4 April 2000 External T.I. 2000-0005455 - DEDUCT. EMPLOY. BUSINESS EXPENSES

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: 1. Employee, deduction of clothing, travel expenses
2. Self-employed, deduction of clothing, travel expenses

Position: 1. Employee cannot claim travel expenses from home to office nor clothing expenses.

2. Self-employed cannot claim travel expenses if home not base of business operations; cannot claim regular clothing expenses but can claim cca in respect of uniform (Class 12) and clothing and costumes (Class 8) of Schedule II of IT Regulations.

Reasons: 1. Considered personal and living expenses.

2. Considered personal and living expenses except for clothing that come under Class 12 and Class 8 of the IT Regulations.

		2000-000545
XXXXXXXXXX 	M. Shea-DesRosiers
		957-8953
April 4, 2000

Dear XXXXXXXXXX:

This is in reply to your letter of February 1, 2000, wherein you inquire as to whether you can deduct, as business expenses, any of the following expenses, which you incurred as a communications consultant for the federal government for whom you worked, on contract, from XXXXXXXXXX:

i) Monthly bus passes/bus tickets/parking fees

ii) Business attire purchases (suit, jackets, shoes, briefcase)

iii) Dry cleaning for the above (suits, jackets, blouses).

XXXXXXXXXX

Our Comments

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. Where the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.

Since you do not specify whether the above expenses were incurred as a self-employed individual or an employee under the contract with the federal government, we will address both situations. Should you require assistance to determine whether the contract was a contract of services (employer/employee relationship) or a contract for services (client and independent contractor relationship), you may wish to discuss the matter with officers at your local tax services office who generally review factual situations concerning employer/employee situations for CPP and EI purposes. It is also not obvious from this situation whether, if the contract does result in business income, it is income from the same business as or separate from the XXXXXXXXXX business.

Self-employed individual

1. Expenses incurred by self-employed individuals for the purpose of travelling between their home and their place of business are not deductible under the Income Tax Act unless it is established that the home is the base of business operations. Since in the situation you describe, the base of the communications business operations appears to be an office made available by the federal government, the travelling expenses would not be deductible.

2. The Canada Customs and Revenue Agency (CCRA) takes the position, which is supported by the Courts, that while custom demands that certain types of clothing be worn in performing certain duties, the expenses incurred in purchasing said items are personal and living expenses which are not deductible under the provisions of the Income Tax Act. However, a self-employed individual earning business income is permitted to claim capital cost allowance in respect of a uniform (Class 12 of Schedule II of the Income Tax Regulations), for example, in the case where a distinctive uniform is specifically required to earn self-employment income, and capital cost allowance in respect of clothing and costumes (Class 8 of Schedule II of the Income Tax Regulations), for example, wardrobe acquired by an artist specifically to earn self-employment income. Since the business attire you refer to appears to be the normal clothing required to be used in an office, the expenses incurred to acquire such clothing would not be deductible.

However, as far as the briefcase is concerned, as long as the expense was incurred by the self-employed individual for the purpose of gaining or producing income from the business, it would be deductible under the provisions of the Income Tax Act.

3. As for the dry cleaning expenses for the business attire, it follows that if the expenditure for the purchase of such clothing is not deductible, the dry cleaning expenses would not be deductible.

Employee

1. CCRA takes the position, which is supported by the Courts, that travel between an employee's residence and his or her regular place of work is personal. An individual's place of work is considered to be the place where the individual reports for work. Therefore, the cost of a monthly bus pass or bus tickets acquired for such a purpose by an employee is considered a personal and living expense which is not deductible under the Income Tax Act. The same applies to parking fees when the employee chooses to take his/her car to the office instead of taking the bus.

2. The cost of business attire and its accessories customarily worn or required to be worn by employees in the performance of their duties is considered a personal or living expense which is not deductible under the Income Tax Act. The cost of a briefcase would not be deductible since it is not an expense incurred for the purpose of gaining or producing income from a business or property.

3. The cost incurred for dry cleaning the business attire is also a personal expense since the purchase of said clothing is considered a personal and living expense and therefore, not deductible .

Based on the question posed, it appears that you may be interested in knowing whether expenses incurred to earn employment income can be deducted in calculating self-employment business income. The answer is 'no' as the only expenses deductible in computing income from a business are those made or incurred for the purpose of gaining or producing income from that business. For the same reason, expenses incurred in one business undertaken by an individual cannot be deducted in calculating income from another separate business undertaken by the same individual.

We trust our comments will be of assistance to you.

Yours truly,

Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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