Posted on March 13th, 2020 in Domestic Tax

EMPLOYMENT EXPENSES: Costs of an Assistant

Women standing beside another women looking at a computer screen.

A November 5, 2019 Tax Court of Canada case reviewed the deductibility of employment expenses by a manager overseeing the Canadian sales force and operations of a multinational manufacturer of dental instruments and products. The taxpayer’s employer had no Canadian office, and she travelled extensively to meet with sales representatives, dealers and customers throughout Canada.

Expense of assistant

Almost half of the taxpayer’s claimed expenses, which exceeded $80,000, related to her husband’s role as her assistant. The Court noted that a deduction can be claimed for salary paid to an assistant, but that there were several problems with her claim, including the following:

  • The taxpayer’s husband was treated as self-employed and not as an employee. Any deduction must be for salary, requiring it be paid to an employee. This alone was fatal to the deduction claim.
  • The amount was not paid to her husband. Rather, they simply had a single joint bank account through which they both transacted. Lack of payment alone would prevent any deduction.
  • The taxpayer’s employer indicated it was the taxpayer’s decision whether she required an assistant. As her employer did not require her to hire an assistant, no deduction was available. This item alone would also prevent any deduction.
  • The husband’s services described were largely clerical, administrative, secretarial or driving, for which his hourly fee of $75 was not “anywhere close to the range of reasonable”.
  • The husband’s hours set out in quarterly billings were not supported – he could only account for a small fraction of the hours invoiced.
  • The husband claimed business expenses of almost 75% of his fees; however, the couple could not describe what expenses he incurred. The taxpayer “was sure this was a mistake”.

No deduction was allowed for these costs.

ACTION ITEM: Support and documents are often requested by CRA when deductions against employment income are claimed. Ensure to retain all such support. If no T2200 has been provided for the current year, enquire with your employer as to whether one is available for the next.

Article originally published in: Tax Tips & Traps 2020 First Quarter – Issue 129.