Travel Expenses: Shareholder-Employees and Form T2200

For an employee to deduct travel or motor vehicle expenses against employment income, the employee must be normally required to work away from the employer’s place of business, be required to pay the travel expense under the contract of employment, and have a signed and completed form T2200. Also, the employee cannot receive an allowance excluded from income.

In 2017, CRA began denying travel expenses claimed on the personal tax return of many employees who were also shareholders of the employer or related to a shareholder. After receiving concerns from stakeholders regarding this new assessing practice, CRA reversed their assessments, indicating that “clear guidelines for taxpayers and their representatives” were important to the Canadian self-assessment system and that additional consultation and guidance was needed in this area.

In September of 2019, CRA released the promised guidance. It noted that the following conditions had to be met for employment expenses incurred by shareholder-employees to be deductible:

1. The expenses were incurred as part of the employment duties and not as a shareholder.

2. The worker was required to pay for the expenses personally, as part of their employment duties.

When the employee is also a shareholder, the written contract may not be adequate, and the implied requirements may be more difficult to demonstrate. However, CRA noted that both of these conditions may be satisfied if the shareholder-employee can establish that the expenses are comparable to expenses incurred by employees (who are not shareholders or related to a shareholder) with similar duties at the company or at other businesses similar in size, industry, and services provided.

In some cases, it may be better to deduct expenses against employment income or for the company to reimburse expenses of shareholder-employees. There may even be the option to pay a tax-free travel allowance. If amounts are continued to be paid personally, retain supporting documents showing how the travel expenditures are reasonable, in comparison with employees (who are not shareholders or related to a shareholder).