Background
Kenneth Paetz lived in Kimberley, British Columbia with his spouse, who was unwilling to relocate. Unable to find work locally, Paetz accepted a controller position with F.K.D. Contracting Ltd. in Salmon Arm, B.C. in February 2021, and later took a similar role at Arthon Constructors Corp. in Kelowna, B.C. in November 2021. Both cities were more than five to six hours from Kimberley. To fulfill his employers’ requirement that he attend the office Monday through Friday, Paetz rented apartments in Enderby (near Salmon Arm) and Kelowna, returning to Kimberley roughly once or twice per month.
On his 2021 and 2022 tax returns, Paetz claimed deductions for lodging expenses ($8,740 in 2021; $19,523 in 2022) and for vehicle mileage, hydro, and internet expenses ($10,617 in 2021; $12,223 in 2022). The Minister of National Revenue disallowed all of these deductions. Paetz, self-represented, appealed to the Tax Court of Canada, arguing the expenses were incurred in the course of his employment because he could not have performed his duties without renting accommodations near his workplaces.
At the hearing, Paetz also asked whether he could file an amended return with the CRA to claim moving expenses if he lost his appeal. Justice Friedlander declined to grant leave to amend the Notice of Appeal at that late stage, but delayed issuing judgment for 30 days to allow Paetz to pursue discussions with the CRA directly. No further developments were reported, and judgment was issued dismissing the appeal.
The Court’s Holding
Justice Friedlander dismissed the appeal in its entirety. On the vehicle mileage claim under paragraph 8(1)(h.1) of the Income Tax Act, the Court found that travel between Paetz’s home in Kimberley and his employers’ offices was personal commuting expense, not travel incurred in the performance of employment duties — regardless of the exceptional distance involved. The Court applied the established principle from Daniels v The Queen, 2004 FCA 125, and Hogg v The Queen, 2002 FCA 177, that expenses enabling an employee to get to work are not deductible. Neither employer’s T2200 confirmed that Paetz was ordinarily required to carry out duties away from the employer’s place of business, as required by subsection 8(10).
On the lodging expenses, the Court found that paragraph 8(1)(h) was unavailable for the same reasons as the vehicle expense claim. Under subparagraph 8(1)(i)(ii), which allows deduction of office rent, the T2200 forms were fatal: the relevant questions had been altered by Paetz in handwriting and did not confirm that his contract required him to rent an office away from the employer’s place of business. No T2200 was produced at all for Arthon’s 2021 year. While the Court found an implicit contractual obligation for Paetz to work after hours at Arthon — and noted that the Kelowna apartment’s living room may have been used exclusively for work — it declined to resolve whether virtual colleague meetings satisfied the subsection 8(13) “regular and continuous meeting” test, as the T2200 deficiency was independently dispositive.
Hydro and internet expenses failed under both paragraph 8(1)(h) and subparagraph 8(1)(i)(iii), the latter requiring T2200 confirmation that the contract required the employee to supply and pay for such items. The T2200s answered “no” to that question. Additionally, Paetz had not provided any allocation of internet costs between personal and employment use, which was an independent bar to any partial deduction.
Key Takeaways
- Commuting expenses — even over extraordinary distances necessitated by a refusal or inability to relocate — remain personal expenses under the Income Tax Act and are not deductible as employment expenses under paragraph 8(1)(h.1) or (h).
- A properly completed Form T2200 is a statutory prerequisite under subsection 8(10) for deducting employment expenses; employer-signed T2200s that have been altered by the employee and do not confirm the specific statutory conditions for the claimed deduction are insufficient.
- Rent paid for a secondary residence near a work location is not “office rent” deductible under subparagraph 8(1)(i)(ii) unless the T2200 confirms the employee’s contract required renting an office away from the employer’s place of business — a condition distinct from simply being required to be present at the employer’s office.
- Where a taxpayer claims internet or utility expenses as employment supplies under subparagraph 8(1)(i)(iii), they must produce evidence allocating costs between personal and employment use; an admission of mixed use without allocation evidence forecloses any partial deduction.
Why It Matters
This decision reinforces the strict limits on employment expense deductions in Canada for workers who maintain a primary residence far from their workplace. It confirms that neither the distance of the commute nor the personal hardship of relocation changes the legal character of expenses incurred to get to work. For the growing number of employees who take jobs in distant cities without relocating, the case is a clear warning that accommodation and travel costs will not be deductible absent very specific contractual and T2200 conditions.
The judgment also illustrates the critical importance of accurate T2200 forms. Alterations made by the employee — even if factually accurate and signed by the employer — will not satisfy subsection 8(10) if they do not track the precise statutory language of the deduction being claimed. Tax advisors and employers should ensure T2200s are completed in forms that squarely confirm the conditions of the specific provision under which a deduction is sought.