Tax Season Odyssey 2024: 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.  

Starting in the 2023 tax year, the home office expense deduction that was available to many employees working from home in 2020, 2021 and 2022 as a result of the COVID-19 pandemic will no longer be available. As such, unless your employer requires you to work from home, you would not be eligible to claim the home office expense deduction. In addition, the temporary flat rate method ($2 deduction per day) is no longer available. If you wish to claim the home office expense deduction for the 2023 tax year, you will therefore need to use the detailed method, but only if you meet certain conditions. 

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.
• A loan made, if the total amount of all loans per calendar year does not exceed $10,000, has a loan term of 60 days or less, and is not received because of shareholdings.

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 and 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 2024 by January 30, 2025, to reduce or eliminate your taxable benefit (for interest payable in 2023, be sure to pay the interest by January 30, 2024). 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. However, the prescribed interest rate currently in effect is 5 per cent. Given the market’s high interest rates, it may not be an appropriate time to renegotiate your loan.