Personal Taxation (48)

Question 1

Tax deferral

Answer 1

Tax Deferral
A tax deferral involves postponing the payment of income taxes to a later date. This can be accomplished by postponing the recognition of income. An example would involve contributing $10,000 to a taxpayer’s RRSP, deducting the contribution, and reducing the taxpayer’s current income tax. Later, when the funds are withdrawn, the taxpayer must report the withdrawal as taxable income and the deferred tax becomes payable.

Question 2

Tax Conversion

Answer 2

Tax conversion
A tax conversion refers to an investment that changes highly taxed income into more favourably taxed income. This cane be done through the use of capital gains, the dividend gross-up and other such methods.

Question 3

Tax avoidance

Answer 3

Tax avoidance
Involves a situation in which the taxpayer had implemented certain legal course of action that allows them to avoid paying some amount of tax. Examples include the principal residence exemption, as well as the lifetime capital gains exemption (LCGE).

Question 4

Income Splitting

Answer 4

The activity of income splitting is allocating taxable income and net income between two or more related parties, such that the allocation of taxable income and net income increases the amount of their after-tax income and social security benefits.

Question 5

Perfect income split

Answer 5

The perfect income split is an income split between two or more related parties, such that the allocation of taxable income and net income results in the largest amount of after-tax income and social security benefits.

Question 6

Worker’s compensation

Answer 6

Worker’s compensation payments are not included in taxable income

Question 7

Child Support Payments

Answer 7

Child support payments negotiated or ordered after April 30, 1997 are not included in taxable income.

Question 8

Inclusion/Deduction Rule - Spousal Support

Answer 8

Under the inclusion/deduction rule, support paid to a current or former spouse/common-law partner in the form of an allowance made in accordance with a court order or a signed agreement is taxable in the hands of the recipient, and deductible to the payor (ITA 60).

To qualify under the inclusion/deduction rule, the payment must be made in the form of an allowance.

Legal costs incurred to enforce pre-existing right to interim or permanent support amount are deductible.

Question 9

Allowance

Answer 9

Allowance
An allowance is a specified sum of money established in advance of payment as the amount the payor is required to pay periodically to the recipient for the maintenance of the recipient and/or child. Furthermore, the recipient must have discretion as to how to use the amount.

If you make or receive a lump-sum payment to satisfy arrears in periodic payments, you may consider it as a periodic payment for the inclusion/deduction rule.

Question 10

Deduction legal costs

Answer 10

Deduction Legal Costs
Legal costs incurred in establishing the right to spousal support amounts, such as the costs of obtaining a divorce, a support order for spousal support under the Divorce Act or a separation agreement, are not deductible as these costs are on the account of capital or are personal or living expenses.

Legal costs of seeking to obtain an increase in spousal support are not deductible.

Legal fees incurred in establishing the right to child support are deductible. Because children have a pre-existing right, arising from legislation, to support or maintenance, legal costs to obtain an order for child support are deductible.

A pre-existing right to a support amount is a right that arises from a written agreement, a court order, or legislation such as sections 11 and 15.1 of the Divorce Act with respect to Child Support, or Part III of the Family Law Act of Ontario. Enforcing such a right does not create or establish a new right.

Legal costs incurred to enforce a pre-existing rights to interim or permanent support amounts are deductible. Legal fees paid to enforce previously established child or spousal support are deductible, even if the support itself is not taxable to the recipient, as in the case with child support awards negotiated after April 30, 1997.

Question 11

Carrying costs

Answer 11

Carrying Charges
• Fees for the management or safe custody of investments
• Safety deposit box charges (prior to Budget 2013!)
• Accounting fees for recording investment income (but not tax return preparation services); and
• Investment counseling fees with regards to specific investments, but not brokerage fees or general financial planning fees.

Interest expense is not a carrying charge.

The legislation to implement Budget 2013 made the cost to a taxpayer of renting a Safety deposit box from a Financial institution non-deductible for income tax purposes. This measure applies to taxation years that begin on or after Budget Day 2013.

