Given that the summer is almost here and school is nearly out, thousands of Canadians will be taking vacation time to travel hither and yon. So why not at least make part of your trip deductible for tax purposes if you can? Consider these ideas.
Travel for business
Self-employment, even part time, can open the door to all kinds of deductions. In fact, you can deduct any reasonable costs incurred to earn income from your business. This can include travel costs such as air or train fares, automobile expenses, taxis or rental cars, hotels and meals. Keep in mind that only half of your dining and entertainment expenses can be deducted, and if you’re attending a convention, your business can deduct the costs of attending up to two conventions related to your business each year. So, make your travel this summer related to a home-based business and claim a deduction for the business portion (pro-rated by time spent on business activities) of your travel costs.
Travel as an employee
While employees aren’t given many opportunities to deduct expenses, you may be entitled to deduct travel costs if you’re ordinarily required to work away from your employer’s place of business, pay for your own reasonable travel costs and do not receive a tax-free allowance or reimbursement from your employer. Even if you receive an allowance, you may still be able to deduct reasonable costs if you find that you’re spending more than your allowance covers. You’ll need to include your allowance in your income, then claim a deduction for your actual travel costs. Make sure that your employer provides a signed Form T2200 to verify that you’re required to travel for work and meet the tests to claim a deduction.
Take an incentive trip
Many employers offer employees, especially sales reps, incentive trips for a job well-done. The taxman normally considers the cost of these trips to be a taxable benefit, which could show up on your T4 slip and give rise to a tax bill that can climb to 35,000 feet faster than the airplane you’re flying. Talk this over with your employer to reduce the amount of the taxable benefit. The trip will be tax-free to the extent that it’s business-related. You’ll need to keep an itinerary of scheduled meetings and events intermingled with free time (the taxman will generally look at the hours spent each day on business stuff compared with hours of personal time to determine what portion is taxable).
Extend a work trip
If you’re planning to travel for work, why not extend your trip and turn it into a personal vacation? As an employee, your employer may be footing the bill for your airfare and some other costs, but these costs will not be fully taxable as benefits because you were away for work reasons. To the extent the costs paid by your employer can be attributed to your personal vacation, the costs will be a taxable benefit to you.
Travel as a host
If your employer is planning a trip arranged for employees, suppliers or customers, consider tagging along as a host. It’s worth a conversation with the boss. If you travel as a host, the trip will generally be a tax-free benefit, provided a substantial part of each day is spent in your hosting role. If you bring your spouse along, this will be a taxable benefit to you to the extent your employer pays the cost, unless your spouse also acts as a host.
Use frequent-flier points
If you happen to use your personal credit card to pay for business travel, are reimbursed by your employer and accumulate frequent-flier points or air miles, I’ve got some good news. It used to be that the taxman would look to tax you on the value of those points. No longer. You don’t have to include the value of these points or air miles in your income provided you don’t convert these points to cash and the accumulation of points is not considered to be a form of compensation from your employer. Note: If your employer controls the points or air miles (i.e. such as when you use a corporate credit card to pay the airfare), you’ll face tax on any points or air miles used for personal travel. So, you’re better off using your own credit card.
Use transportation passes
If you’re an employee or retiree of a transportation company, travel passes provided by your employer are generally tax-free. Do a search for “taxable benefits” at cra.gc.ca for more details.
Tim Cestnick, FCPA, FCA, CPA(IL), CFP, TEP, is an author, and co-founder and CEO of Our Family Office Inc. He can be reached at firstname.lastname@example.org.