Personal Services Workers

Two years in a row, two separate PSW clients of mine have been audited by CRA and raked over the coals both have been reassessed for expenses that should be deductible.

One thing that really bothers me is that these PSWs work for an agency and MUST drive from client to client at MINIMIUM WAGE and they cannot calculate their mileage like truck drivers! They MUST keep & show all of their gas receipts and keep a log of their travels. PSWs can’t show their agency travel request sheets because the client’s name and address is on it and there is a privacy issue. Why can’t they can the KM allowance.

Now the Federal Government wants to help these workers! Help them by allowing them to take reasonable deductions and stay off their case.

That is my rant for the day!

Hey, Paul, that’s two rants!

Do you protest those audits?

The one we got almost everything cleared up with a lot of hassle. The amount left assessed is not worth fighting over.

The other I am still working on. She has her journal in a hardbound book that cannot be photographed and if we send the books and they get lost it will be our responsibility.

Yea two rants but I had just heard Trudeau talking about helping PSW’s and other front line workers and that audit came to mind. PSW’s working like dogs in terrible environments on minimum wage and paying for expenses and then the CRA giving them a hard time.

@ptorkoff

I have run into problems like this before where the first level pre-assessment or post-assessment reviewer declines a claim that you KNOW is legitimate.

It is up to you to do two things:-

  1. prove that your claim is legitimate
  2. formally object to the assessment to reach a second level auditor

These first level auditors are often newbies and under the gun by an over the shoulder strict enforcer who may also be on a fishing expedition.

To prove that your claim is legitimate you need to refer to the following:-

  1. ITA (Income Tax Reference)
  2. Administrative policies, court decisions, CRA interpretations, CRA videos, etc
  3. Client supporting documentation.

In this case you would need provide the following:

  1. ITA reference for kms claim or vehicle expense claim

  2. CRA payroll videos of a few years ago detailed how the employment expense kms work. The first trip out of your home to the first client appoint and the last trip home are excluded.

  3. Client documents
    I normally claim a kms rate at the CRA approved reimbursement rate since sometimes some of these kms are reimbursed when taking a PSW client to a doctor’s appointment.

A - T2200 stating that the taxpayer is required to provide vehicle, cellphone, uniform, etc

B - detailed trip log showing all trips in chronological order with starting and ending odometer reading for the day

C - an extra column each trip’s kms claim. Be sure to exclude the first and last trip.

D - an extra column for total daily kms claimed

E - rate

F - claim amount

G - amount reimbursed

H - net claim

I - running total

During audit the taxpayer is often required to provide a statement from the employer or original contractor regarding the reimbursements. It is much easier to obtain this if the taxpayer has retained copies of the reimbursement request.

I go to bat for my clients. When I have all my ducks in a row, I rarely fail to get the claim approved. I keep digging with CRA advanced call centre and call back and in third party references such as the Wolters Kluwer “Preparing Your Income Tax Return”.

One caution, do not offer extra information. Shut down any fishing expedition. Send information via submit documents if and when possible. The auditor may ask for the moon. Think of this as police in a murder enquiry. It is your right to keep the documents and meetings within SCOPE OF WORK. If an in person meeting is required I prefer to meet alone with CRA. Taxpayers often blurt out information with little to no understanding of their tax meaning and start digging a deeper and deeper hole for themselves. Whenever possible do not meet at the client’s home. This is just an invitation to find evidence to deny the claim. I would meet at my local TSO or at my office.

Vehicle use is one of CRA’s favorite lines to disallow. Make this claim if and only if the taxpayer provides a detailed km log.

There are great phone apps to track this info.

It is the taxpayer’s right to have a legitimate claim approved.

It is your responsibility to help them through this process based on your terms of service.

I hope this helps.

1 Like

Allowable motor vehicle expenses

https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-229-other-employment-expenses/salaried-employees/allowable-motor-vehicle-expenses.html

Vehicle, Travel and Sales Expenses of Employees

https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/it522r/archived-vehicle-travel-sales-expenses-employees.html

Employment Expenses 2019

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

Motor vehicle expenses

https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-229-other-employment-expenses/motor-vehicle-expenses.html

Type of vehicle you own

https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-229-other-employment-expenses/motor-vehicle-expenses/type-vehicle-you.html

Since the CRA Auditors are correct regarding Employees, your anger is misdirected.
You anger should be directed at the Employer, whom you believe is mistreating the workers.

