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TAXX301 (ch.3)
Taxation of Employment Income
| Question | Answer |
|---|---|
| employment is determined on a... | net basis (meaning income amounts are entitled to deductions) |
| what section of the ITA generally covers employment income? | part 1, division B, subdivision a, sections 5-8 |
| what does the ITA refer to "taxpayer" as? | an individual employee |
| why does the ITA use the term "office"? | to extend employee taxpayer status to people like judges, MP's, board of directors, etc. (people who aren't direct employees) |
| is employment income determined on an accrual, or receipt basis? | receipt (only amounts actually received are included in employment income) |
| does "income from employment" have to be paid by the employer? | No. other amounts should be included such as tips |
| what is the criteria for a "standard" bonus? | paid by 179th day of the end of tax year it is earned |
| what is the criteria for an "other" bonus? | paid between 179 days and 3 years of the end of tax year it is earned |
| what is the criteria for a "salary deferral" bonus? | paid more than 3 years after the end of tax year it is earned |
| what is the income tax consequence of a "standard" bonus? | employer deducts when accrued employee includes when received |
| what is the income tax consequence of an "other" bonus? | employer deducts when paid employee includes when received |
| what is the income tax consequence of a "salary deferral" bonus? | employer deducts when accrued employee includes when services to receive bonus are rendered |
| can an employment loss be carried over to the following tax year? | yes it can because it is a "non-capital loss" |
| when is the term "self-employed" used in the ITA | it is never used. the term "independent contractor" is used instead |
| what is an independent contractor in the ITA? | an individual carrying on a business (either on their own, or through a partnership) |
| what is the maximum EI premium for an employee? | $1,077 ($65,700 * 0.0164) |
| what is the maximum EI premium for an employer? | $1,508 ($1,077*1.4) |
| how are EI premiums calculated for employees? | insurable earnings * 0.0164 |
| how are EI premiums calculated for employers? | employee EI contribution * 1.4 |
| how are insurable earnings (and pensionable earnings) calculated? | gross salary + taxable benefits (does not include overtime and non-taxable benefits) |
| what is the maximum ceiling for employee CPP contributions? | $4,430 ($4,034 first ceiling + $396 second ceiling) |
| how are employee CPP contributions calculated? | (pensionable earnings - $3,500) * .0595 + (pensionable earnings - $71,300) * 0.04 (if pensionable earnings exceeds $81,200) |
| how are employer CPP contributions calculated? | employers match employee contributions |
| Are EI premiums and CPP contributions a deductable business expense for the employer? | yes they are (treated as personal tax credits with an exception) |
| how do you calculate the amount to be treated as an "other deduction" for CPP contributions? | [(pensionable income-$3,500) * (.0595 - .0495)] + second CPP ceiling + employer contribution |
| what is a small supplier? | a business that is exempt from charging GST/HST |
| when does a company lose their status as a small supplier? | when sales exceed $30,000 over any 12 month period |
| what is the 4-step plan to recharacterize an employee as an independent contractor? | 1. employee resigns 2. former employee creates a new corporation 3. former employee enters employment agreement with their own corporation 4. individuals corporation and former employer enter an agreement to provide services |
| what are the 5 factors in assessing the existence of and employment relationship? | 1. control of employer 2. ownership of tools/equipment 3. ability to subcontract or hire assistants 4. financial risk 5. opportunity for profit |
| what is the definition of a benefit under ITA? | an economic advantage where an employee is the primary beneficiary |
| how is the value of a benefit generally calculated? | benefits are generally calculated as FMV |
| what is the difference between "received" and "enjoyed"? | receipt of property vs where and employee uses property of employer |
| what is the 5-step process in determining if a benefit is taxable? | 1. is there a benefit? (economic advantage) 2. has the benefit been received/enjoyed because of an individuals employment? 3. is the employee or relative of them the primary beneficiary? 4. what is the value of the benefit? 5. is the benefit excluded? |
| what are the 5 benefit exclusions mentioned in the textbook? | 1. registered pension plans 2. group sickness/accident insurance plans (except for amounts received) 3. private health services plans 4. counselling services (mental/physical health) 5. reduced tuition (to children of teachers at private schools only) |
| are automobile benefits taxable? | yes they are to the extent the employee uses the vehicle (can be complex) |
| is board & lodging taxable? | yes they are to the FMV of benefits received (exceptions apply) |
| is cell phone & internet taxable? | not taxable even if there is some personal use |
| are discounts on merchandise taxable? | not taxable as long as discounts are available to all employees and price is above procurement cost to employer |
| are education-related benefits taxable? | taxable if for employees children, not taxable if related to employment |
