Employment Income Flashcards
Bonuses
Included in the employee’s income when it is received,
Only exception is when a bonus is paid more than three years after the year end in which it is declared. As this is considered a salary deferral arrangement, the employee includes the bonus in income in the year that it is declared (not when it is paid).
Allowances: Motor vehicles used for employment duties
Deemed taxable if any of the following criteria apply:
• The allowance is not based solely on km travelled in conducting the employer’s business (the employee is required to keep a log of employment km to substantiate employment km travelled).
• The employee receives both an allowance and a reimbursement for motor vehicle expenses.
• The employee is reimbursed an amount greater than the CRA’s limits.
Allowances within these limits are not taxable. If the per-kilometre rates are greater than the amounts below, the entire amount becomes taxable, not just the incremental difference.
In 2018, the limits are $0.55 per kilometre for the first 5,000 kilometres driven, and $0.49 per kilometre driven over 5,000.
Allowances: Travelling expenses other than motor vehicle expenses
Taxable
If an allowance is either unreasonably high or unreasonably low
The employee can then deduct expenses to the extent that the employee qualifies to deduct those expenses.
Not Taxable
The allowance is generally considered to be reasonable (and, therefore, exempt from tax) if the amount of the allowance is approximately equal to the amount spent by the employee on accommodation, travel (other than motor vehicle), and meals.
Board of Directors payments
Taxable ITA 6(1)(c) requires that fees received for sitting on a Board of Directors be included as a board member is considered to hold an "office."
Counselling services
Taxable
Employer payments for financial counselling services (other than for job replacement or retiring) and income tax return preparation are taxable.
Not Taxable
Employer payments for counselling services in respect of mental or physical health and re-employment or retirement of an employee
Discounts
Taxable
Discounts where the price paid by the employee is less than the FV. The difference between the fair value of the merchandise and the price paid by the employee is a taxable benefit.
Not Taxable
Discounts where the price paid by the employee is less than the FV of the merchandise, but similar discounts are available to the general public
Frequent flyer points
Taxable if either of the following criteria apply:
• The points are earned on the company credit card, not on the individual employee’s personal credit card.
• The employee is permitted to use his or her own personal credit card to pay for expenses of other employees in order to earn personal points.
Not Taxable
If all of the following criteria apply:
• The points are not converted to cash.
• The plan is not an alternative form of compensation.
• The plan is not for tax-avoidance purposes.
Gifts and awards
Taxable
If any of the following criteria apply:
• Non-cash in excess of $500 in a year in aggregate.
• Cash or near cash (such as gift certificates).
• Given for performance, such as an award for meeting a sales target.
• Given to non-arm’s length employees, such as relatives, shareholders, or people related to them.
Not taxable
If any of the following criteria apply:
• Non-cash, up to an aggregate of $500 per year.
• Immaterial (such as coffee, tea, mugs, or T-shirts).
Gifts and awards: Length of service awards
Not taxable
if all of the following criteria apply:
• It is given for at least five years of service (and after that, in increments of five years).
• It is non-cash, up to a value of $500.
• It is paid to an arm’s length employee.
Health care
Taxable
Employer premiums paid for a public health-care plan
Not Taxable
Employer premiums paid for a private health-care plan
Insurance plans: Life insurance
Taxable
Employer premiums paid for life insurance on an employee’s life are a taxable benefit to the employee if the employee is the beneficiary under the plan.
Not Taxable
Employer premiums paid for life insurance on an employee’s life are not a taxable benefit to the employee if the employer is the beneficiary under the plan.
Meals
Taxable
Subsidized meals offered to the employee at less than cost to the employer
Not Taxable
Subsidized meals offered to the employee where the price paid by the employee is equal to or greater than the cost to the employer
Pension plans
Not Taxable
Employer contributions to registered pension plans (RPP), deferred profit sharing plans, and the Canada Pension Plan (CPP)
Recreational facilities or club dues
Taxable
The use of employer recreational facilities and club dues incurred for the benefit of the employee
Not Taxable
The use of employer recreational facilities and club dues incurred primarily for the benefit of the employer
Reimbursements
Taxable
If personal expense
Not Taxable
If the reimbursement is for employment-related expenses.
Relocation payments
Taxable
When an employer requires a current or potential employee to relocate for employment purposes, the employer may provide the employee with a moving allowance or may reimburse the employee for moving expenses.
