Tax Implications of Employee Mobile Phones, Computers and Related Services

by Craig Anthony

2 min read

There are apps that let your employees clock in from anywhere, upload expenses while on the go, check schedules remotely, and handle countless other tasks. However, to use these apps, your employees may need a smartphone or laptop. Whether you decide to provide your employees with business phones or let them use their own equipment, you need to know the tax and legal implications of your choice.

Company-Provided Equipment and Services

If you want your employees to use online accounting applications, the simplest solution may be to purchase the equipment and services they need. For example, if your employee works from home, you may decide to buy him a laptop and pay for his internet service. Alternatively, if you have a remote workforce, you may provide all of your employees with mobile phones.

In this case, you can write off the costs as business expenses, and your employees don’t have to report anything on their tax returns.

Work and Personal Use

If your employee uses the equipment or services for personal use, the Canada Revenue Agency may require you to report some of the associated costs as taxable benefits. The benefit is the fair market value of the product or service multiplied by the percentage of time related to personal use.

To explain, imagine you pay $100 per month for your employee’s internet service. Your employee uses the service 40 percent of the time for work and 60 percent for personal use. As a result, you must report $60 per month as a taxable benefit on your employee’s paycheque stub, and you must remit Canada pension plan contributions, Employment Insurance premiums and income taxes as if the benefit were cash.

Mobile Phone Service Exception

There is an exception to this above rule for mobile phone service. If the following conditions are met, your employee can use a company-provided mobile phone for personal use without reporting any taxable benefits:

  • The plan has a fixed cost.

  • The cost is reasonable.

  • Your employee’s personal use does not increase the cost of the plan.

Employee-Purchased Equipment and Services

If you require your employees to use their own equipment or services, they may be able to deduct some of those costs on their tax returns. The laws can vary based on whether your employees are salaried, work on commission or fall into another category. However, in most cases, if you require your employees to use mobile phone service for work, your employees can write off the portion of the cost that relates to work. However, your employees cannot write off expenses related to connecting or licensing the moble phone.

Your employees also cannot claim a deduction for buying their own computers or mobile phones or for paying for internet service. However, if you require your employees to work from home, they can claim a deduction for work use of home. In these cases, you need to fill out Form T2200 (Declaration of Conditions of Employment) to show the CRA that your employee is obligated to incur these expenses as a condition of their jobs.

References & Resources

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