If the workers wages are too low, they should approach the employer for more pay.

If the workers are not getting reimbursed when they submit their travel claims to their Employer, they should discuss this with the Employer.

These workers have to comply with the Income Tax Act, the same as everybody else. They cannot make claims on a basis not permitted by the Income Tax Act. The Auditors are correct.

@joe.justjoe1

As long as the PSW has a signed T2200 or a contract requiring them to use their personal vehicle for work, then they are eligible to claim employment expense.

If their job description, contract, or duties description requires them to use their vehicle, and, if the employer refuses to provide a T2200, then the taxpayer needs to request the T2200 in writing three times. After the third request has been refused or not acted upon, then the taxpayer can write to CRA employer services and cc the T1 Audit department.

Sometimes the povincial labour laws can help.

Sometimes it is a matter of an unscupulous employer.

Most of these PSW’s are employed by firms that are under contract by the Provincial Health Authorities. In Alberta, these firms are reimbursed for both hours worked and for the kms driven. It is part of their contract. It helps if the worker understands the employee’s contract as well as the employer’s contract. There are advocate bodies for these PSW’s which may help.

Unfortunately PSW’s are often the must vulnerable workers as well as amongst the poorest paid for what they do as recent events have revealed.

FYI
In Calgary these are managed by Alberta Health Home Care Calgary South and Alberta Health Home Care Calgary North. If there is an issue for the client, then the AB Health Home Care Co-oridinator becomes involved. Each client situation is managed by a contract. These contracts and reimbursements are scrutenized in great detail. This is a huge expense line and the budgets are tight. Sometimes there is a misunderstanding. Sometimes there is unfair advantage taken. However, if the employment contract states that a vehicle is required then the employer is required to provide a T2200 as well as any CRA requested documents such as proof of reimbursement. If the employer is unco-operative then a payroll audit may be ensue if the taxpayer complains about a failure to provide the CRA audit documents after three proveable written attempts.

In my neck of the woods most of the home support PSW’s receive a significant reasonable non-taxable per km rate for their work related travel. As such no claim to be made.

@dominique.dabolczi
I think that you will find that the Auditors are correct for Employees, and that they are following the Act.

I suspect you might be thinking of Medical travel, or Taxable Benefits levels of reimbursement from Employers…

The OP should encourage the workers to take it up with the employer, if something appears unfair.

@Arliss

PSW
In Calgary this is not the case. No AB Health Care provider during the period of 2011 to current in Calgary South reimbursed PSW’s for kms driven between clients. Perhaps some boutique agencies without AB Health Care contracts may be different.

Currently only one boutique PSW contractor reimburses PSW’s for kms driven to medical appointments.

However, I hear anecdotally that the contractor receives reimbursement.

In my experience it is quite common in Calgary for a full time employees of various agencies providing social services and/or professional services to reimburse kms at much lower than the prescribed rate. Some are still using $0.41/kms to $0.45/kms.

@joe.justjoe1

Most often CRA T1 reviewers are correct with respect to employment expense audit result.

However, they are not forthcoming with clarification if and when the taxpayer failed audit for some technical reason.

We seem to missing some information by the original poster about what information was requested by the CRA Auditor and what was provided by the taxpayer or tax preparer.

Nonetheless I stand by my observation that there is a huge gap been the accuracy and fairness of a newbie auditor vs one with tons of experience. After 21 years in professional tax preparation, including many in very high volume firms, plus one season at CRA I now double check the audit requirements as well as the original sources in the ITA, ETA, and in third party references. My eyes were opened wide when my CRA training included some deep dives in the CRA audit manual. Without disclosing private and confidential information, what I had learned at CPA firms and at high volume tax prep firms was very different than how we were taught at CRA.

The basis is the ITA and/or ETA.
Then administrative policies are used to interpret the Acts.
Sometimes guides, bulletins, or folios are provided to clarify the topic.
Examples are illustrated.
Then these policies are applied in a technical and sequential order.
You must apply these in order.
If you fail any step then the audit fails on a technicality.

You must meet the minimum documentation requirement. But sometimes the minimum is insufficient and you have to provide more information. Sometimes you provide conflicting information which results in an audit failure.

This may be as simple as a T2200 was not provided, or, that a kms log was not provided. Or, that a T2200 was not available but the employer refused to provide one even though the employment contract required business use of a personal vehicle. Sometimes that kms log was inaccurate or incomplete.