| are employee loans taxable? | can be taxable depending on terms (if more favorable than an arms length transaction) |
| is employer-provided childcare taxable? | not taxable if employer managed, available to all employees, and not available to public |
| are gifts/awards/rewards taxable? | yes if cash or near-cash. non cash are taxable if FMV exceeds $500 |
| are loyalty/points programs taxable? | not taxable if points aren't converted to cash, plan isn't and alternative form of renumeration, and plan isn't for tax avoidance purposes |
| are meals taxable? | not taxable if reasonable cost is paid |
| are medical expenses taxable? | yes taxable however employee can claim medical expense tax credit |
| are moving expenses taxable? | not taxable if part of employment relations. $650 exception for "non accountable moving allowances" |
| what is a non accountable moving allowance? | an amount paid to an employee for moving where the employee doesn't have to provide a detailed account |
| is parking taxable? | parking is taxable if at or below FMV |
| are pooled RPP's taxable? | not taxable as long as RPP is registered with CRA |
| are premiums for private health insurance plans taxable? | premiums for private health insurance plans are not taxable |
| are premiums for provincial/territorial health care taxable? | yes premiums for provincial or territorial health care are taxable |
| are professional membership dues taxable? | yes they are taxable depending on if the primary beneficiary is the employee or employer |
| are recreational facilities/club dues taxable? | yes they are unless it's an in-house facility or contract with facility available to all employees |
| what is an administrative concession? | a practice or relief measure the CRA applies even though not explicitly required by tax law |
| what is symmetry in income tax law? | income for one taxpayer results in an expense for another |
| is symmetry a rule in Canadian income tax law? | no, symmetry is not a rule |
| are RRSP's and TFSA's allowable as a business expense? | no, RRSP's and TFSA's are taxable to employers |
| are social events allowable as a business expense? | generally allowable under administrative concessions if available to all employees and costs are less than $150 per person |
| are travel expenses for spouses and common law partners allowable as a business expense? | not allowable unless spouse was requested by the employer and engaged in business activities during the trip |
| are stock options allowable as a business expense? | no, stock options are not allowable as a business expense |
| are event tickets allowable as a business expense? | no, not allowable unless for business reason |
| are tool reimbursements allowable as a business expense? | no, tool reimbursements are not allowable |
| are transit passes for employees of transit companies allowable as a business expense? | yes is only for employee/retiree (not for family) |
| are uniforms/special clothing allowable as a business expense? | yes if clothing is worn during employment duties or clothing protects from hazards on the job |
| are most benefit-related amounts deductable for the employer? | yes, most amounts that classify as a benefit are deductable to the employer |
| when do benefits become deductable to the employer, and taxable to the employee? | benefits are deductable to the employer when accrued and taxable to the employee when received or enjoyed |
| what is the definition of a "motor vehicle" under ITA? | an automotive vehicle designed or adapted to be used on highways and streets (broadest of ITA vehicle terms) |
| what is the definition of "automotive" under ITA? | self-propelled (trailers don't count) |
| what is the definition of "passenger vehicle" in ITA? | an automobile generally acquired after June 17th, 1987 |
| what is the cost threshold for a luxury vehicle? | non-zero emission - $38,000 zero emission - $61,000 (before tax) |
| what is the definition of "automobile" in ITA? | a motor vehicle with seating capacity of no more than 9 people including driver |
| what are the 5 exceptions to the definition of "automobile"? | 1. ambulances 2. fire trucks 3. marked police cars 4. vehicles used to transport customers in a transportation business 5. a van, pick-up truck, or similar vehicle used >90% of the time to transport goods, equipment, passengers in business operations |
| what is the reasonable allowance rate used for? | for calculating taxable benefit for personal use of an employers vehicle |
| what are the 2025 reasonable allowance rates? | first 5,000km: $0.72 additional kms: $0.66 (all for personal use kilometers) |
| is travel to and from a regular place of work considered personal or employment use? | personal use, unless there are stops at clients/customers/suppliers in which case it is employment use |
| what are the 2 main benefits for employees who use an employers automobile? | 1. standby charge 2. operating cost benefit |
| how do you calculate the standby charge for a vehicle that is owned by the employer? | 0.02*(cost of automobile including GST/HST)*(periods of availability) |
| how do you calculate periods of availability for an owned vehicle? | (# days available in the year)/30. rounded to nearest whole number (basically number of months available) |
| how do you calculate standby charge for a vehicle that is leased by the employer? | 2/3*(annual lease payments including tax, excluding insurance)*(availability factor) |
