Tax Flashcards
Pro/Con of Incorporation
- Pro:
- Limited personal liability: can’t be sued against personal property
- Tax planning: pay less tax overall by deferring withdrawals to years shareholder has lower income
- If incorporated business sold, can use lifetime capital gains exemption
- Use immediate expensing limit for capital purchases - Con:
- Added cost: for corporate tax filing in addiiton
- No tax benefit if withdrawals aren’t deferred
- Losses incurred by business not deductible from personal income
Salary Vs. Dividend. Vs. Retention of Cash
+ Salary:
- Corp tax: deducted from taxable income - P tax: employment income & taxed within brackets - CPP: increased PMTs from employer & employee, but received in retirement - RRSP: employment income creates RRSP contribution room. Contributions can be made to reduce taxable income - Child-care: employment income allows for childcare deduction
+Dividend
- P tax: Grossed up when received & provides dividend tax credit - Total tax paid: Dividends usually result in lower P-tax paid - Dividend refund for Corp: paying dividend provides dividend refund credit if RDTOH balance available
+Retention of cash in company
- Deferral of taxes: salary/dividend able to be deferred until needed, as income within corp taxed at low rate under SBL (<$500K) - Reinvestment: can be invested in passive investments or reinvested in corp to give shareholders better returns
Employee Vs. Contractor
- Intent - intent for each party upon signing contract
- Control - who controls time/place/manner of work
- Ownership of Tools - who supplies tools necessary for work
- Subcontract or hire assistants - are they able to hire additional help at their own discretion
- Financial risk - who bears risk of incurring losses, or damage to equipment
- Responsibility for investment/management - employees don’t have capital investments or able to hire assistants
- Opportunity for profit - degree individual can control their net proceeds from work done
Moving expenses: Eligibility & Calc
Eligibility
a) Move within Canada to work or run a business in new location
b) New home is at least 40km closer to new work than the old home
Calc
- allowable moving expenses limited to net eligible income
- excess eligible expenses can be carried forward to subsequent years
Moving expenses: Examples for eligible/ineligible expenses
Eligible expenses
- shipping, flights, travel
- legal/relator fees on sale
- legal fees for new home
- under $5K for utilities, property taxes, etc when house is held for sale
- up to 15 days for temporary housing & meals
Ineligible expenses
- Cost of new home
- over $5K for utilities, property taxes, etc when house is held for sale
- over 15 days for temporary housing & meals
+ moving allowances deducted from eligible expenses
Home Office Expenses for Employee: Eligibility
Eligibility
- must receive a salary
- must meet one of two tests:
1) Work from home principally (over 50% of hours)
2) Home used on regular basis to meet clients or similar in ordinary business duties
Home Office Expense for Employees: Recording
Recording
- Recorded as a deduction from employment income
- Ceiling for eligible expenses
i) Salary received is maximum for eligible expenses
ii) if eligible expenses exceed salary = (excess can be carried forward) OR (employer can: increase salary, or reimburse portion of expenses)
Residency: Primary Indicators
Primary indicators
a) Home in Canada
b) Spouse in Canada
C) Dependents in Canada
Residency: Secondary Residency Ties
Secondary Residency Ties
a) Personal Property in Canada (cars, furniture)
b) Social ties in Canada (memberships)
c) Economic ties in Canada (bank/credit card)
d) Canadian drivers licence
e) Canadian passport
Employee Benefits: Tax implications to Employee & Employer
Health Plan
- E: Non-taxable
- C: deductible
Service gifts
- E: Non-taxable if under $500 and at least 5 years apart
- C: Deductible
Training
- E: Non-taxable if employer is the beneficiary, if not is taxable
- C: Deductible regardless if employer is beneficiary
Pension
- E: Non-taxable
- C: Deductible in year contributions paid
Subsidized meals
- E: Non-taxable if cost paid, if under cost a taxable benefit for the difference to cost
- C: Sales included as income. costs deductible
Rec facilities
- E: Non-taxable if available to all employees
- C: Non-deductible, prohibited from deductions
