2018-0770521E5 Expenses of an office

Principal Issues: Whether members of a legislative assembly and certain elected municipal officers are permitted to deduct expenses under section 8 of the Income Tax Act?

Position: Yes.

Reasons: See response.

Author: Baltkois, Thomas
Section: 8(1); 8(10); 8(13); 81(2); 81(3); 248(1) “office”, “officer”, “employee”, “employer”, “employment”

XXXXXXXXXX                                                                                                                              2018-077052
                                                                                                                                                      T. Baltkois
March 28, 2019

Dear XXXXXXXXXX:

Re:  Expenses of an office

We are writing in response to your correspondence of July 18, 2018, in which you requested clarification as to whether elected municipal officers are permitted to deduct expenses under section 8 of 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 particular transactions 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 70-6R8, Advance Income Tax Rulings and Technical Interpretations.

For 2019 and subsequent tax years, non-accountable allowances paid to elected members of legislative assemblies, certain municipal officers, and members of public or separate school boards are required to be fully included in income. Prior to 2019, an exemption was available for non-accountable allowances paid to cover expenses connected with carrying out work-related duties (“Allowances”), provided that the Allowances did not exceed one-half (50%) of the individual’s salary and other remuneration.

For more information about the changes to the tax treatment of Allowances paid to elected members of legislative assemblies, certain municipal officers, and members of public or separate school boards, go to canada.ca/en/revenue-agency/news/newsroom/tax-tips/tax-tips-2018/changes-non-accountable-allowances.html.

Expenses of an office or employment

Generally, where an officer or employee incurs expenses in the course of performing the duties of an office or employment, a deduction is available for certain expenses, provided that the particular expense is specifically identified in section 8 of the Act, and all conditions in that section have otherwise been met. These expenses may include travel and motor vehicle expenses (paragraphs 8(1)(h) and (h.1) of the Act), or office rent, assistant salaries, and supplies (subparagraphs 8(1)(i)(ii) and (iii) of the Act).

The term “office” is defined in subsection 248(1) of the Act to mean, “the position of an individual entitling the individual to a fixed or ascertainable stipend or remuneration and includes a judicial office, the office of a minister of the Crown, the office of a member of the Senate or House of Commons of Canada, a member of a legislative assembly or a member of a legislative or executive council and any other office, the incumbent of which is elected by popular vote or is elected or appointed in a representative capacity and also includes the position of a corporation director”. Subsection 248(1) of the Act also establishes that:

-     an officer is a person holding an office;

-     an employer, in relation to an officer, means the person from whom the officer receives the officer’s remuneration; and

-     a person includes a municipality in Canada, or a municipal or public body performing a function of government in Canada.

Required under the contract of employment to incur expenses

Paragraphs 8(1)(h) and (h.1), and subparagraphs 8(1)(i)(ii) and (iii) of the Act each contain a condition which explicitly requires that an officer or employee be “required under the contract of employment” to incur the expenses contemplated therein. When the conditions of subparagraphs 8(1)(i)(ii) or (iii) of the Act have been met, an officer or employee is generally permitted to deduct home office expenses when the requirements of subsection 8(13) of the Act are also satisfied.

While a written contract of employment would in most cases substantiate the types of expenses an employee was required to pay, it is recognized that an individual holding an office may not have a similar written contract of employment. Accordingly, it is our view that the phrase “contract of employment” in paragraphs 8(1)(h) and (h.1), and subparagraphs 8(1)(i)(ii) and (iii) of the Act should be afforded broad interpretation when used in the context of an individual holding an office and could include, for example, a written contract or agreement which outlines the terms and conditions entered into between an officer and the employer (i.e., the person from whom the officer receives his or her remuneration), in respect of that office.

Absent the existence of a written contract or agreement (or an express requirement therein), an individual holding an office would have to demonstrate that there was an implied requirement that he or she incur expenses (or provide supplies), and that it was necessary under the circumstances that they be incurred (or provided) in order to fulfill the duties of that office. Whether such an implied requirement exists, or whether a particular expense or supply must be incurred or provided by an officer to perform the duties of an office is a question of fact and will depend on the circumstances of each situation.

However, this requirement would not be met where an officer has the option of paying expenses related to the office, or in situations where a reasonable reimbursement or allowance is available to the officer for such expenses, and the officer chooses to forgo the reimbursement or allowance. In such cases, the officer would be precluded from deducting expenses under paragraphs 8(1)(h) and (h.1), subparagraphs 8(1)(i)(ii) and (iii), or subsection 8(13) of the Act.

Form T2200

Subsection 8(10) of the Act further provides that an amount otherwise deductible by an individual under paragraphs 8(1)(h), (h.1) and subparagraph 8(1)(i)(ii) or (iii) of the Act shall not be deducted unless a prescribed form (i.e., Form T2200, Declaration of Conditions of Employment) is signed by the individual’s employer certifying that the conditions set out in the applicable provision were met in the year.

Notwithstanding that Form T2200 refers exclusively to an employee, this term may be read as officer in situations where an individual earns income from an office, as an “employee” is defined in subsection 248(1) of the Act to include an officer (i.e., a person holding an office).

It should be noted that although the signing of Form T2200 is required before an individual can claim a deduction for office or employment-related expenses, a signed Form T2200 does not guarantee to the individual that any office or employment-related expenses incurred by them are deductible, as the other requirements of the Act must also be satisfied.

Based on the definitions of “employer” and “person” in subsection 248(1) of the Act, an “employer”, in the context of an individual holding an office, is the person from whom the officer receives his or her remuneration, and could include a municipality in Canada, or a municipal or public body performing a function of government in Canada.

Accordingly, a municipality may certify the conditions of an office by completing and signing Form T2200 for an elected municipal officer.

We trust these comments will be helpful.

Yours truly,

Jason R. Ward, CPA, CA
Acting Manager
Business and Employment Income Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without the prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5.

© Her Majesty the Queen in Right of Canada, 2019

Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistribuer de l'information, sous quelque forme ou par quelque moyen que ce soit, de façon électronique, mécanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.

© Sa Majesté la Reine du Chef du Canada, 2019