On Schedule 4, Statement of Investment Income, a taxpayer can deduct the total carrying charges and interest expenses related to his investment portfolio. On Schedule 4 of the T1, there is a section called IV Carrying charges and interest expense.

Question 12

Tuition Tax Credit
Education Tax Credit
Textbook Tax Credit

Answer 12

Tuition Tax Credit
Is a non-refundable tax credit to provide income tax relief for tuition fees paid to a university, college, or other institution where post-secondary level courses are offered.

Education Credit
Is a non-refundable tax credit to provide income tax relief for the costs of higher education.

Textbook Credit
Is a non-refundable tax federal tax credit to provide income tax relief to post secondary students for the cost of textbooks.

The student has to claim their tuition fees, educations amounts and textbook amounts on their own return, even if someone else paid the fees. If the student does not have sufficient taxable income to use the tax credits, the tax credits will not be refundable to the student.

If the student does not need all of the tuition fees, education amounts and textbook amounts to reduce their Federal income tax to zero, a student can carryforward the amounts to a future year.

However, the student may be able to transfer the amounts for tuition fees, educations amounts and textbook amounts to a supporting parent, grandparent, spouse, or common-law partner.

Question 13

Medical expenses

• Tax Credit for qualifying medical expenses
• How is the federal medical tax credit calculated
• For whom can medical expenses be claimed
• time period of expenses
• how much do medical expenses have to be in order for them to be eligible to be deducted?

Answer 13

Tax Credit for qualifying medical expenses
Is a non refundable federal tax credit to provide income tax relief for medical expenses. This conversion rate is the lowest income tax rate.

The federal medical expense tax credit is calculated as:
• ((the greater of ($0 and (qualifying medical expenses – (the lesser of ((3% x the taxpayer’s net income) and the net income ceiling)))) x conversion rate).

A tax payer can claim medical expenses for:
• themselves
• spouse/common-law partner
• dependent children/grandchildren
• her own, her spouse’s/common-law partner’s parent, grandparent, brother, sister, uncle, aunt, niece, nephew, provided that the relative lives in Canada and is dependent on the tax-payer for support.

The taxpayer can claim medical expenses that were paid in any 12 month period end in the year that were not claimed in the prior year.

The tax credit is only available on the medical expenses that are in excess of the amount as:
• (the lesser of (3% of the taxpayer’s net income and a medical expenses threshold)).

The medical expenses that can be claimed include:
• payments to a doctor, nurse, dentist, or to a public or licensed private hospital;
• payments for artificial limbs, wheelchairs, crutches, hearing aids, prescription glasses, contact lenses, dentures, pacemakes, and prescription drugs.
• Expenses for modifying the taxpayer’s home to allow a person for whom the taxpayer can claim medical expenses to be mobile and functional if the person has a mobility impairment.

Question 14

Medical expenses

• Tax Credit for qualifying medical expenses
• How is the federal medical tax credit calculated
• For whom can medical expenses be claimed
• time period of expenses
• how much do medical expenses have to be in order for them to be eligible to be deducted?

Answer 14

Tax Credit for qualifying medical expenses
Is a non refundable federal tax credit to provide income tax relief for medical expenses. This conversion rate is the lowest income tax rate.

The federal medical expense tax credit is calculated as:
• ((the greater of ($0 and (qualifying medical expenses – (the lesser of ((3% x the taxpayer’s net income) and the net income ceiling)))) x conversion rate).

A tax payer can claim medical expenses for:
• themselves
• spouse/common-law partner
• dependent children/grandchildren
• her own, her spouse’s/common-law partner’s parent, grandparent, brother, sister, uncle, aunt, niece, nephew, provided that the relative lives in Canada and is dependent on the tax-payer for support.

The taxpayer can claim medical expenses that were paid in any 12 month period end in the year that were not claimed in the prior year.

The tax credit is only available on the medical expenses that are in excess of the amount as:
• (the lesser of (3% of the taxpayer’s net income and a medical expenses threshold)).