There are often surprises during an audit or filing requirement that the tax preparer may not previously know.

For example if you file as GST Return and the period end had been changed due to an ARB Assessment, then you must use the ARB period or your GST Return will be “cancelled” and shown as never filed.

There are other somewhat surprising rules such as marital status for tax purposes is not the same as marital status for legal purposes. For example, if you are legally divorced, and if you have minor children living with you, and, if you then allow you ex-spouse to live with you then you are consider to common law with your spouse for tax purposes.

Sometimes it is a case of where is the benefit of doubt given. Previously father’s were continually audited year after year to prove that the dependent child or children lived with Dad even though there was joint custody. Dad had to prove the number of days the child or children were under his control and living with him.

These types of issues are often part of CRA program. So… if you know the technical requirements of how to pass audit in a specific program then you might help you client understand these requirements.

At other times the issue may be complex. For example, taking a terminal loss on a rental property when that rental property was change of use from residence to rental and later sold at a loss when compared with valuation at the change of use. It took three submissions and assistance from a senior assessor to get this approved even though all the supporting documentation was provided.

Assessors and auditors are human. They work under a lot of pressure. They can make mistakes. So, it is worth the follow-up if one is so inclined and if the scope of work and the amounts warrant the effort.

@dominique_dabolczi

Sorry, based on the contents of the OP, I see it as being clear that the CRA auditors were correct.

IMHO, the taxpayers may have incorrect expectations as to what is deductible and how.

[In any event, mathematically, the only way that the employees can recover 100% of their costs is from the Employer, not from a tax deduction via CRA].

too add my two cents… In NB the provincial government pays $0.28/km … Yup… the Contract with the province stipulates all of that must go to the workers…lol… My client runs an agency and we provide T2200 with the T4s stating the amount reimbursed… fairly certain not all employees bother to go after the additional claim ( too much work… they say). This is clearly way below federal standards.

From: Dec 19, 2019: Government announces the 2020 automobile deduction limits

The limit on the deduction of tax-exempt allowances…

This is not a standard, it’s a cap, a limit, a restriction…

Yes, i am aware of that… but in our case as the reimbursement is so low…

My point is when you take the time to calculate the actual kms /total kms. actual vehicle expenses - fuel, r&m, ins, etc… Less the reimbursement of $0.28… the taxpayer is almost always eligible for a tax deduction

This is not likely the case when employers pay closer to the caps mentioned by CRA.
and the previous post mentioned a payout of $0.41/km… Ours in not a rich province. Just sayin.

@rachelavryl

Kms log - why bother
I found that several of my PSW’s and other clients who received no kms reimbursement or who received underpayment took the time and trouble to log their kms when they realized that their increase in tax refund would be work anywhere from $200 to $500 per year depending on their situation.

Weekly time sheet drop-offs and schedule pick-ups are now at thing of the past. Recently many agencies have loaded their employee’s cellphones with their schedule and with a login to report their time at each client site. This meant that one of my PSW clients with a small part-time shift of three to four appointments per week was able to refer to her schedule and within a few hours was able to record her kms for 2019. This is an individual with no PC or tablet, and, brand new to using an app on a cellphone. She created this log using 8.5" x 11" lined paper. She has a personal gmail account so I set up a Google Sheet in which she could record her 2020 kms. She has already done so. Where there is a will there is a way.

CRA AUDIT & VEHICLE EXPENSE
This focus on vehicle expense claims is not limited to PSW’s. It happens regularly for Employees claiming Employment Expenses in the following cases:

  1. random spot audit.
  2. over a threshold amount.
  3. when failing to complete and remit a T2200 during eFile or paper file.

This also happens regularly during GST or T2125 or T2 audit when claiming vehicle expense. It is a favorite, low hanging fruit audit technique. Most individuals do not maintain a log. Without a kms log your kms claim or full vehicle claim is automatically disallowed. Even with a log, sometimes there is a fuller audit which requires a calendar check and a gas receipts check as an additional layer of verification.

When claiming the full vehicle expense method you need the odometer readings and the type of vehicle verification because what GST ITC you can claim varies greatly by the % business use and type of vehicle.

When claiming 90% or greater for business use you must also be able to prove that you own and pay for the use of another vehicle for personal use if asked.