Can I deduct my cell phone?

Here are two common scenarios which Doctors come across for deducting cell phones.

Scenario 1 – Can a Doctor working for an employer (ie. Hosptial) deduct the cell phone costs? (most common during residency)

Back in 2016 the CRA commented that if an employee has a cell phone and is required to have one for work (which means they must have a signed T2200 form - not all provinces issue these forms though), then yes a portion could be deducted. 

Here is wha tthe CRA said.

  • The cost of the cellular minutes and data consumed directly in the performance of employment duties may be deducted from employment income … only if the employee was required by the contract of employment to supply and pay for the cellular minutes and data and the cost is reasonable.

Now how do you know what amount of the plan was ‘consumed directly’? Here is what the CRA said.

  • It is our understanding that service providers typically provide a detailed breakdown of each cellular minute used, but do not similarly provide a detailed breakdown of cellular data used. It is our view, that without a detailed breakdown, an employee would not be able to substantiate the amount of cellular data that was used for employment purposes. Where the cellular minutes or data and costs cannot be substantiated, a deduction from employment income is not permitted.

So in essence, if you are an employee, and assuming you cannot determine the percentage you use the data for work, you can only deduct the cell phone basic plan (phone service not data) and you are expected to figure out the percentage of minutes! 
Wow, that is a lot of work. Luckily, some recent clients who have been audited have told the auditor the percentage they use without being thoroughly challenged as long as it was reasonable for them, but they did not get to deduct the cell phone data costs.

Scenario 2 – Doctor Business hires Doctor and provides a free cell phone with Data.

In this scenario, the cell phone is provided to the employee. Generally, when one receives a benefit from a company it is taxable and included on the personal tax return of the employee. However, a CRA administrative policy allows that a cell phone plan will not be considered a taxable benefit if…

"For cellular phone service only, we do notconsider your employee's personal use of the cellular phone service to be ataxable benefit if all of thefollowing apply:

  • The plan's cost is reasonable

  • The plan is a basic plan with a fixed cost

  • Your employee's personal use of the service does not result in charges that are more than the basic plan cost"

In Summary.

The CRA’s views on cell phones are mixed as in one situation it appears to be easier to write off the phone than in the other. In reality it will come down to the auditor looking at the expense. If the auditor wants tolook the other way and accept that you use the phone primarily for business you may be lucky (especially if it is paid by your company and the employee (you) have a requirement to use the phone). If the auditor is not looking the other way though you can expect an adjustment downward of your expense.

 The Advice.

  1. Recognize that there is a risk in a CRA audit that the cell phone deduction could be significantly reduced as a percentage,but at the same time recognize that cell phones are generally minor expenses inthe scheme of your business and employment income. 

  2. Have your medical business pay for the phone directly if you want to deduct the expense.

  3. Keep track of the usage of the phone for business versus personal best you can.

  4. Go with the basic plan. The fancier the plan and the fancier the phone the greater chance you will lose in a CRA audit.

  5. If possible, have two phones! One for business and one for personal. (OK – No one will actually do that!)

Michael Sadovnick