The medical expenses that can be claimed include:
• payments to a doctor, nurse, dentist, or to a public or licensed private hospital;
• payments for artificial limbs, wheelchairs, crutches, hearing aids, prescription glasses, contact lenses, dentures, pacemakers, and prescription drugs.
• Expenses for modifying the taxpayer’s home to allow a person for whom the taxpayer can claim medical expenses to be mobile and functional if the person has a mobility impairment.

Question 15

Caregiver amount

Answer 15

Amount for the tax credit for caregivers:
= Max caregiver amount - (Greater of $ 0 and (dependant’s net income - net income threshold.)

No tax credit is available if the dependent’s net income exceeds the income level cut off, which is calculated as:
(Maximum caregiver amount + theshold.)

Question 16

Medical expense tax credit

Answer 16

=Qualifying medical expenses - (the lesser of 3% of net income and the net income ceiling) x the federal and provincial conversion rate.

Question 17

Canada employment tax credit

Answer 17

is a non refundable federal tax credit to provide income tax relief that recognizes work related expenses incurred by employees. The conversion rate is the lowest income tax rate.

The amount for the Canada employment tax credit is calculated as:
-the lesser of (The amount for the Canada employment tax credit and the individual’s income for the taxation year from all offices and employment)
(Multiply by lowest income tax rate to get the credit amount.)

If an employee works from his home, he may be able to claim a deduction for workspace in home expenses.

Question 18

Tax credit for public transit

Answer 18

is a non-refundable federal tax credit that provides income tax relief for the cost of monthly public transit passes or those passes of a longer duration.

The cost of electronic payment cards is eligible for the tax credit if:

• the cost relates to the use of public transfer for at least 32 one way trips during an un interrupted period not exceeding 31 days.
• the transit usage and cost of those trips are recorded and receipted to the purchaser by the relevant transit authority, in sufficient detail as to allow the CRA to verify the eligibility of the credit.

Where an individual purchases at least four consecutive weekly passes, the cost would be eligible for the credit.

Question 19

Tax credit for public transit

Answer 19

is a non-refundable federal tax credit that provides income tax relief for the cost of monthly public transit passes or those passes of a longer duration.

The cost of electronic payment cards is eligible for the tax credit if:

• the cost relates to the use of public transfer for at least 32 one way trips during an un interrupted period not exceeding 31 days.
• the transit usage and cost of those trips are recorded and receipted to the purchaser by the relevant transit authority, in sufficient detail as to allow the CRA to verify the eligibility of the credit.

Where an individual purchases at least four consecutive weekly passes, the cost would be eligible for the credit.

The conversion rate is the lowest income tax rate.

Question 20

Children’s fitness tax credit

Answer 20

A non refundable tax credit to provide income tax relief to parents for the enrolment of a child who is under 16 years of age in an eligible program of physical activity. The conversion rate is the lowest income tax rate.

Amount for the children’s fitness tax credit is calculated as:
-the lesser of (eligible expenses and $500/child).

The credit can be claimed by either parent.

An individual cannot make a claim for a children’s fitness tax credit in respect of amounts for which any person has made a claim under the child care expense deduction.

Question 21

Adoption expense tax credit

Answer 21

is a non-refundable tax credit to provide income tax relief to parents for eligible adoption expenses for the completed adoption of a child under the age of 18 years. The conversion rate is the lowest income tax rate. Parents can claim these incurred expenses in the tax year that includes the end of the adoption period in respect of the child.

Eligible adoption expenses are expenses incurred during the adoption period in respect of that child to the extent that the individual has not been reimbursed, and is not entitled to be reimbursed, for these expenses.

The eligible amount for the tax credit is calculated as:
-the lesser of (maximum adoption expense amount and eligible adoption expenses)
The maximum adoption expense amount is indexed.

