Ch. 6 Employment Income Flashcards
What does employment income include?
Salaries, wages, bonuses, taxable benefits and other payments, stock potion benefit, taxable allowances less allowable deductions
What are some common taxable benefits?
Allowances (unless an exception), board of director payments, gifts and rewards for non-cash gifts up to $500, recreational facilities or club dues (personal use), severance packages, life insurance, automobile standby and operating costs, non-group sickness or accident insurance plan, employer payment for public health care, employer payment for finanical counseling and incoem tax return prep, personal travel expenses - including expense of spousal travel, value of board or loding, holiday trips, incentive pizes or other awards, tuition fees, reimbursement for tools used for employemnt, airline transportation passess who are paying less than 50% of economy, discounts on merch less than cost, subsidized meals less than cost, moving allowances
What are some common deductions?
Sales person expenses, travel expenses (limited), motor vehicle expenses, capital cost allowances (CCA), workspace in-home, employee’s RPP, professional dues, reimbursements
What are the special calculations to calculate automobile employee benefits?
Employee benefits for employer automobiles - Standby and operating cost benefit.
How do you calculate the standby charge if the employer owns the vehicle?
2% x (C x D)
C = Original cost of the vehicle including GST
D= Days where the employer owned the vehicle / 30 (rounded to nearest whole number - round down for 0.5).
This gives us 2% x (Cost / months owned)
How is stand by charge calculated if the employer leases the vehicle?
2/3 x (E - F)
E = Lease payments for the year including sales tax
F = Portion of the lease payments for loss or damages and any liability arising from the use of it
This gives us 2/3 (Lease payments - repairs/maintenance)
What is a standby charge?
IT is the cost associated with having an automobile for personal use. The benefit arises because they do not need to use after-tax cash to purchase or lease it for personal use.
How can the standby charge be reduced?
Only if all of the following apply:
- required to use it for employment duties
- automobile is used 50% or more for employment
- personal use kilometers are less than 20,004 per year
What is the rate used to reduce the standby charge if owned/ leased by employer?
Personal use kilometers # / (1,667 x D)
D = days owned or leased / 30 (same rounding rules)
What is an operating cost benefit for employer-owned automobiles?
Employees benefit because the employer is paying for the operating costs for their own personal purpose.
How do yo calculate operating benefit if the automobile is being used less than 50% of the time for employment purposes?
personal kilometers x prescribed rate
Note: Prescribed rate is .28 per kilometer
How do you calculate operating benefits if the automobile is being used for more than 50% for employment purposes?
Lesser of:
Personal kilometers x presribed rate
1/2 of the standby charge
What is included in operating ocsts?
Fuel, insurance, registration, and maintenance. Does not include interest, CCA, lease costs, parking costs, or highway/bridge tolls
What is the operating cost if the employee owns or leases and the employer pays for the operating costs?
(Personal / total kilometers) x Actual operating costs paid by the employer
What if an employee pays the employer for use of the company car?
This is considered a reimbursement for standby (within the year) and operating costs (within 45 days of dec) and is deducted in determining net employment benefit included in employment income.
How are employee loans accounted for?
If it is not for home purchase or home-relocation, (Prescribed rate for the quarter - interest paid by the employee) x amount of loan outstanding
Note: Imputed interest is only calculated quarterly
How are loans for home purchase or home relocation calculated?
[(Lesser of Prescribed rate in effect and prescribed rate for the quarter) - Interest paid by employee)] x Loan outstanding
Note: Imputed interest benefit is included in income, and is deemed intested paid. Because it is deemed interest paid, interest paid is deductible if a loan is used to acquire a property used to earn income that is subject to tax, so you can deduct that amount.
What makes you eligible for the home-relocation loan?
If you move more than 40 kilometers closer to the employee’s new location than the old.
What happens if the loan is forgiven by the employer?
Total loan - payments made, will be included as employment benefit and be taxed
When are frequent flyer points earned through employment related travel not a taxable benfit and when would it be?
When:
- the points are not converted to cash
- not an alternative form of compensation
- not for tax avoidance purposes
It would be when:
- points are earned on the company credit card - not personal credit card
- employee is permitted to use their own personal credit card to pay for expenses of other employees to earn personal points.
Why are allowances generally taxable benefits, and what are the exceptions to this rule?
Allowances are paid by an employee because it is assumed that they would add this amount to their salary.
- Travel expenses for Salespersons (reasoable, traveling expenses, selling property or negotiate contracts for employer)
- Travel expenses of other employees (reasonable, does not sell property or neg contracts, must be for duties of office or employment, must be for traveling expenses excluding motor vehicles
What are the requirements to deduct home office expenses?
1) Place where the individual performs 50% or more of their employment duties
OR
Both of the following:
- It is used exclusively for the purpose of earning employment income for the period
- Used on a regular and continuous basis for meeting customers or other persons in the ordinary course of performing his or her duties
