Chapter 3 - Employment Income (Pt. 2) Flashcards
What are the employment benefits provided through the employer granting of stock options?
- Exercising the stock option to get shares results in an employment benefit
- Selling the shares once the option has been exercised results in a capital gain
What is the difference between public and private corporation employees when they exercise their stock options?
- Public corporation employees have an employee income benefit of (FMV on exercise date - exercise price) * shares purchased
- Private corporation employees do not have an employee benefit at this point
What is the difference between public and private corporation employees when they sell shares from their stock options?
- Public employees have a capital gain of # of shares sold * (sale price - FMV on exercise date) (times 0.5 if applicable for division C deduction)
- Private employees have an employee income benefit of (FMV on exercise date - exercise price) * number of shares purchased and sold.
- Private employees also have a capital gain of # of shares sold * (sale price - FMV on exercise date) (times 0.5 if applicable for Division C deduction)
What is the difference between conditions for a division C deduction for stock options for a public and private corporation employee?
- For public company employees, the option must not be “in the money” when granted meaning it could not be immediately sold for profit
- For private company employees, the option must not be “int the money” when granted or the shares must be held for at least 2 years
What is the difference between the year of division C deduction for stock options for a public and private corporation employee?
- Public employees get a deduction for the year they exercise the option
- Private employees get a deduction the year they sell the shares
What is an allowance and when is it taxable?
An allowance is a fixed amount paid to an employee in excess of their salary with no requirement that the employee actually spend the amount they receive
Allowances are taxable unless they are reasonable and used for travelling or motor vehicle expenses. “Reasonable” for vehicles are different prescribed rates from the government
What is the difference between deductions under 8(1)(f) and 8(1)(h)/8(1)(h.1)?
- Any employee can make claims under 8(1)(h) and (h.1) but only commission employees can make claims under 8(1)(f)
- 8(1)(f) covers more deductions but is limited to commission income
- 8(1)(h) and (h.1) covers travel expenses and motor vehicle expenses and is not limited to commission income
- You have to choose which to deduct under, you cannot pick both
What expenses are commission employees not allowed to deduct even if incurred for earning employment income?
- Use of a yacht, camp, lodge, or golf course
- Membership fees for a recreational or sporting club
- Capital expenses (CCA on motor vehicle is still deductible)
- Parking at the employer’s place of business
When are meals deductible for a commission employee?
When the employee has been away from the metropolitan area of the employer for at least 12 hours, 50% of meal expenses are deductible
How can regular employees be eligible for deductions under 8(1)(h)
- File form T2200 signed by the employer
- The employee must ordinarily be required to carry out duties away from the employer’s place of business
- Travel between work and home is not deductible
What expenses associated with motor vehicles are deductible under 8(1)(j)
- Capital cost allowance up to a vehicle cost of $36,000 + tax at 30% per year (45% for the first year)
- Vehicle lease costs up to $950/month + GST/HST and is allocated between employment/personal km
- Interest on vehicle loan limited to $300/month
How do we calculate the deductible portion of lease payments for a motor vehicle?
The lesser of the two formulas:
1. [(AB)/30] - C - D - E
2. [(FG)/0.85H] - D - E
What do the variables indicate in equation 1 for calculating the deductible portion of lease payments?
[(A*B)/30] - C - D - E
- A is the prescribed monthly max ($950/month + GST/HST)
- B is the aggregate number of days the vehicle was leased for all years to the current year
- C is the aggregated lease costs deducted in previous years
- D is imputed interest at the prescribed rate on the portion of refundable deposits over $1,000
- E is total reimbursement from the employer for lease in the year
What do the variables indicate in equation 2 for calculating the deductible portion of lease payments?
[(F*G)/0.85H] - D - E
- F is total lease payments for the year including GST/HST
- G is prescribed vehicle cost max (36,000 + GST/HST)
- H is the greater of 100/85 * G or the manufacturer’s list price
- D is imputed interest at the prescribed rate on the portion of refundable deposits over $1,000
- E is total reimbursement from the employer for lease in the year
What expenses are deductible if required under an employment contract on form T2200?
- Cell phone plans and long distance calls (but not the capital cost of the phone)
- Cost of supplies
- Office rent paid
- Salary paid to an assistant
