Cell Phones And CRA

What is CRA's position on Cell Phones and Internet Service?

By L.Kenway BComm CPB Retired

Updated February 25, 2024  |  Originally published on Bookkeeping-Essentials.com in January 2012.


Sole proprietor internet services, cell phones and CRA --- The key to deductibility for a sole proprietor is to determine if you are incurring the expense to earn income for your business, and if yes, "What is a reasonable expense?". We need to look at CRA's position for employees for guidance on what is deemed a reasonable expense for a sole proprietor.


Self-employed man talking on his cell phoneWhat Is CRA's Position On Cell Phones And Internet Service?




Puzzle Pieces

Sole Proprietor Internet, Cell Phones and CRA

Applies to Self-Employed Status | Contract For Services Relationships

SOLE PROPRIETOR

Based on what is reasonable for employees (see next section for discussion) regarding what is a taxable benefit and what is not, I would suggest it is a reasonable tax deduction if the following criteria are met:

  1. The sole proprietor requires the use of internet and cell phone service plan as part of earning income for the business.
  2. The cost of the phone and plan is in line with the sole proprietor's responsibilities; no bells and whistles unless you really need them to get the job done.
  3. The cell phone and internet service plan has a fixed monthly cost.
  4. The sole proprietor's personal use of the internet and cell service does not result in charges that are more than the fixed plan cost.

IF CRITERIA NOT MET

If the cell phone service plan does not meet all the conditions above, the expense may only be partially deductible.

CRA have a process for expenses with a personal and business component to them. Any personal use component of either service must not be claimed as a tax deduction. You'll find examples on how to pull out the personal portion of the bill in the last section of this article.

The business portion of the expenses would be deducted on Line 9220 - Telephone And Utilities of the T2125 form.



Puzzle Pieces

Employee Internet, Cell Phones and CRA

Applies To Employer-Employee Status | Contract Of Services Relationships

EMPLOYEES

CRA's position on cell phone and internet services for employees depends on whether it is determined to be a taxable benefit. Generally cell phone and internet services you provide to employees are taxable except in special situations.

Special Circumstance #1 
If you provide your employees with an allowance for internet and cell phone services, the benefit is always taxable.

Special Circumstance #2
To avoid having the fair market value of the employer provided cell phone assessed as a taxable benefit, the following criteria must be met:

  1. The employee is required to use the cell phone service plan as part of fulfilling their work responsibilities.

Special Circumstance #3
To avoid having the employer provided cell service plan (or employee reimbursement for business use of reasonable personal cell service plan excluding cost to purchase phone) assessed as a taxable benefit, the following four criteria must be met:

  1. The employee is required to use the cell phone service plan as part of fulfilling their work responsibilities.
  2. The cost must be reasonable.
  3. The plan must be a fixed cost. It doesn't have to be a basic plan if the employment needs require a more expensive plan but be prepared to justify the more expensive plan during an audit.
  4. The employee's personal use of the cell service does not result in charges that are more than the fixed plan cost.

IF CRITERIA NOT MET

If the cell phone service plan does not meet all the conditions above, it is a taxable benefit. If additional charges are incurred above the fixed rate of the plan as a result of personal use, it becomes a taxable benefit unless the employee reimburses you for the additional charges. The next section discusses how to determine the value of the taxable benefit.



Puzzle Pieces

How to calculate the taxable benefit value of Employee's personal use portion of internet and cell phone 

The personal use component is a taxable benefit. Calculate the fair market value (FMV) of the personal use portion (exclude business use portion which is not a taxable benefit) as follows:

  1. Employee's personal use of the cell phone or cell service plan = (Cost of plan per month x 12 months) x % personal use
  2. + Employee's personal use of internet service plan = (Cost of plan per month x 12 months) x % personal use
  3. - Any amounts your employee reimburses the employer
  4. = Value of the benefit to be included on the T4 slip

See CRA Calculate the value of the benefit for detailed example calculations under the following scenarios:

Scenario 1 - employee works from home or on the road, employee owns cell phone, uses it 60% for personal use, the employee is reimbursed for the service plan that has extra features not required for work duties so not considered reasonable --- cell plan is not reasonable so 60% personal use portion of cell plan is a taxable benefit

Scenario 2 - employee works from home or on the road, employee owns cell phone, uses it 60% for personal use, the employee is reimbursed for the reasonable service plan which includes monthly cost for purchase of phone --- cost for purchase of phone is a taxable benefit, reasonable cell service plan is not taxable

Scenario 3 - employee works from home, employee has a bundle that includes home internet, home phone, cable, and cell phone, uses the internet 40% for personal use, the employee is reimbursed for the reasonable cell service and home internet --- 40% personal use portion of internet plan is a taxable benefit; reasonable cell service plan is not taxable



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