Personal Tax Flashcards
Business income included in what form for individuals
Details on Form T2125, then add to T1
Division C Deductions individual
Employee stock options Lifetime capital gains deduction Net capital loss carryovers Non-capital loss carryovers Soical assisstance or WCB pmts Northern resident
Employment income calculation
Salaries, wages, bonuses, gratuities
+ Taxable benefits and other payments (allowances, gifts and rewards, club dues, life insurance)
+ Taxable allowances (standby, employee loans, stock option benefit)
- Allowed deductions (sales person expenses, travel, vehicle, CCA, home, professional dues)
= Employment income
Common Taxable Benefits
Allowances B of D payments Gifts and rewards Recreational facilities - personal use Severance package Life insurance
Common deductions to employment income
sales person expenses Travel expenses Motor vehicle expenses CCA workspace from home Employee RPP Professional dues Legal expenses
Salary deferral arrangement - tax consequences
When a bonus is paid more than three years after the year end in which it is declared, the employee includes the bonus in income in the year that it is declared.
if salary is deferred more than 180 day then taxed in the year it is declared
When motor vehicle allowances are not a taxable benefit
When the allowance is within the limit set by CRA. If the per-KM rates are greater than the amounts below, the entire amount becomes taxable, not just the incremental difference.
2020: $0.59 per KM for the first 5,000 KM, and $0.53 per KM over 5,000.
When motor vehicle allowances are a taxable benefit
Deemed not to be reasonable if any of the following apply:
- The allowance is not based on KM (with employee log)
- The employee receives both an allowance and reimbursement for KM
- The employee is reimbursed a greater amount than CRA per KM limits
Travelling expenses other than vehicle - Taxable benefit rules
If reasonable, then exempt from tax.
If unreasonably high or low, then include in income
Board of Directors Payments - Taxable benefit rules
Must be included in income
Counselling services
Employer payments for counselling services in respect of mental or physical health and re-employment or retirement of an employee are not taxable.
Financial counselling and income tax return preparation is taxable
Merchandise Discounts - taxable benefit rules
Price paid by employee < FV, but similar discounts are available to general public, are not taxable.
Price paid by employee < FV then taxable benefit =
FV - price paid
Gifts and awards - when are not taxable benefit
When:
They are non-cash, up to an aggregate of $500 per year.
They are immaterial (such as coffee, tea, mugs, or T-shirts).
Gifts and awards - when are taxable benefit
Non-cash in excess of $500 in a year in aggregate.
They are cash or near cash (such as gift certificates)
They are given for performance, such as an award for meeting a sales target.
They are given to non-arm’s length employees, such as relatives, shareholders, or people related to them.
Include value of GST/HST
Gifts and awards: Length of service - taxable benefit rules
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).
Non-cash, up to a value of $500.
It is paid to an arm’s length employee.
Health care - taxable benefit rules
Employer premiums paid for a public health-care plan are taxable.
Employer premiums paid for a private health-care plan are not taxable.
Insurance plans: Life insurance - taxable benefit rules
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.
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 benefit rules
Subsidized meals offered < cost are taxable.
Subsidized meals offered => cost are not taxable.
Recreational facilities or club dues - taxable benefit rules
Use of employer recreational facilities and club dues incurred for the benefit of the employee are taxable.
Use of employer recreational facilities and club dues incurred primarily (50%)for the benefit of the employer are not taxable.
Relocation payments - Taxable benefit 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 which is taxable
Relocation payments - Not taxable benefit if
The employer reimburses the employee for moving expenses, the amount of the reimbursement is not a taxable benefit.
Relocation payments: Reimbursements for housing loss - taxable benefit rules
When required to move and sell house at a loss the employer may reimburse for the loss. The cap on the taxable benefit charged is: 50% of any reimbursement over $15,000
Tuition Fees - taxable benefit rules
If for the employee benefit, then taxable
If for the employer benefit, then not taxable
Standby charge
When an employee is provided with a car and can use for personal as well, as standby charge will apply when the car is not used more than 50% of the time for employment purposes:
Owns: 2% x (Orig cost include tax x total available days / 30)
Lease: 2/3 x (Lease pmts for the year include tax - lease pmts made for loss or damage)
Reduction in standby applied when
Reduced if all of the following criteria apply:
• employee is required to use the automobile for employment duties.
• automobile is used primarily (50% or more) for employment purposes.
• Personal-use KM’s for the year are less than 20,004.
If reduction applies, the standby benefit is multiplied by the following fraction:
(Personal-use KM’s) / 20,004
Operating cost benefit on employer-owned automobile - Taxable Benefit
Auto used <= 50% of time for employment purposes = personal KM x .28
Auto used > 50% of time for employment purposes = 50% of standby charge
Automobile operating costs do not include
interest, CCA, lease costs (if automobile is leased), parking costs, or highway / bridge tolls.
Automobile taxable benefits summary formula - employer owned
Standby charge + Operating cost benefit – Reimbursement(s) by employee
Automobile taxable benefits summary formula - employee owned but employer pays operating costs
Operating cost benefit – Reimbursement(s) by employee
Employee loan - not a home purchase - taxable benefit rules
(Prescribed rate for the quarter – Interest paid by the employee) × Amount of the loan outstanding
Employee loan - home purchase - taxable benefit rules
[(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