| how do you calculate availability factor for a leased vehicle? | (# days available/30) [rounded to whole number] / (# days of lease term/30) [rounded to whole number] |
| how do you round 0.5 in availability of automobiles? | 0.5 is rounded down for automobile availability |
| what is the maximum amount for "not significant personal use"? | using the automobile for personal purposes less than half the time and driving no more than 1,667km per month on average (over a calendar year) for personal purposes |
| what does the ITA allow when when personal use is not significant? | the ITA allows a reduced benefit when personal use is not significant |
| how is the reduction for not significant personal use calculated? | (regular standby charge)*[personal use km/(1,667km * # months available)] numerator can't exceed denominator. same 30 day rounding rule applies |
| what are the conditions to reduce the standby charge for not significant personal use? | 1. employee required by employer to use their automobile for employment purposes 2. the use of automobile is "primarily" employment related (50%< of the time) |
| what are the conditions for an operating cost taxable benefit to be applied? | 1. a standby charge has applied as a result of using an employers automobile 2. employer has paid for op. ex. , some relating to personal use 3. employee hasn't fully reimbursed employer for personal use op. ex. (within 45 days of year-end) |
| how is operating cost benefit calculated when automobile is used primarily for personal use? | (prescribed amount x personal km driven) - partial repayment to employer |
| how is operating cost benefit calculated when automobile is used primarily for employment use? | 0.5 * standby charge for the year |
| how is the total taxable benefit calculated for personal use of an employers automobile? | standby charge + operating cost benefit |
| do reasonable allowances made by an employer in advance have to be included in employment income? | no, reasonable allowances do not have to be included in employment income |
| what 2 qualities make a reasonable allowance unreasonable? | 1. allowance is not based solely on km driven for employment duties 2. employee is reimbursed for expenses in addition to allowance |
| what are the thresholds for a reasonable allowance? | provinces: $0.72/km for first 5,000km, $0.66 after territories: $0.76/km for first 5,000km, $0.70 after |
| is life insurance a taxable benefit? | yes, life insurance is a taxable benefit |
| are employee contributions to group disability/sickness/accident insurance deductable? | yes, employee contributions are deductable to the extent that the employee receives benefits |
| are employer contributions to group disability/sickness/accident insurance a taxable benefit? | yes it is taxable unless two conditions are met. these include: 1. paid on periodic basis (not lump sum) 2. paid to compensate individuals for loss of employment income |
| are disability amounts received by employees taxable when the employer makes no contributions? | no, disability amounts received are not taxable when the employer makes no contributions |
| are disability amounts received by employees taxable when employer makes some of the contribution? | yes, amounts received are taxable and offset by employee contributions made to receive this amount |
| what is the tax consequence of an employee pay-all plan for group disability/sickness/accident insurance? | contributions not deductable, amounts received not taxable |
| what is the tax consequence when an employer contributes to the group disability/sickness/ accident insurance plan, and benefits are not taxed? | employer contributions are a taxable benefit |
| what is the tax consequence when an employer contributes to the group disability/sickness/accident insurance plan and the benefits are taxed? | employer contributions are not a taxable benefit, employee contributions are deductable to the extent of amounts received |
| are loans to employees a taxable benefit? | yes, loans to employees are taxable if they are interest-free or below market interest rate |
| how is the value of an employment benefit calculated? | prescribes interest rate - interest paid by employee (during year or within 30 days of year-end) |
| what special ITA rules apply when an employer loan is used to buy a home? | the initial interest rate is locked in for the first 5 years |
| how do you calculate the per share taxable benefit of stock options? | FMV of shares purchased on exercise date - price paid per share |
| when should stock option benefits be included in employment income? | generally when shares are sold (but depends based on type of corporation) |
| what is the exception for CCPC's with taxation of stock option benefits? | employment benefit for stock options are measured at exercise date but not included until shares are sold |
| what is the maximum claimable stock option deductions for non CCPC's with gross revenues over $500M? | $200,000 per each employer an employee works for |
| what are the income tax consequences for a forgiven employee loan? | forgiven amount should be included in employment income for current year (no interest benefit in forgiveness year) |
| what are the income tax consequences of salary advances? | required to be included in employment income even if unearned (entitled to employment expense if repayment is necessary) |
| what is a "housing loss" under ITA? | a "housing loss" related to an "ellibible relocation" |
