Claiming employment expenses from own corporation

[Winning]

I have a corporation that I plan on paying myself entirely through dividends. Can I claim motor vehicle expenses (as well as others) as employment expenses, as my corporation's employee? Or would the corporation need to pay me a salary to be classified as an employee? I rather not use the mileage method in my case, if possible.

[Delphision · Accepted solution]

You cannot claim employment expenses since you are not an employee.  You can claim a business portion of CCA, fuel, insurance, and repairs for your personal vehicle.  Be prepared to show how the business portion was calculated.  You could still be expected to prove the business portion via vehicle log.

[Winning]

So what if I paid myself an EMPLOYMENT income, such as salary or bonus? Would then I be classified as my corporation's employee?

[Delphision]

If you pay yourself wages and submit source deductions, you would then be able to claim employment expenses.  There is a downside in that it is more expensive to the company, but if there is sufficient cash, it also provides tax deductions for the company.  Dividends do not.

[Winning]

Thank you for the replies. CRA specifies that certain employment expenses cannot be used to produce an employment loss. Now is this a employment loss specific to the company that the expenses are claimed to, or TOTAL employment income?

e.g. Suppose from my own company, I pay $5,000 salary, $45,000 dividends. Employment expenses: $20,000. Other employment income: $50,000 (which exceeds employment expenses). Would this be correct, or would I have to pay $20,000 salary, $30,000 dividends?

[Delphision]

Generally speaking, working in an accounting office, I prefer to see a regular wage of, perhaps $4,000 per month.  Wages and source deductions have to be calculated on, at least, a monthly basis. If you try to report wages in a lump sum at year end, expect failing to file penalties and interest.

When you pay company expenses it should be entered in your accounting software as a debit to expense and a credit to your shareholder loan account.  When you take out more money, personally, from the company, over and above your wages, it is a credit to bank and a debit to your shareholder loan account.  At year end, if your shareholder loan account is in a debit position, meaning you owe the company money, that is the amount you record as dividends.  The benefit is that by tax time, your personal income taxes are close to paid, and you are contributing to CPP.  You would not contribute to EI. Any expenses that would normally be considered as employment expense would either be a contribution to shareholder loan or a reimbursement from shareholder loan.


https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4044-employment-ex...

https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t2200-declaration-conditio...

[Winning]

Thanks. Or, could I just pay myself a small bonus at year end? Would this cause issues if my employment expenses exceed the bonus amount - though I have other employment income from other employers ?

[Delphision]

I would suggest that if you are the sole shareholder, paying yourself a bonus and submitting the required tax and CPP, and then issuing yourself a T2200 so you can claim employment expenses from your own company is pretty shaky.   Why don't you just pay yourself management fees, and then apply your "employment expenses against the resulting self-employment income?  I don't understand why you are so enamoured of employment expenses

[Winning]

I actively require financing, and lenders use Line 150 on the NOA for income calculation, especially for mortgages. For some reason employment expenses do not reduce Line 150 while other expense types do.

It is a strange characteristic of the NOA, and I've been trying to figure a solution to this puzzle for quite some time - claiming tax deductions without adversely affecting the ability to obtain credit.

The only other solution I can think of is just carrying forward most business expenses to future years- but I lose out on the earning power of the increased cash on hand today. But wouldn't this raise eyebrows with the sudden surge of claimed expenses in a certain future year ?

I've claimed employment expenses in the past for other employers, so it's not new on my tax file.

[Delphision]

You will have to do whatever you want.  I have no personal investment in how it all turns out.  Good luck.