Shareholder Vs Employee Expenses, Here Is What You Need To Know
In order to claim employment expenses against your employment income when you are a shareholder and also an employee, you must satisfy two conditions:
- The expenses were incurred as part of your employment duties, and not as a shareholder.
In order to do this, you need to be able to establish that your expenses claimed are comparable to the expenses incurred by employees (who do not own shares of their employer) with comparable duties at your company or a competitor. This information does not need to be summited with your T1 or T2200. CRA can ask for it later during a review of your expense claim.
- You were required to pay for these expenses yourself as part of your employment duties, & not as a shareholder.
The expenses an employee whom is not a shareholder is responsible for is usually specified in the employee’s contract. Sometimes there is not a contract, or the requirement to pay is not clearly identified, but there is an implied requirement for the employee to pay the expenses. For example, an employee can demonstrate an implied requirement to pay by showing that they face possible disciplinary action from their employer if they do not pay the expenses.
If you are a shareholder & an employee, an implied requirement to pay can be more difficult to prove, & a contract of employment may not be adequate to establish your requirement to pay for The expenses as part of your employment duties.
You must therefore in order to satisfy this condition, be able to prove that your expenses are comparable to the expenses claimed by employees (who are not shareholders) with similar duties at your company; or at a competitor of similar size. This should prove you were required to incur these expenses as part of your employment duties, & not as a shareholder.
You must satisfy both conditions to deduct employment expenses on your T1 tax return. As A shareholder; you may have the authority to certify for T2200 for yourself & employees, if both conditions are met.
Should you have any questions about this or any other topic, feel free to contact the experts at J.M.J. Accounting & Tax Services Inc.