Eligible adoption expenses include:

1. fees paid to an adoption agency licensed by a provincial or territorial government.
2. court costs, legal and administrative expenses
3. reasonable travel and living expenses of the child and the adoptive parents.
4. document translation fees.
5. mandatory fees paid to a foreign institution
6. Any other reasonable expenses required by a provincial or territorial government or an adoption agency licensed by a provincial or territorial government.

Adoption period:

• begins when application is made
• end at time of adoption

Where there is more than one individual entitled to a deduction for a taxation year in respect of a particular child, these individuals can share the Adoption Expense tax credit in whichever portions they can agree, but the combined total expenses cannot exceed the maximum adoption expense amount for each child.

If the individuals cannot agree as to what portion of the tax credit each can deduct, the Minister of National Revenue is permitted to apportion the tax credit.

Question 22

Children’s fitness tax credit

Answer 22

A non refundable tax credit to provide income tax relief to parents for the enrolment of a child who is under 16 years of age in an eligible program of physical activity. The conversion rate is the lowest income tax rate.

Amount for the children’s fitness tax credit is calculated as:
-the lesser of (eligible expenses and $500/child).

The credit can be claimed by either parent.

An individual cannot make a claim for a children’s fitness tax credit in respect of amounts for which any person has made a claim under the child care expense deduction.

Question 23

Children’s art tax credit

Answer 23

Same as the children’s fitness tax credit

A non refundable tax credit to provide income tax relief to parents for the enrolment of a child who is under 16 years of age in an eligible program of artistic, cultural, recreational, or developmental activities.. The conversion rate is the lowest income tax rate.

Amount for the children’s art tax credit is calculated as:
-the lesser of (eligible expenses and $500/child).

The credit can be claimed by either parent.

An individual cannot make a claim for a children’s art tax credit in respect of amounts for which any person has made a claim under the child care expense deduction.

An eligible program must include a significant amount of eligible activities, must be ongoing in nature and must be either:

• weekly program lasting a minimum or 8 consecutive weeks, or
• in case of children’s caps, a program lasting a minimum of 5 consecutive days.

An individual cannot make a claim for a children’s art tax credit in respect of amounts for which any person has made a claim under the child care expense deduction.

Question 24

Paying income tax by instalment

Answer 24

The instalment threshold amount for all provinces besides Quebec is $3000, Quebec is $1800 (for 2015).

For 2015, a taxpayer will have to pay income tax by instalments if his net tax owing:

• will be more than the instalment threshold amount of $3000 in 2015; and
• was more than the installment threshold amount in either 2014 or 2013.

If you have to pay tax by instalments, there are three ways to determine how much you are required to pay known as:

1. the no-calculation option
2. the prior year option
3. the current year option.

Under the no calc option, CRA will determine how much the taxpayer must pay each quarter in the current taxation year based on its knowledge of the tax and CPP owing in the previous two years. It will then inform the taxpayer how much he must pay on an installment reminder.

Under the prior year option, if a taxpayer had to pay tax by instalments, the taxpayer would pay one quarter of his net tax owing for the prior year on each instalment date.

Under the current year option, if a taxpayer has to pay tax by instalments, the taxpayer can pay one quarter for his estimated net tax owing for the current taxation year on each instalment date. However, if the taxpayer makes an error in estimating the taxes that he owes, he will be charged installment interest and penalties when the CRA assesses his return.

Question 25

Tax filing deadlines

Answer 25

-Corporations must file within 6 months after fiscal year end.
-personal representatives of deceased individual’s, who die between Jan 1 and Oct 31, must file by the deceased’s normal filing date. This also applies to spouses or common law partners of deceased individual’s.
-personal representatives of deceased individual’s who die in November and December, 6 month’s after date of death.
This also applies to spouses or common law partners of deceased individual’s.
-Trusts must file within 90 days from the end of the trust’s fiscal year
-self employed individual’s and their spouse’s or common law partners must file by June 15
-All other individual’s must file by April 30

Question 26

late filing penalty

Answer 26

Tax owing x (5% + (1% x number of months return overdue)B

Question 27

Balance due day

Answer 27

The balance due day is the day all taxes are due for the last taxation year and it varies depending on the taxpayer as follows:

• a trust, 90 days after end of the trust’s fiscal year.
• an individual who dies after October in the year and before May the following taxation year, the day that is 6 months after date of death; and
• for other individual’s, April 30th following taxation year.

A taxpayer, other than a corporation, is generally considered to have paid their taxes by the balance due date if she sends payment by first class mail or courier by that date.

Question 28

Child care expenses - if looked after by older children

Answer 28

Amounts that a taxpayer pays to an older child to take care of younger children in the family are not deductible as a childcare expense unless the caregiver is over 17 years old.

Question 29

Non capital loss

Answer 29

Is a loss that arises from

• unused losses from an office, employment, business, or property
• unused allowable business investment losses (ABILs)
• the unused portion of the taxpayer’s share of partnership losses from business or property; and
• the unused portion of the taxpayer’s share of partnership ABILs

Non capital losses can be carried back 3 years. Non capital losses that arise in 2006 and subsequent years may be carried forward 20 years.

However, the carry forward period for ABILs is only 10 years. An ABIL that you were not able to deduct as a non capital loss by the end of its carry forward period will become a net capital loss at the end of the year.

You could only deduct net capital loss from taxable capital gains. You would be able to carry forward net capital loss indefinitely, but you could only deduct from taxable capital gains.

Question 30

Net capital losses

Answer 30

is any excess of his allowable capital losses over his taxable capital gains.

• can be carried back 3 years
• can be carried forward indefinitely

Question 31

Eligible gift

Near cash gift or near cash award

Answer 31

Eligible gift is a non-cash and non-near-cash benefit conferred for a special occasion, such as a religious holiday, birthday, wedding, or birth of child.

An eligible award is a non cash and non near cash benefit from an employment related accomplishment, however, it cannot be a performance related award.

Cash, near cash awards are always a taxable benefit to an employee. Near cash gift or award is a gift or award that you can easily convert to cash, such as GC, gold nuggets, securities, or stocks.

However, under CRA policy, a non-cash gift or award from your employer may not be a taxable benefit under certain circumstances.

Non cash gifts and non cash awards to an arm’s length employee, regardless of number, will not be taxable to the extent that the total aggregate value of all non cash gifts and awards to that employee is less than $500 annually. Only the total value of all non cash gifts and awards to that employee in excess of $500 annually will be taxes.

Your employer would have to report a taxable employment benefit from eligible gifts and awards calculated as:
-total value of eligible gifts - $500 threshold.

An anniversary award is a benefit given for long service. To qualify, an anniversary award cannot be fore less than 5 years of service or for less than 5 years of service since the employee’s lsat long service award. A non cash anniversary award may qualify for non taxable status to the extend it’s total value is $500 or less. The value in excess of $500 will be taxable.

Your employer would also have to report a taxable benefit from the anniversary awards as calculated as:
-(total value of non cash eligible anniversary award - $500)

Question 32

Employer paid disability premiums - income tax implication

Answer 32

If your employer pays a premium to a wage-loss replacement plan or an income maintenance plan for you, the premium is a taxable benefit if your employer pays it to a non group plan that is:

• a sickness or accident insurance plan
• disability insurance plan
• an income maintenance insurance plan.

If the premium is a taxable benefit, any benefit from the plan are not taxable.

If the employer pays the premium to a group plan, the premium is not a taxable benefit, but any payment from that the employee receives from that plan will be taxable. If the employees pay the premiums under the group plan by having their employer deduct the premiums from their after-tax pay, then the premiums would not be a taxable benefit, and any benefits received under the plan would not be taxable.

Question 33

Shareholder loans

Answer 33

Generally, a shareholder loan outstanding over two year-ends must be included in the shareholder’s taxable income. Such a loan is not tax deductible to the corporation.

However, the loan does not have be included in the taxable income of the shareholder if the shareholder is also an employee, as long as there are bona fide arrangements to repay the loan within a reasonable period of time, and the loan will be used to:

• purchase a car
• facilitate a home purchase by an employer; or
• facilitate the purchase of previously unissued shares of the corporation.

Question 34

Employee discounts - taxable benefit?

Answer 34

Where it is practice of an employer to sell merchandise to employees at a discount, the benefits that an employee may derive from exercising such a privilege are not normally regarded as taxable benefits.

However, a taxable benefit will arise when there is:

• a special arrangement an employer makes with an employee or group of employees to buy merchandise at discount
• an arrangement that allows an employee to buy merchandise other than old or soiled merchandise, below cost; or
• a reciprocal arrangement between two or more employers so that employees of one employer can buyer merchandise at discount from another employer.

The taxable benefit is any excess of FMV of goods over the price paid by the employee.

Question 35

Amounts paid by employer to RSP, group life insurance, or provincial health care - taxable benefit?

Answer 35

Most amounts that an employer pays on behalf of an employee are considered to be a taxable benefit, including premiums under a group life insurance plan or provincial health care plan, or contributions to group RSP.

There re only a few benefits that do not have to be included in taxable income, and the main ones include:

• contributions to RPP
• premiums that the employer pays on the employee’s behalf for group disability
• premiums that the employer pays on the employee’s behalf to a private health services plan
• certain counselling services related to mental or physical health, re-employment or retirement.
• reasonable automobile allowances to employees who use their personal cars for business use
• certain moving expenses
• the cost of professional membership dues that benefit the employer

if an employer pays the premium on the employee’s behalf for a group disability plan and the premiums are not treated as a taxable benefit, then any benefits that the employee ultimately receives will be taxable to him.

Question 36

Deducting home and car expenses when used for business use

Answer 36

Provided that the employer signs a Declaration of Conditions of Employment, an employee will be able to deduct a portion of certain motor vehicle and home expenses, provided that he was required to use these assets for business purposes.

A taxpayer can also deduct legal fees from his employment income, to the extent that the fees were incurred to collect or establish a right to salary or wages from an employer or former employer.

A commissioned salesperson is an employee who sells goods or negotiates contracts for an employer on a commission basis. A commissioned sales person can deduct sales expenses incurred to earn commission income. Sales expenses include advertising costs.

A non commissioned employee cannot deduct the cost of ads that he personally places in a trade magazine because this is considered to be a sales expense and this is only deductible by taxpayers who have commission income.

Question 37

Childcare expenses - can be claimed if paid to

Answer 37

• friends, neighbours, or other persons
• certain relatives, 18 or older
• nursery schools
• day care centres
• educational institutions for childcare services
• day camps or day sports schools your child attends
• boarding schools or sports schools where lodging is involved.

A childcare expense deduction cannot be claimed for payments made to child’s parents or relative under 18 years of age.

Question 38

Limitations of deducting child care expenses

Answer 38

In general, when there are two supporting persons, whoever has the lower net income (before deducting the child care expenses) must deduct the child care expenses.

However, when the lower income spouse is enrolled in a designated educational institution, the higher income spouse can claim the child care expenses.

When the spouse attends full time school, the limit is $100/week for children 7 and up and $175/week for younger children

When the spouse attends school part time, the limit is $100 per month for children 7 and up and $175 month for younger children.

The annual day care expense deduction limits are $7000 for children under 7 and $4000 for other eligible children.

Question 39

Limitations of deducting child care expenses

Answer 39

In general, when there are two supporting persons, whoever has the lower net income (before deducting the child care expenses) must deduct the child care expenses.

The only time the supporting person with the higher net income can claim the childcare expense is if the lower-income person is:

• separated by reason of breakdown in the relationship
• confined to wheelchair
• in prison
• enrolled at a secondary school or other designated institution, either part time or full time.

When the spouse attends full time school, the limit is $100/week for children 7 and up and $175/week for younger children

When the spouse attends school part time, the limit is $100 per month for children 7 and up and $175 month for younger children.

