Unit 3 Flashcards
Employment income general inclusions
CH6
-Employment income is taxed on a cash basis, in the yr received
Tax benefits and other payments
CH6
1) Counseling: payment for financial counseling is taxable. NOT TAXABLE in respect of mental/physical health & re-employment or retirement of an employee
2) Discounts: if $$<FMV, dif is taxable benefit as long as the discount was received as result of employment
3) Frequent flyer points: taxable if you earn points on a company CC, or employee use own personal CC to earn points. NOT TAXABLE POINTS CONVERTED TO CASH
4) Gifts: taxable if noncash above $500.NON TAXABLE, IF LESS THAN $500
5) Length of service award: NON TAXABLE
6) Health care prep paid by employer (when discretionary for employees): NOT TAXABLE FOR PRIVATE HEALTH CARE.
7)Life insurance: NON-TAXABLE IF THE EMPLOYER IS THE BENEFICIARY
8) Cont to pension plans by employer: NON TAXABLE
9) Rec faciliites or club dues: NON TAXABLE WHEN INCURRED FOR BENEFIT OF EMPLOYER
10)Relocation payment: moving allowances are taxable. NON-TAXABLE IF EMPLOYEES HAS INSTEAD BEEN PROVIDED WITH A REIMBURSEMENT
11) Reim for housing losses incurred for realocation: 1/2 of any reim>15K is taxable benefit to employee
Accident and sickness insurance plans
CH6
-Group plan–> employer and emploee each pay part of the prem–> benefit received:
-EX: employee starts employment in Apr 2022, receives benefit in Sep 2023/ Prep paid between the period are deductible.
Allowance and reimbursements
-Allowances: fixed amount paid by employer to employee without req for the employee to provide receipts
-Generally taxable unless:
1) Motor vehicle exp incurred for employment
2) Travel exp incurred for employment
1)Motor vehicle exp incurred for employment
-Taxable if ANY of the following apply:
1) Allowance is NOT based on KM traveled
2) Employee receives reim and allowance
3) Employee reim $ > CRA limit
-NOT TAXABLE IF:
1) Allowance per KM if the amount within the limit set by CRA–> IF GREATER THAN PRESCRIBED AMOUNT ENTIRE AMOUNT IS TAXABLE
2) Travel exp incurred for employment
-Taxable benefit if allowance is unreasonable high or low
-NON-TAXABLE IF AMOUNT IS REASONABLE. CRA RATES IS $23/MEAL OR $69/DAY
Automobile benefit
-When employer owns the vehicle and pays for operating costs:
Standby+Operating benefit- employee reim
-Employee owns vehicle and employer pays for operating costs
Operating benefit- employee reim
Standby charge
-Assessed when employer provides employee a vehicle.
Reduction in standby charge
-if ALL the following criteria are met:
1) Employer required to use automobile for employment purposes
2)Used for 50%> for employment
3) Personal KM < 20,004 in yr
Standby reduction $
Operating cost-benefit employer-owned vehicle
-Includes fuel, insurance, RM, registration
Operating cost-benefit employer-leased vehicle
Employee loans
-Benefit for employees if the loans are either interest-free or low interest known as the imputed interest benefit
-Interest paid by the loan includes interest paid by Jan 30
-WHEN EMPLOYER FORGIVES THE LOAN NET BALANCE IS CONSIDERED A TAXABLE BENEFIT
Stock options
-Exercise date: if FMV> exercise price an employment benefit arises and should be included in employment income
-Impact of stock options on EI:
a) Taxable benefit: included in employment income (which is included in NIFTP)
b) CG/CL: 1/2 included in NIFTP
c) Division C deduction @50%: deducted from NIFTP to determine TI
Stock options division C deduction
CH6
-Differs between public and CCPCs companies:
-Shrs must be CS and non-arms lengths
Deductions
CH6
1) Legal fees to collect remuneration
owned to an employee
2) Salesperson expense
3) Travel expense
4) Motor vehicle expenses
5) Dues
6) Motor vehicles- including CCA& interest paid on loan
7) Employer RPP contributions
8) Tradepersons tools expense
9) CCP (LESSER OF EI& 64,900-3,500)*5.7%
10) Enhanced CPP (LESSER OF EI& 64,900-3,500) *0.75%)
- Conditions;
a)individual is employed to sell prop or negotiate contracts
b) required to pay for their own exp
c) work away from employer place of busi,
d) fully/partly paid in commission
e) didn’t receive a nontaxable traveling allowance
f) expenses cant exceed the commission received.
