Tax Season Speedway 2025: Employees

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) that you paid to earn employment income. This is only an option 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, you are not eligible to claim  a deduction for home office expenses unless your employer requires you to work from home. The temporary flat rate method ($2 deduction per day) that was previously available during the COVID-19 pandemic (for 2020, 2021, and 2022) is no longer available.

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:

1. A loan that is used by the employee or their spouse to enable them to purchase a dwelling for their habitation.
2. A loan made by the employer to the employee to enable them to acquire shares of the corporation from treasury. 
3. A loan made by the employer to enable the employee to purchase a motor vehicle that is used to perform employment duties.
4. 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 meet the qualifying purposes are subject to an imputed taxable interest benefit. This benefit is calculated using the CRA prescribed interest rate and applies for the entire duration 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 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. To reduce or eliminate your taxable benefit, ensure you pay any interest payable on the loan for 2024 by January 30, 2025. For interest payable for 2025, make sure to pay by January 30, 2026. If the interest on the loan is not paid by these dates, the imputed interest benefit will apply.

If you have an existing employee interest-bearing loan used for a qualifying purpose (e.g., home purchase), consider renegotiating the loan with your employer. This can help minimize taxable benefits by “locking in” the loan at a lower prescribed interest rate for a five-year term. The current prescribed interest rate is 4% effective January 1, 2025. Given the recent decrease in market rates, carefully consider the timing and renegotiating your loan where appropriate.