If a moving allowance is provided, the amount of the allowance is a taxable benefit to the employee; however, the employee can then deduct eligible moving expenses.
Not Taxable
If the employer reimburses the employee for moving expenses, the amount of the reimbursement
(Note: As the employee has been reimbursed for the moving expenses, the employee cannot then deduct moving expenses.)
Relocation payments: Reimbursements for housing loss
When an employee is required to move for employment purposes and, as a result, sells his or her former residence at a loss, his or her employer may reimburse the employee for some or all of the loss.
One-half of any reimbursement in excess of $15,000 is a taxable benefit to the employee.
School services
Not Taxable
Fees related to subsidized school services provided in remote locations, and transportation to the job in a remote location where public and private vehicles are not welcome or practical
Severance pay
Taxable
Signing bonus
Taxable
Tools
Taxable
If the cost of tools used for employment is reimbursed, and if the employee owns the tools after the reimbursement, the reimbursement
Not Taxable
If the cost of tools used for employment is reimbursed, and if the employer owns the tools after the reimbursement
Transportation passes
Taxable
Airline transportation passes to airline employees who are paying less than 50% of economy fare on a space-confirmed basis
Not Taxable
Transportation passes for bus, air, and rail employees
Tuition fees
Taxable
Tuition fees paid or reimbursed on behalf of an employee for the benefit of the employee are taxable.
Not Taxable
Tuition fees paid or reimbursed on behalf of an employee for the benefit of the employer are not taxable.
Uniforms
Not Taxable
Distinctive uniforms and special clothing supplied by the employer to be worn by the employees while carrying on the duties of the employment
Workspace in the home
- It is the place where the individual principally (more than 50%) performs his or her employment duties.
OR - Both of the following:
a. It is used exclusively for the purpose of earning employment income during the period.
b. It is used on a regular and continuous basis for meeting customers or other persons in the ordinary course of performing his or her employment duties.
If one of these conditions is met, home office expenses incurred in the year may be deducted to the limit of employment source income.
Expenses must be pro-rated for employment use of the home. Pro-ration may be done on the basis of either square footage or number of rooms.
- utilities
- repairs and maintenance
Standby Charge
When an employer provides an employee with an automobile and the employee is permitted to use the automobile for personal purposes.
Employer owns the vehicle
2% × (C × D)(Personal Use km/1667 * D)
Employer leases the vehicle
2/3 × (E – F)(Personal Use km/1667 * D)
C: Original cost
D: Months
E: Lease payments for the year
F: Portion of the lease payments made for loss or damages and any liability
Reduction in standby charge
Reduced if all of the following criteria apply:
• The employee is required to use the automobile for employment duties.
• The automobile is used primarily (50% or more) for employment purposes.
• Personal-use km for the year are less than 20,004.
If the reduction applies, the benefit determined above is multiplied by the following fraction:
(Personal-use km) / (1,667 × D)
Operating cost benefit
An employer provides an employee with an automobile and pays the operating costs for the automobile
Automobile is not used more than 50% of the time for employment purposes
• personal km × prescribed rate
Automobile is used more than 50% of the time for employment purposes
Lesser of:
• personal km × prescribed rate
• one-half of standby charge
The prescribed rate for 2018 is $0.26 per kilometre of personal use.
Operating costs include fuel, insurance, registration, and maintenance costs
Operating cost benefit on employee-owned automobile
If the employee owns or leases an automobile and the employer pays the operating costs, the operating cost benefit is determined as follows:
(Personal km/Total km)×Operating costs paid by employer
Employee loans
Determined quarterly, as follows:
Loan is not a home purchase or home-relocation loan
• (Prescribed rate for the quarter – Interest paid by the employee) × Amount of the loan outstanding
Loan is a home purchase or home-relocation loan
• [(Lesser of prescribed rate in effect when the loan was made * and the prescribed rate for the quarter ) – Interest paid by the employee] × Amount of the loan outstanding
Interest paid by the employee includes interest paid to January 30 of the following year.
A home-relocation loan is defined as a loan used to acquire a home that is at least 40 kilometres closer to the employee’s new work location than the old residence.
Imputed interest benefit
Deemed interest paid. The result is that if the employee used the loan to acquire a vehicle to be used for employment purposes or used the loan for any other income-producing purpose, the amount of interest considered to have been paid will include the interest actually paid by the employee (if any) and the imputed interest benefit on the loan.
Forgiveness of employee loans
Net of any payments made by the employee to the employer, is an employment benefit.
