Personal use of work phone may become tax headache

Photo: The Canadian Press

The use of a company-supplied smartphone, laptop or other electronic device is commonplace these days, and employers know full well that employees will use them both for work and personal purposes.

However, new guidelines from Canada Revenue Agency suggest employers may have to take a fresh look at how much of the cost of these devices can be attributed to their commercial activities.

"Tax authorities around the world have recognized that the vast majority of usage of a cellphone these days is personal," says Thom Damstra, Toronto-based founder and chief executive of data analytics firm MobilityView.

While there's a potential for use of company-supplied phones to be considered a "personal taxable benefit," tax experts say that's not new and the tax rules give employers ways to minimize the impact on their employees.

But Damstra expects companies will soon have to provide more documentation to the Canada Revenue Agency if they want to get credits to reduce the the goods and services taxes that the business has to pay itself.

He expects companies will soon have to provide more documentation to the Canada Revenue Agency if they want to get credit for the commercial usage of mobile devices and services provided to employees.

He points to CRA guidelines issued in April that say companies may have to demonstrate that at least 10 per cent of a mobile phone's usage is for commercial purposes to qualify for the GST/HST credits.

Even above the 10 per cent threshold, the CRA says tax credits must be proportionate to commercial usage.

In other words, if a company claims that 50 per cent of a mobile phone's usage is for commercial purposes, it may have to prove that claim if challenged by a CRA auditor.

Bill MacQueen, leader of the indirect tax practice at RSM Canada LLP (formerly Collins Barrow), says he hasn't noticed any new CRA scrutiny specifically on mobile phones, as Damstra anticipates.

But RSM has noticed that CRA audit teams have become much more zealous with business clients over the past 18 to 24 months.

"Their audit activities have increased quite a bit in frequency and they are becoming much more aggressive in their techniques," MacQueen says.

Emily Nielsen, founder and president of Nielsen IT Consulting Inc. in London, Ont., says she doesn't think her clients have an easy way to distinguish between personal and commercial phone usage.

"These are companies that have hundreds of devices and it's really difficult to manage," Nielsen says.

In that context, Nielsen says, it might be less costly in some cases to pay a higher tax rate demanded by CRA than to track the personal and commercial usage of their mobile phones.

"I think it's the CRA adding a lot more layers of bureaucracy to something that's already complex."