2017-0730581E5 Employment expenses - deductibility of outplacement services

Principal Issues: Whether the cost of outplacement services paid by an employee to seek employment are deductible from the employee’s income.

Position: No.

Reasons: See response.

Author: Underhill, Cynthia
Section: ITA: 6, 6(1)(a), 6(1)(a)(iv)(B), 8, 8(1) and (2)

XXXXXXXXXX                                                                                                                                      2017-073058
                                                                                                                                                              C. Underhill
May 2, 2018

Dear XXXXXXXXXX:

Re:  Employment expenses – deductibility of outplacement services

We are writing in response to your email dated October 24, 2017, in which you asked whether the costs of outplacement services incurred by an employee are deductible in computing an individual’s income from employment under the Income Tax Act (“Act”).

Our comments

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of a particular transaction proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R7, Advance Income Tax Rulings and Technical Interpretations.

Subsection 8(2) of the Act provides that no deductions are allowed in computing an individual’s income from employment except as specifically authorized under section 8. Generally, these deductions are restricted to certain expenses incurred while performing employment duties and are found in subsection 8(1) of the Act. There is no provision in section 8 of the Act that allows a deduction for the cost of outplacement services incurred by an employee.

Although there is no deduction available for the costs of outplacement services under the Act, subsection 118(10) of the Act provides a non-refundable tax credit referred to as the Canada Employment Credit. This credit recognizes that employees often incur various work related expenses and is calculated without taking into account deductions allowed under section 8. You can apply for the credit when filing your T1 tax return.

For more information on the type of expenses that an employee may deduct from employment income, go to canada.ca/taxes-employment-expenses.

We trust our comments will be of assistance to you.

Yours truly,

Shiri Trop, CPA, CA, MTax
A/Manager
Business and Employment Income Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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