Employment Benefits Flashcards
Non-taxable Employment Benefits
- Private health services plan premiums (refer to summary in 3,230)
- Provincial health tax levies (but not premiums)
- Registered pension plan contributions by employer
- Group sickness plan premiums (see the differences between group plans and non-group plans)
- Mental health, physical health, re-employment or retirement counselling
Sickness or Accident Insurance Plan (Group & Non-group)
Employer pays all or part of premium:
- Group
- Premium: not included in income
- Disability benefit: included in income
- Non-group
- Premium: included in income
- Disability benefit: not included in income
Employee pays all of premium:
- Group
- Premium: not deducted from income
- Disability benefit: not included in income
- Non-group
- Premium: not deducted from income
- Disability benefit: not included in income
Housing Loss (Employment Benefits)
- If an employer compensates an employee a housing loss as a result of an eligible relocation, only one half of the amount above $15,000 is taxable as employment income.
- An eligible relocation is defined as a relocation that reduces the distance between place of work and residence by more than 40 kilometers (ie 40 kilometres closer to place of work).
- A reimbursement of actual moving costs (ie. moving van) is not a taxable benefit
Low or no interest loans (Employment Benefits)
- Interest benefits are taxed as employment income.
- Interest benefits are calculated as the difference between CRA quarterly prescribed rate and actual interest rate charged by the company.
- Note: interest payable or paid by the employer
Home Purchase Loan and Home Relocation Loan (Employment Benefits)
Home purchase loan:
- Interest benefits on home purchase loan are calculated using the lower of
- the current CRA quarterly prescribed rate and
- CRA quarterly prescribed rate at the beginning of the loan (beginning rate updated every 5 years).
Home relocation loan:
- Interest benefits on the first $25,000 of a home relocation loan are not taxable. The relocation must be an eligible relocation (refer to Low or no interest loans).
Stock Option (Employment Benefits)
- The difference between exercise price and stock price (Fair market value) at the time the option is exercised is taxed as employment income.
- The difference between selling price (shares) and exercise price is taxed as capital gains (50% taxable). Capital gains to be discussed in a later module.
- For all corporations, if the exercise price is above or equal to market stock price (out of money option) at time of grant, then 50% of the taxable employment income (#1 above) can be deducted as a Division C deduction.
- For Canadian Controlled Private Corporations (CCPCs) only, the taxable employment benefit is taxed when the share is eventually sold. Furthermore, there is another way to earn the Division C deduction (other than the one described above). The employee is eligible for the Division C deduction if the share is held past the second anniversary of purchase.
Stock option taxable benefit formula?
The taxable benefit occurs when the option is exercised:
- (Fair market value - excercise price) x number of shares purchased
When can employment-related expenses be deducted from income?
- Automobile expenses can be deducted from taxable car allowances.
- Other expenses can only be deducted if there is commission income or income from negotiating contracts.
What portion of meals and entertainment expenses can be deducted?
50% of entertainment expenses may be deducted if there is commission income or income from negotiating contracts.
Explain which home office expenses can be deducted and by whom
Subsection 8(13) allows deductions for home office expenses under paragraphs 8(1)(f) or 8(1)(i):
8(1)(f):
- only for commission employees
- cannot exceed commission income
- expenses are fixed in nature (like long distance telephone calls, home insurance, and property taxes)
- Note that cost of general telephone line is not deductible
8(1)(i):
- expenses are variable in nature (like supplies deductible under (i)
Note: Mortgage interest is not deductible under either f or i since the only interest that is deductible as an employment expense is for automobiles and aircraft.
How do you calculate the taxable benefit for:
Home Relocation Loan
The interest calculated for the taxation year using the lower of :
- prescribed interest rate at the time of the loan, and
- prescribed interest rate during the taxation year
minus the interest paid during the taxation year.
Division C deduction with respect to Stoct Option Benefit
For all corporations, if the exercise price is above or equal to market stock price (out of money option) at time of grant, then 50% of the taxable employment income can be deducted as a Division C deduction.
Concepts and principles for determining what is a taxable benefit.
- Fringe benefits that create inequity between taxpayers are generally considered a taxable benefit.
- Fringe benefits offered solely for personal enjoyment are taxable benefits.
- All-expense-paid trips for pleasure are taxable benefits.
Subsidized lunches at company cafeteria
- no benefit if employee reimburses the company for actual cost (even if this is less than fair market value)
- otherwise, the difference between the actual cost to the company and the amount reimbursed by the employee is a taxable benefit.
Is financial couselling paid by the company a taxable benefit?
Yes, unless it’s in respect of re-employment or retirement.
