2 November 2005 External T.I. 2005-0142171E5 - Employment Income and 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.

Principal Issues: The taxable status of income earned as an appointee to an Alberta Attendance Board and the deductibility of expenses incurred in earning the income.

Position: Income from an office or employment; some expenses may be deductible under section 8 of the Act to the extent that all the requirements of the section are met.

Reasons: Meets the definition of an office in subsection 248(1) of the Act; section 8 of the Act authorizes a deduction for certain expense incurred in the course of earning income from an office or employment where all the conditions have been met, including employer certification.

Randy Hewlett
XXXXXXXXXX 613-957-2049
2005-014217
November 2, 2005

Dear XXXXXXXXXX:

Re: Employment/Self-Employment Income

We are writing in response to your letter of July 11, 2005, wherein you asked for our opinion on whether certain income you earned was employment or self-employment income.

You are mainly concerned with the status of the income for purposes of determining the deductibility of certain expenses incurred in the course of performing your duties. The expenses discussed in your letter included home office expenses, the cost of computer equipment, internet charges and supplies, such as printer toner, pens, paper, etc.

Background

The income in question was earned while you served on an Attendance Board pursuant to an appointment made under the Alberta School Act by the Alberta Minister of Education. In the course of a year, you served on several boards and received a fixed sum of $XXXXXXXXXX as a presiding member or $XXXXXXXXXX as a panel member. All of your travel expenses are reimbursed and are not included in the total income amount on the T4A you received.

You received a ruling from the CRA's XXXXXXXXXX Tax Services Office (the TSO") that the income is not pensionable under the Canada Pension Plan (the "CPP") and not insurable under the Employment Insurance Act (the "EIA"). We have communicated with our colleagues in the TSO and understand that their ruling is based on the fact that under the CPP and EIA, an appointment to a board of this nature by Her Majesty in right of Alberta is not considered pensionable or insurable employment.

Our Comments

In general terms, income that is considered pensionable under the CPP and/or insurable under the EIA, is also considered "employment" income under the Income Tax Act (the "Act"). However, it should be noted that there are also situations where the income earned by an individual may not be considered pensionable under the CPP and/or insurable under the EIA, but is still considered employment income under the Act.

(a) Employee or Self-Employed under the Act

For purposes of the Act, to determine whether an individual has income from an office or employment or is self-employed, many factors must be taken into consideration. This generally involves determining whether the contract between the parties is a contract of service, such as would exist between an employer and an employee, or is a contract for services, that is, the engagement of a self-employed individual. A contract of service generally exists if the person for whom the services are performed has the right to control the amount, the nature and the management of the work to be done and the manner of doing it. A contract for services exists when a person is engaged to achieve a defined objective and is given all the freedom required to attain the desired result.

There are also provisions of the Act that specifically define individuals who hold certain positions to be "employees". For example, pursuant to the definitions of "office" and "employee" in subsection 248(1) of the Act, any position of an individual entitling the individual to a fixed or ascertainable stipend or remuneration, the incumbent of which is elected by popular vote or is elected or appointed in a representative capacity, is considered to be the position of an office, and consequently, the individual is considered to be an officer and employee. Based on our understanding of the positions you would have held on these boards, we are of the view that you were an employee and the fees received by you in performing those duties are income from an office or employment.

(b) Deductibility of Expenses For Employees

Unlike a self-employed individual, in computing an individual's income for a taxation year from an office or employment, only those deductions that are specifically authorized under section 8 of the Act are permitted [subsection 8(2)]. In this regard, the types of employment expenses deductible are relatively restricted when compared to a self-employed individual. A self-employed individual can deduct a wider variety of expenses that are incurred for the purpose of gaining or producing income from the business.

It should also be noted that there is a specific requirement that an employee file the form T2200 with his or her return of income for the year to obtain a deduction for many of the expenses listed in section 8 of the Act. The T2200 must be signed by the employer certifying that the employee meets, in the year, the requirements of the particular provision authorizing the deduction, and must incur the expense in the course of earning the income from the office or employment [subsection 8(10)]. Without the T2200 signed by the employer, the employee is not entitled to the deduction. For detailed information on the specific expenses that may be available under subsection 8 of the Act, you may wish to consult guide T4044 Employment Expenses. This guide is available on our website at http://www.cra.gc.ca or may be obtained by contacting your local tax services office.

In terms of the general expenses discussed in your letter, the following should be noted:

1. An employee is not entitled to a deduction under subsection 8 of the Act in respect of the capital cost of computer equipment since there is no provision that authorizes the deduction;

2. A deduction may be available in respect of the cost of supplies that were consumed directly in the performance of the duties of the office or employment and that the officer or employee was required by the contract of employment to supply and pay for; and

3. An employee is not entitled to any deduction in respect of a home office unless that work space is where the duties of employment were principally performed (50% or more), or the work space was used exclusively for the purpose of earning income from the office or employment and used on a regular and continuous basis for meeting customers or other persons in the ordinary course of performing the duties of the office or employment. To the extent that home office expenses are deductible, the deduction for such expenses cannot exceed the income for the year from that office or employment. However, the excess can be carried forward and the individual may be entitled to a deduction against income earned from that source in a future year.

We trust our comments will be of assistance to you. Should you have any further questions please feel free to contact the undersigned at the telephone number indicated above.

Yours truly,

Randy Hewlett
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch