rules about meals are tricky and misunderstood by most employees. You must be away from your employer’s work location for at least 12 consecutive hours to deduct expenses—and even then, only 50% of food, entertainment, and beverage costs are allowed. There are some exceptions depending on your role.

Note the extent of the detail: Long-haul truckers driving trucks or tractors weighing more than 11,788 kg. to haul freight at least 160 kilometers away from the employer’s place of business can claim 80% of food and beverage costs if travelling for 24 hours or more.   

More fun facts: With receipts, truckers who sleep in their cabs can deduct the cost of showers along the way.  There are both simplified (cost per meal) and detailed (keep all receipts) deduction options available.

Sales and promotional expenses

Commissioned salespeople can claim more than salaried employees. Sales expenses like marketing, gifts, and promotional costs may be claimable, but they can’t exceed commissions earned (unless claimed under the travel expense options instead).  

There is a big tax trap, however. Employed commissioned salespeople are subject to the same 12-consecutive-hour rules as other employees.

Home workspace costs

These costs are claimable if the employee worked out of their home more than 50% of the time for a period of at least 4 consecutive weeks to earn their employment income. The space must be used to regularly and continuously meet clients, customers, or others in the course of employment duties. In practice, this can include online meetings. Costs must be prorated to the area of the office space used as a percentage of all other space, including hallways, bathrooms, and kitchens.  

Salaried employees can make this claim, but beware: the costs of insurance, property taxes, interest, and capital cost allowance are claimable by commissioned employees only.  

Other things to note:

• Office supplies may be claimable, but not special clothing worn for work
• Monthly internet costs are claimable, but not the portion of fees relating to the lease of a modem or router    
• Office rent, paid to work outside of the home, may be deductible

Costs of an assistant

This category can include some family income splitting opportunities, as a spouse or child can be hired if the amounts paid are reasonable for work that a non-related person would otherwise do. A couple of notes:

• Salaries paid to an assistant are deductible, but not amounts paid to a subcontractor
• C.P.P./Q.P.P. contributions, Employment Insurance, and Quebec parental insurance plan premiums paid on salaries for the assistant or substitute may be deductible

Professional fees

Annual professional membership dues or dues paid to a professional board and union dues can be claimed. You can also claim legal expenses incurred to hire an employment lawyer to collect or establish a right to employment income or a severance package, as well as teachers’ exchange fund contributions.

Pension contributions

Employees should be sure to understand the Pension Adjustment and T4 slip entries that will be coming and how to maximize both employer sponsored and RRSP contributions over the course of their employment.

Individual contributions can be made to an RRSP over and above the Pension Adjustment amount calculated when there are Registered Pension Plan contributions.  

Retirement compensation arrangement contributions and Deferred Profit Sharing Plan contributions should be understood in terms of other retirement planning, as well. 

Special categories

Deducting the cost of supplies that were consumed directly in the performance of the employment are possible in special categories on form T777:

• Musical instrument costs when the taxpayer was employed as a musician
• Artists’ employment expenses: 20% of costs up to $1000 less costs claimed as a musician, and interest and capital cost allowances for motor vehicle expenses
• Apprentice mechanic’s tool costs
• Deductions for tradesperson’s tools
• Labor Mobility Deduction of up to $10,000 for tradespeople

Teachers can also claim the refundable Eligible Educator School Supply Tax Credit, which provides tax relief of 25% of up to $1000 in out-of-pocket supply costs on the T1 return. Verification rules are slightly different, though. The CRA may request a written certificate from employers (or principal of a school or manager of a child care facility) as opposed to a signed Form T2200.  

Additional deductions for everyone

Employees with actively earned net income should also be aware that childcare and moving expenses can be claimed if eligibility rules are met. Group health benefit costs funded by the employee and charitable donations taken from paycheques are potentially deductible.

Be mindful of restrictions

There are many additional details behind most of these allowable deductions for employees, including important restrictions for things like cell phone use, computers, and supplies like briefcases (not allowed). 

Costs for your workspace in the home and commission sales expenses can’t exceed employment income earned. Excess home workspace expenses can be carried forward and used next year, but sales expenses of commissioned salespeople can’t be.   

Finally, large costs for big items qualify for a reduction in withholding taxes throughout the year.  That’s a great way to get an advanced tax refund with every paycheque. Use for T1213 Request to Reduce Tax Deductions at Source to make this happen.  

The bottom line: A tax professional can help you navigate what deductions you qualify for. When in doubt, always check with a professional to ensure compliance with CRA rules.

Read more about taxes:

• Income tax brackets in Canada
• Smart strategies to maximize your tax return
• How to file your taxes online in Canada

About Evelyn Jacks, RWM, MFA, MFA-P, FDFS

Evelyn Jacks is President of Knowledge Bureau, a world-class financial education institute where readers can take micro-credentials in Financial Literacy, the Fundamentals of Income Tax Preparation, and earn career-enhancing Specialized Credentials, all online.

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