Tax Tips 2023: Employees

If you will have large tax deductions available to you (e.g., RRSP contributions, tax shelters, interest, business losses, work related car expenses, tuition credits, or alimony), apply in advance to the CRA for a reduction of the payroll withholdings that are withheld from your salary by completing Form T1213, Request to Reduce Tax Deductions at Source. 

Arrange to receive non-taxable benefits from your employer instead of taxable benefits where possible. Examples of non-taxable benefits include employer contributions to a registered pension plan (the pension is taxable when you receive it); and contributions to a “private health services plan,” such as those covering medical expenses, hospital charges and drugs not covered by public health insurance and dental fees. 

You may be able to deduct certain expenses (including any applicable GST/HST) you paid to earn employment income. You can do this only if your employment contract required you to pay the expenses and you did not receive an allowance for them, or the allowance you received is included in your income. Generally, Form T2200, Declaration of Conditions of Employment must be completed by your employer for you to be able to deduct employment expenses from your income.  

If you worked from home due to the COVID-19 pandemic, you may be eligible for a deduction for certain home office expenses.  As an employee, you will need to obtain Form T2200S, Declaration of Conditions of Employment for Working at Home Due to COVID-19 from your employer to be eligible for the deduction.  You may be able to deduct utilities, internet, property tax/rent, condo maintenance fees and other expenses related to your home office.  For the 2022 tax year, the government introduced a simplified home office expense deduction of up to $500 for all employees who worked from home ($2 per working day from home, up to a maximum of 250 days).  The government has not yet confirmed if this deduction will be available for the 2023 tax year. 

If you received interest-free or low-interest loans from your employer, these loans would generally result in a taxable benefit. Certain employee loans do not result in a taxable benefit if they meet specific criteria, including: 

• A loan that is used by the employee or their spouse to enable them to purchase a dwelling for their habitation. 
• A loan made by the employer to the employee to enable them to acquire shares of the corporation from treasury. 
• A loan made by the employer to enable the employee to purchase a motor vehicle that is used to perform employment duties. 

Employee loans that do not fall into one of the qualifying purposes above are subject to an imputed taxable interest benefit that is computed at the CRA prescribed interest rate and applies throughout the period the loan is outstanding.  If you pay interest on the loan at a rate that is at least equal to the CRA prescribed interest rate, and such interest is paid by January 30 for the preceding calendar year, then the imputed interest benefit does not apply.

Interest paid to your employer on these loans is only deductible to you if the loan is used to earn income from business or property. If the loan is used for personal reasons, the interest is not deductible.

If the interest on the employee loan is not deductible, be sure to pay any interest payable on the loan for 2023 by January 30, 2024, to reduce or eliminate your taxable benefit (for interest payable in 2022, be sure to pay the interest by January 30, 2023). Where the interest on the loan is not paid by January 30, the imputed interest benefit discussed above will apply.

If you have an existing employee interest-bearing loan that was used for one of the qualifying purposes listed above (e.g., home purchase), consider renegotiating the loan with your employer to minimize taxable benefits by “locking in” the loan at a lower prescribed interest rate for a five-year term. The prescribed interest rate currently in effect is 4 per cent. However, given the market’s current high interest rates, it may not be an appropriate time to renegotiate your loan.