My client is a Councilwoman for our City. She is paid a non-accountable allowance which is fully taxable and included in Box 40 on her T4. This allowance is to help defray some of the costs of her position. Being that this allowance is fully taxable, my thinking is she should be able to submit a T2200 claim some of her expenses on a T777. ie; advertising & promotion, meals, vehicle expenses. Does this sound reasonable? I am unable to find information regarding expenses relating to the allowance on CRA’s website. Thanks.
Yes seems reasonable but get a signed T2200 first and claim what it says you can.
I have a client who is on our City Council. I instructed him last year to obtain a T2200 (which he did) and to keep track of his expenses related to his position. I looked at the rules and couldn’t see anything that would prevent this deduction. Some cities may provide certain allowances for specific reasons that may require you to reduce the expenses, if applicable, and if the allowance is not included in their income.
As a municipal auditor, I can let you know that it sounds like the T4 slip is sort of correct. Prior to 2019, every council member received 1/3 of their compensation tax free so if they earned say 1,200 the T4 would read (ignoring CPP in this example) Box 14 $800, Box 70 $400. The tax act considered the amount in Box 70 to be a non taxable expense allowance; however, in most if not all cases it was just compensation since any true expenses tended to be reimbursed or paid by the RM. The law changed for 2019 and forward and the 1/3 non taxable expense allowance was ended and the Councillors will now be taxed on everything. In my example they should the T4 would now be box 14 1200 but there should not be anything in Box 40 for the old $400 exemption. It sounds like from your question that they put the old value from box 70 into box 40 which is incorrect since it is just income now which for all intensive purposes was before as well. I would recommend you ignore the fact there is an amount in box 40 in this case.
As for filing a T2200, I doubt that would be a good option since most of their costs are usually covered by the RM/Town etc. Most of my municipalities increased their compensation to account for the tax and have more expense reimbursements so I would not be surprised that that happened their as well
They may have additional costs; however, Most RM’s give a per KM reimbursement for official travel so if you are going to claim the mileage you need to bring in the reimbursements as income. A lot of them also provide a cellphone allowance monthly which technically is taxable but it does not always make it on the T4
See above, you may have additional income to report if you use the T2200
Thank you to all that took the time to respond to my question, it was most helpful. James1, I will double check with the municipality to be sure the allowance either is, or is not included in Box 40, and is only included in Box 14. I understand any costs reimbursed could not be deducted as an expense. I was only speaking of expenses that were not reimbursed. I haven’t discussed this in depth with my client as of yet as I wanted to gain more information on this subject before doing so. Thank you again.
I would avoid calling it an allowance, or anything as such. Take box 14 and multiple it by 1/3 and you should get the box 40; however, you must consider if the Councillor is participating in the municipal benefit program so they could have a portion that is actual applicable to box 40. Edit, I just check CRA’s policy and they are considering it should be in box 40 which sounds like a CRA thing to do which intuitively makes no sense but who am I to argue with finance. Either way it is taxable.
1/3 of the amount in Box 14 definitely is not in Box 40. I will find out what is in Box 40. Thanks for your input. Much appreciated! Have a great day!