| what is an "elligible relocation under ITA"? | a relocation where the employee is entitles to claim moving expenses (generally only allowed when move is 40km or more) |
| what deduction of income for a housing loss is allowable? | the first $15,000 plus half of amounts greater than $15,000 |
| are employees allowed to deduct legal expenses? | yes, legal expenses are deductable if they are necessary to collect rights to salary/wages |
| are sales expenses deductable for employees? | yes, travel, motor vehicle, and other expenses related to receipt of commissions are deductable? |
| are travel expenses (other than motor vehicle expenses) deductable for employees? | yes, they are for employees receiving commissions |
| are motor vehicle travel expenses deductable for employees? | yes, they are to employees who receive commissions |
| are employee RPP contributions allowable as an employment expense? | yes, they are allowable (not a taxable benefit when employer contributes) |
| are musical instruments allowable as an employment expense? | yes, individuals employed as a musician can deduct depreciation or rental fees for musical instruments as well as maintenance and insurance |
| when are travel expenses for tradespersons allowable? | unlimited travel/relocations expenses can be claimed when required to travel 120km or more from home to job sites (only when no allowance or reimbursement is received from employer) |
| how much can tradespeople claim for tool expenses per year? | $1,000 (if employment income exceeds Canada employment credit amount of $1,471 in 2025) |
| what is the labor mobility deduction? | employment expenses of $4,000/year for tradespersons requiring temporary relocation and temporary employers don't assist financially (conditions attached) |
| when can meals be deducted as a travel expense? | when required to be away from employers established area for at least 12 consecutive hours (only 50% of amount paid is deductable) |
| how can you get your employer to confirm conditions allowing employment expenses have been met? | through a T2200 form (required) |
| what is the GST/HST rebate? | it allows employees to recover GST/HST components of amounts paid for deductable employment expenses |
| what are the 5 principle employment expense provisions? | 1. 8(1)(f) - salespersons exp. 2. 8(1)(h) - travel expenses (except MV expenses) 3. 8(1)(h.1) - MV travel expenses 4. 8(1)(i) - limited expenses (office supplies, office rent, assistant salary) 5. 8(1)(j) - CCA & interest of financing a personal MV |
| what's the difference between 8(1)(f), and 8(1)(h-j) | (f) allows a broad range of expenses with a limitation to total claims, (h-j) are distinct types of employment expenses with no claim limitations |
| what do most employment expense provisions require? | that the employee is responsible for paying expenses under an employment contract (verbal agreements can be accepted if they are clear) |
| what are the 4 conditions for claiming salespersons expenses? | 1. required to pay their own expenses under an employment contract 2. required to carry duties away from employers place of business 3. not in receipt of a tax-free travel allowance from employer 4. must receive some amount of commission |
| what are some examples of expenses allowable under 8(1)(f)? | advertising, cell phone, meals with clients, accomodation, motor vehicle expenses, parking, assistant salaries, transportation expenses, licenses |
| what is the limit for claims on employment expenses under 8(1)(f)? | equal to amount of commission received for the period |
| what are the conditions for claiming travel/motor vehicle expenses under 8(1)(h-j) | 1. employee required to pay their own expenses under employment contract 2. employee is required to carry on duties away from employers normal place of business 3. employee isn't in receipt of a tax free allowance 4. no expenses claimed under 8(1)(f) |
| what is the salespersons dilemma? | broader range of expenses can be claimed under 8(1)(f), but under 8(1)(h-j) there's no limit to claims |
| what 2 employment expenses don't require a contract? | 1. annual professional membership dues (if required to maintain professional status) 2. union dues (paid pursuant to provisions of a collective agreement) |
| what is the allowable CCA for automobiles and aircraft? | automobiles: 30% declining balance aircraft: 25% declining balance |
| what is CCA? | tax-deductable depreciation of long-term assets |
| what are the limitations for CCA when a motor vehicle is a passenger vehicle? | 1. leasing expenses limit of $1,100/month (before tax) 2. purchase interest expense limit of $350/month 3. max CCA is $38k for emission passenger vehicles and $61k for zero-emisson passenger vehicles (all are further restricted to % of employment use) |
| what are the conditions for home workspace deductions? | 1. employee must perform duties >50% from home; or 2. used exclusively in periods for which amount relates to employment purposes or used on a regular/continuous basis for meeting with customers or other people during employment |
| what is the limit for home office expenses | employment income net of all other employment expenses (home office expenses can't create a loss) |
| is it allowed to deduct an employment loss against another source of employment income? | no, it is not allowed to deduct an employment loss against another source of employment income |
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