Lease cost deduction
CH6
Workspace deduction
CH6
-Deductible if
1) place where the individual principally performs their employment duties
OR
2) both of:
a) If used exclusively for the purpose of earning EI
b) used on a regular and continious basis for meeting customers
Amount from def income plans
CH13
Other reg plans
-Includes RESPs, Reg disability Savings Plans
Cont are not deductible
Dist are not taxable
-ACC INCOME OF THE PLAN IS TAXED WHEN WITHDRAWN IN EITHER THE HANDS OF THE BENEFICIARY OR THE HANDS OF THE CONTRIBUTOR
CPP
-Payment received are taxable and included in income of the individual receiving the payment
-Spouse of CL partners may elect to split CPP income
The amount shared is = 50% combined CPP benefits received prorated by the length they live together
Non-contributing spouse has to atleast 60 to make the election
OAS
-Taxable payments made by the goverment of Canada to 65+ old who lived in Canada for 10+ yrs
-OAS clawback
Employment insurance benefit
-Benefits are taxable
-Required EI benefit repayment is 30% LESSER of
1) EI benefit included in income
2) NITP>75,375
-Required EI payment is deducted from NI and added to TP
Retiring allowance
-Excludes pension income and death benefits but includes payments received on or after retirement:
a)from an office or employment in recognition of long services
b) loss of employment
-Retiring allowances does not include amounts received from:
a)Employee benefit
b) Retirement compensation arrangement
c) Salary def arrangement
-Such allowances can be transferred to an RRSP or RPP. The amount trf tax free basis is the lesser off:
a) Amount retiring allowance received
b) $2K of each yr or part yr where the individual was employed before (not including) 1996 PLUS $1.5K prior to 1989
Pension income splitting
-Elect up to 50% of pension income to spouse
-Eligibility
a) >=65: lifetime annuity payments from RPP,DPSP,RRSP,RRIF.
b) <65: life time annuity payment from an RPP.
When to consider pension spliting
1) Marginal tax rate of both individuals
2) Availability of pension credit to transferee- if transferee has no pension income allocating $2K will give them the pension credit
3) Impact on OAS clawback
4)Effect on other taxpayer credit where NI is relevant
Research grant
- Income inclusion=Grant received- research exp incurred
-Nondeductible expenses
a) personal/living exp
b) exp that have been reim
c) Exp that are deductible in the yr
d) Unreasonable exp
e) Exp paid by someone on taxpayer behalf
Scholarships. bursaries and fellowships
-Amount received is exempt from tax if the student was full time attendance at a post sec educational institution
Amount included in NI and deducted under Division C
-Social assistance benefits (welfare)
-Workers comp
-Guaranteed income supplement
Death benefit
-Payment made to spouse or other beneficiary of a deceased employee
-Anything above $10K is taxable
-If payment goes to multiple beneficiaries, following rules apply:
1) Surviving spouse is allocated up to 10K
2) Anything over 10K gets prorated to the other beneficiaries
3) Spouse can claim an exemption of the lesser amount received and 10k
Indirect payment
-payments or transfers of prop that normally would have been taxed in the hands of the taxpayer if they received the payment or prop transfer
-Include in income of the transferor if the following conditions are met:
1)taxpayer must have benefited from the transfer
2) payment or value of the trans prop would have been included in taxpayer income if the transfer had not been made
Spousal support
-Deductible to the taxpayer, taxable to the recipient
-Deductible if:
1) Payments are periodic and not lump sum
2) Payment are for maintenance of recipient
3) Payment are made while former spouses living apart
4) Required in written agreement
5) Recipient has discretionary use of the amount
-INCLUDED IN EARNED INCOME FOR RRSP & NOT FOR CHILD CARE DEDUCTION
-3rd party payments (mort, tuition) are deductible/taxable if:
a) Result of an order
b) Exp were incurred for the maintenance of spouse
c) Court order specifically ref ITA for deductibility
Child support
-Not deductible if entered after 1997
Moving expense
-Deductible if
1) Moving to new busi or employment location in Canada
2) Moving to attend a qualifying post secondary institute
-Conditions for deductment
1)New resident must be atleast 40km closer to new work/school
2) Exp incurred in excess of income can be carried forward to subsequent yrs
3) Exp must be paid by taxpayer and not reim
-IN A CASE SCENARIO EMPLOYEE SHOULD ASK EMPLOYER TO REIM NON DEDUCTIBLE EXPENSES
Eligible moving expense
1) Traveling costs (meals and accommodation)
2) Transportation and storage costs
3) Meals and accommodation for a maximum of 15 days prior to taking possession of the new property