The annual day care expense deduction limits are $7000 for children under 7 and $4000 for other eligible children.

Question 40

Limitations of deducting child care expenses

Answer 40

In general, when there are two supporting persons, whoever has the lower net income (before deducting the child care expenses) must deduct the child care expenses.

The only time the supporting person with the higher net income can claim the childcare expense is if the lower-income person is:

• separated by reason of breakdown in the relationship
• confined to wheelchair
• in prison
• enrolled at a secondary school or other designated institution, either part time or full time.

When the spouse attends full time school, the limit is $100/week for children 7 and up and $175/week for younger children

When the spouse attends school part time, the limit is $100 per month for children 7 and up and $175 month for younger children.

The annual child care expense deduction limits are:

-$7000 for children under 7 (6 and younger)
$10,000 for child who was born in tax year or earlier for whom disability amount can be claimed.
-$4000 for other eligible child who is between 7 and 16 or 16 years or older, was dependant on your or your spouse, and who has a mental of physical infirmity, but for whom you cannot claim a disability amount.

Question 41

Eligible relocation

Answer 41

is a relocation that occurs to enable you:

• to carry a business or to be employed at a location in Canada, or
• to be a student in full time attendance enrolled in a program at a post secondary level at a location of a university, college, or other educational institution.

The residence at which the taxpayer ordinarily resided before the relocation and the residence at which the taxpayer ordinarily resided after the relocation must be in Canada.

The distance between the old residence and the new work location must be at least 40 kms greater than the distance between the new residence and the new work location.

You can only deduct moving expenses from income earned at the new location for the taxation year from your employment at a new work location or from carrying on the business at the new work location.
To the extent that this income is less than the moving expenses, you can carryforward the undeducted expenses and deduct them from employment or self-employment income earned at the new location in the following year.

Question 42

Operating expenses for a car

Motor vehicles expenses

Answer 42

• leasing charges, fuel, maintenance, repairs, car washes, licenses, and insurance
• are total operating expenses, CCA, and interest on loans to acquire the vehicle

Question 43

Deducting home office expenses

Answer 43

If an employee is not a commissioned salesperson, he can deduct a reasonable portion of home maintenance expenses including fuel, electricity, light bulbs, cleaning materials, minor repairs, and if does not own the dwelling, any rent. These are deductible because they are classified as supplies used to earn employment income. Such an employee cannot deduct a portion of CCA, property taxes, or mortgage interest.

If the employee is a commissioned sales person, he can deduct reasonable portion of the home maintenance expenses listed above, plus a portion of property taxes and home insurance, because these amounts are considered to be sales expenses. However, even a commissioned salesperson cannot claim a portion of mortgage interest or CCA.

Question 44

Commissioned salesperson

Answer 44

Is an employee who sells goods or negotiates contracts for an employer on a commission basis. A commissioned salesperson can deduct sales expenses incurred to earn commission income.

Sales expense include all amounts expended on you as salesperson earning your employment income, including:

• advertising costs
• the cost of promotional gifts
• subject to the 50% rule, the cost of entertaining clients
• cost of leasing computer and other business equipment.

Golf club dues cannot be deducted at all

The amount that a taxpayer can claim in expenses is limited to the amount the she earned in commissions.

Question 45

Alternative Minimum Tax (AMT)

Answer 45

The alternative minimum tax is a scheme in the ITA that requires the calculation of an alternative amount of tax based upon the elimination of certain tax preferences.

Rather than require all of the non-taxable component of capital gains be added back, which could result in an excessive number of taxpayers being exposed to alternative minimum tax, 30% of the excess of capital gains over capital losses is added back in the Adjusted taxable income calculation.

For dispositions after October 17, 2000, the inclusion rate for the excess of capital gains over capital losses is 80%, calculated as:
-(50% is already included in regular income, plus the additional 30%)

The capital gains inclusion rate for AMT is 80%. For regular tax, it is 50%

However, capital gains from charitable gifts of property to qualified donees are not adjusted.