Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: The inability of employees to deduct employment related expenses.
Position: N/A
Reasons: Changes to legislation would be required, to allow employees to deduct expenses not currently permitted by the Act.
XXXXXXXXXX
Dear XXXXXXXXXX:
The Honourable Herb Dhaliwal, Minister of National Revenue, has asked me to reply to your correspondence of January 2, 1999, and March 9, 1999, concerning several issues.
You noted that you had read about modifications to the Income Tax Act which you felt were designed to make an employee out of every person earning money. You may have been reading about the 1998 budget announcement regarding contract reporting requirements that were introduced to improve tax compliance, and do not change the status of the self-employed. The Contract Payment Reporting System requires T4A information slips to be issued for certain non-wage payments to subcontractors. Subcontractors include individuals, small businesses, partnerships, or corporations. Wages paid to employees are reported on T4 information slips and are outside the scope of this reporting system.
You have expressed concern that companies have been detrimentally affected by a situation in which Revenue Canada found that employer-paid education was to be a taxable benefit to an employee. On May 7, 1998, after consultations with the Department of Finance, industry officials, and other interested parties, Revenue Canada issued Income Tax Technical News Number 13, Employer Paid Education Costs, a copy of which is enclosed. The technical news explains the Department’s position regarding employer-provided educational costs and training. Most employer-provided training is recognized as directly related to job responsibilities with no taxable benefits. This includes associated costs of providing such training as transportation, meals, and accommodation. However, employer-provided courses taken for the personal interest of the employee that are not related to the employer’s business, result in a taxable benefit. In the past, courses leading to a certificate or a degree have normally been viewed as a primary benefit to an employee. Under the new guidelines, such courses do not result in a taxable benefit, if taken primarily for the benefit of the employer.
You also expressed concern with the current deductions for the education costs of students, generally. Presently, students may claim a tax credit for their tuition fees. An education amount of $200 for each month, or part month, is also available for full-time students enrolled in a qualifying educational program. Under proposed changes, part-time students will be entitled to a $60 per month education amount. In addition, in 1998, the Canadian Opportunities Strategy introduced a number of strategies to help manage student debt. For the first time, all individuals repaying federal and provincial student loans can claim a new 17 per cent federal tax credit on the interest portion of their payments. Graduate students having trouble repaying their student loans are eligible for interest relief.
An employee is entitled to deduct expenses from his employment income if he meets the specific criteria outlined in the Act. The issue of deductions for employees’ expenses has previously been discussed before the House of Commons Standing Committee on Finance. I have enclosed a copy of the report tabled in the House of Commons on June 10, 1992, which highlights some of the difficulties in finding an equitable solution to this issue. For example, an amendment to the Act would be required to allow employees a deduction for capital cost allowance in respect of equipment they must provide.
Self-employed persons have no employment income but rather they report their income as business income. Since they are not considered to be employed, they cannot contribute to the employment insurance plan. Human Resources Development Canada’s Web site points out that fishers are the only self-employed workers who can receive Employment Insurance. It has also indicated that the Kirby Report states that incomes earned from fishing activity remain low for a majority of full-time fishers, and Employment Insurance is available, as it is the only program providing significant income stability and supplementary revenues for fishers. In relation to Employment Insurance, the main differences between fishers and other workers are fishers’ qualification for benefits is based on earnings within a fishing season rather than hours worked over the year. In addition, the length of time fishers can receive benefits is standard for all those who qualify.
Concerning the burden of providing an extensive paper trail, as a general rule, Revenue Canada does not specify the books and records to be maintained by a business, though adequate books and records must be kept to enable the Department to verify taxes payable. In most cases, this requirement is met using the records ordinarily kept by the business. Information Circular 78-10R2, Books and Records Retention/Destruction a copy of which is also enclosed, describes Revenue Canada’s requirements regarding the retention of books and records.
The role of Revenue Canada is to administer and enforce the Income Tax Act as passed by Parliament. Several of the concerns raised in your correspondence relate to tax policy, which is the responsibility of the Department of Finance. In this regard, I have sent a copy of your correspondence to Mr. Munir Sheikh, Assistant Deputy Minister, Tax Policy Branch, Department of Finance, for his consideration.
I appreciate being made aware of your concerns.
Yours sincerely,
Bill McCloskey
Assistant Deputy Minister
Policy and Legislation BranchAttachment
David Shugar
957-2133
April 14, 1999
990307
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