4) Lease cancellation costs
5) Selling costs of old residence
6) Legal fees and title transfer tax on a new residence
7) Cost of maintaining a vacant former resident (mort interest, utilities, etc)
8) Cost of changing the address on legal documents
Child care expenses
-Must be incurred to allow taxpayers to
1) be employed
2) carry on a busi
3) carry on research for which grant received
4) attend schooling
-Deducted by lower NI individual
-Eligible children 16 yrs and younger or dependent as result of impairment
Childcare limits
Maximum deduction LEAST of
a) Actual amount paid
b) total annual limits
c) 2/3 of taxpayer-earned income
Disability support deduction
-Can claim for ti enable individual to:
1) work as an employee or indep contractor
2) attend a designated educational institue
3) carry on research work which grant was recieved
Disability deduction
Attendant care costs
-Full-time attendant cost > $10K
-Part-time attendant cost < $10K
Personal division C deductions
-Employee stock options
-Loss carryovers
-Northern residence
-Lifetime capital gain exemption
-Guaranteed income supplement
-Social assistance payment
-Workers Compensation
Employee stock options
-50% of employment income inclusion
-Employment income inclusion=(FMV grant date-Exercise price) * # of shrs
-Qualification for division C deductions:
a)Public corps: FMV of shrs grant date < exercise price (options are out of the money) –> claimed in yr option is exercised.
b) CCPC: FMV on grant date < excersie price OR if in the money the shrs acquired under the option were held for 2+ yrs –> claimed in the yr shares are sold
Loss carryovers
Lossess include:
1) Non capital losses: arise when CY lossess from non capital sources exceel income from all sources
2) Net capital loss: dif between taxable capital gains and allowable capital losses
3) Resitriced farm losses
4) ABILs
Northern residents
Deduction is:
1) $22/day for self contained domestic establishment in the prescribed area
2) $11/day where a self contained domestic established is not maintained
-For residences in interment zones the deduction is 1/2 of the deduction for residents in prescribed zone
Lifetime capital gains deductions
-Claimed by individuals resident in canada on disposal of small busi corp shares
-QSBC
Qualified Smal Business Corp
- Must be a CCPC
- Must be a small busi corp- 90% of FMV assets are used principally in active busi in Canada
a)Calc FMV of assets (including any GW)
b)Calc WC (CA-CL)
c)1- (b/a) - Shares must be owned by ind or related ind for past 24 months
- 50% of FMV of assets used in an active busi in Canada for the past 24 months
Calc of LCGD
-LESSER of 3 amounts
1)Unused lifetime dedution: $465,815
2) Annual gains limit–> A - B where
A is the lesser of
i) net TCG for the yr on all asset dispositons
ii) net TCG on disposal of qualifed farming or fishing prop and QSBC shrs
B is the total of
i) Net capital losses claimed in the yr less dif between i and ii per above
ii) ABILs realized in the yr
3) Cummalative gain limit
Tax def saving plans
-Cont to these are deductible and is def until the amounts are withdrawn
-3 types
1) RPP and DPSPs: employer-sponsored plans (employer cont are not a taxable benefit)
2) RRSPs: individual plans with no employer involvement
RPPs
-May be
1) Contributory: both employer/employee make a cont
2) Noncontributory: only the employer makes cont
-2 types of RPPs
1) Defined benefit pension plan: benefit received by the employees is predetermined based on one or both of the following:
a) predetermined % of the employer salary over a # of yrs
b) # of yrs of service provided by the employee
2) Defined cont plans: benefit received by the employee depends on the amounts amounted to the plan and plan earnings
RRSPs
-When employer matches employee cont, its a taxable benefit for the employee.
-Anyone with room can contribute until turning 71
- Over cont are penilzied at 1% per month
-$2K over cont is allowed without penalty
-Spousal cont: individuals may use their cont room to contribute to their own RRSP or the one owned by their spouse.
deductible against the income of the contributor
RRSP limit
Earned income for RRSP
Withdraws
-Taxable unless received under HBP or LLP
-Withdraws on marriage breakdowns are not taxable
HPB
-Borrow funds from RRSP
-The following must apply:
1) withdraw for a home
2) taxpayer nor spouse cant own a home in the past 4 yrs
3) Maximum is $35K
-Repayment must be made in equal annual installments over 15 yrs
LLP
-Withdraw funds from RRSP to finance education
-Must be full-time or higher education requiring not less than 10hrs/week for 3 consecutive months
0Limited to $10K/yr and an overall limit of $20K
-repayment must be made equally over 10 yrs
