Employee Deduction of Travel Expenses for Commuting

Posted on by Tax Partners
09
Dec

Introduction

In Canada, deductions from employment income are generally limited to specific employment-related expenses allowed by the Income Tax Act. One such exception is the deduction of motor vehicle travel expenses under certain conditions. While commuting from home to work is typically regarded as personal use and non-deductible, exceptions exist when an employee is required by their employer to use their motor vehicle for work-related purposes. 

This article explores the rules surrounding the deduction of travel expenses for commuting, with a focus on relevant legal precedents and practical tax tips.

 

General Rules for Deducting Motor Vehicle Expenses

Motor vehicle expenses can be deducted from employment income if:

  1. The employee is required to perform their work away from their employer’s place of business.
  2. The employee is "on the road" for work purposes.
  3. The employee incurs the expenses in the course of fulfilling employment duties.
  4. The employer completes Form T2200 – Declaration of Conditions of Employment, certifying that the employee is required to cover these expenses.

Note: The Canada Revenue Agency (CRA) typically considers commuting between home and the regular workplace as personal travel, which is not deductible.

 

Exception: Employer-Required Use of a Motor Vehicle

In situations where an employee is mandated by their employer to bring a vehicle to work, and the employee would have otherwise used a less expensive mode of transportation (e.g., public transit or carpooling), the CRA may allow a deduction for commuting expenses.

 

 

Legal Precedent: Tolson v. HMQ [2007 TCC 661]

In this case, the taxpayer:

  • Was required to use his personal vehicle for employment purposes.
  • Received two vehicle allowances from his employer (per kilometre and fixed).
  • Claimed motor vehicle expenses, including commuting costs for a 30-kilometre round trip between his residence and office.

CRA's Argument:

  • Commuting costs were personal in nature.
  • The taxpayer did not claim the per kilometre allowance, suggesting the vehicle was not used for employment purposes.

Court's Findings:

  • The taxpayer was required to have his vehicle available at the office to fulfill employment duties.
  • Leaving the vehicle permanently parked at the office, as suggested by the CRA, would unreasonably deprive the taxpayer of personal use.
  • The taxpayer's claim for commuting and "on-the-job" travel expenses was allowed.

 

 

Implications

This decision establishes that:

  1. Employer's Requirement: If an employee is required to bring their vehicle to work, commuting costs may be deductible.
  2. Reasonableness Standard: CRA’s suggestions, such as leaving a vehicle permanently at the workplace, must be reasonable and practical.

 

Tax Tips for Employees

  1. Document Your Employer’s Requirements:
    • Ensure your employer provides a completed Form T2200 specifying that you must use your vehicle for work purposes.
    • Maintain records of any allowances or reimbursements received.
  2. Track Travel Expenses:
    • Keep a detailed log of kilometres driven for both commuting and work-related purposes.
    • Maintain receipts for fuel, insurance, repairs, and maintenance.
  3. Evaluate Allowances:
    • Ensure that allowances or reimbursements provided by your employer are not duplicating expenses claimed as deductions.
  4. Consult a Professional:
    • Tax rules for employment expenses can be complex. Consult a tax advisor to optimize deductions and avoid disputes with the CRA.

 

Conclusion

While commuting expenses are generally non-deductible, exceptions exist when employees are required to use their personal vehicles for work-related purposes. The Tolson case underscores the importance of reasonableness and employer requirements in such claims. Employees seeking to deduct travel expenses should maintain thorough documentation and consult a tax professional for guidance.

 

This article is written for educational purposes.

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