Employment Deductions

Question 1

Travelling Costs, motor vehicle and home office (Employment Deductions)

Answer 1

• If an employee is required to travel, use an employee-owned vehicle (contrast this to #9) or home office, the employee is allow to deduct the related expenses (subject to some conditions).
• There are two sets of rules, one for ordinary employees and the other for commissioned employees (sales personnel).
• To deduct travelling expenses, an ordinary employee must be required to travel outside the municipality.
• Both groups can receive reasonable motor vehicle allowances, defined as 52 cents per kilometer for the first 5,000 kilometres for the year. 46 cents thereafter.
• Ordinary employees cannot deduct mortgage interest, insurance and property tax as home office expenses. Commissioned employees cannot deduct mortgage interest. (Self employed individuals are allowed to deduct mortgage interest, insurance and property tax on top of all expenses related to home office.)
• Commissioned employees cannot deduct expenses beyond the amount of commission earned. This restriction does not apply to ordinary employees.

Question 2

Capital Cost Allowance Rates

Answer 2

Declining balance method:

• 30% for motor vehicles
• 40% for aircraft
• interest & capital cost alowance is not restricted to the total amount of commission income

In year of acquisition the rates are one-half the normal rate.

Example: car purchased for $25,000:

in year of acquisition: $25,000 x 30% x 1/2 = $3,750

In second year: 30% x ($25,000 - $3,750) = $6,375

In third year: 30% x ($25,000 - $3,750 - $6,375) = $4,462.50

Question 3

Meals & Entertainment Expense limit

Answer 3

50%

Question 4

Interest on money borrowed for passenger vehicle

Answer 4

The lesser of:

• actual amount payable (or paid) and
• $300 for each 30-day period that the loan or debt was outstanding in the year.

Question 5

Capital cost limit for passenger vehicle

Answer 5

If purchased after 2000:

• $30,000 + HST on the $30,000

Capital cost is deemed to be the lesser of:

• the fair market value;
• the undepreciated capital cost of the seller; and
• the dollar maximum above

Question 6

Expenses limited to commission income

Answer 6

• Automobile operating expenses
• Travel expenses
• Entertainment (50%)
• Home office property tax
• Home office house insurance

Question 7

Is it correct that 8(1)(f) and 8(1)(j) cannot be applied at the same time?
Explain how to choose from these four paragraphs?

• 8(1)(f)
• 8(1)(h)/(h.1)
• 8(1)(i)
• 8(1)(j)

Answer 7

Is it correct that 8(1)(f) and 8(1)(j) cannot be applied at the same time? NO

The tradeoff is between (f) and (h)&(h.1):

• (f) is restricted to commission sales while all qualified employees can claim (h)&(h.1).
• (f) has a maximum which is commission income but not (h)&(h.1).
• (f) is applicale to all non-capital expenditure but (h)&(h.1) is restricted to travel and motor vehicle travel expenses.
• 8(1)(i) covers dues. That means commission sales should claim dues under 8(1)(i) rather than 8(1)(f). Do you want why? Try to think this through.
• 8(1)(j) is specially for CCA and interest on vehicles and it is for all employees. Not much planning with 8(1)(j).