Employment Income - PowerPoint Presentation

403 views
Uploaded On 2017-04-08

Employment Income - PPT Presentation

Chapter 3 Copyright 2017 Pearson Education Ltd 1 Employment Income General Concept Results From Employment Without Regard To Source Includes Directors Fees Copyright 2017 Pearson Education Ltd ID: 535031

Link:

Copy

Embed:

<iframe width="560" height="315" src="https://www.docslides.com/embed/535031" frameborder="0" allowfullscreen></iframe>

Download Presentation from below link

Download Presentation The PPT/PDF document "Employment Income" is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.

Presentation Transcript

Slide1

Employment Income

Chapter 3

Slide2

Employment Income

General Concept

Results From EmploymentWithout Regard To Source

Includes

Director’s Fees

2Slide3

Employment Income

Employment Income In The Act

Section 5 – DefinitionsSection 6 – Inclusions

Section 7 - Stock

Options

Section 8 - Deductions

3Slide4

Cash Vs. Accrual

ITA 5(1) - Income from office or employment — Subject to this Part, a taxpayer’s income for a taxation year from an office or employment is the salary, wages, and other remuneration, including gratuities,

received by the taxpayer in the year.

4Slide5

Bonus Arrangements

Example On

July 25, 2016, Martin Ltd. declares a bonus of $100,000 in favour of one of its employees, Roger Jones.

The

Company’s year end is July 31.

5Slide6

Example - Case A

The Bonus Is Paid After December 31,

2016But Before January 28, 2017

Employer

Deducts

In Year Ending July 31,

2016Employee Includes

In Income When

Received

6Slide7

Example - Case B

The Bonus Is Paid After January 27, 2017

But Before July 31, 2017

Employer

Deducts

When

PaidEmployee Includes When Received

7Slide8

Example - Case C

Salary Deferral Arrangements – If not paid within 3 years of the end of the calendar year in which the employee rendered the services.

EmployerDeducts When Accrued

Employee

Includes When Accrued

8Slide9

Employee vs. Self-Employed

Employee Perspective

Availability Of DeductionsWithholding vs. Instalments

CPP and

Fringe

BenefitsOpportunity For Tax Evasion

9Slide10

Employee vs. Self-Employed

Employer Perspective

No CPP, Payroll Taxes, Or EINo Benefits Paid

Pay GST/

HST

Less Of A Commitment Than To An Employee

10Slide11

Employee vs. Self-Employed

Determination

Basic Factor Is IntentOther ConsiderationsControl

Ownership Of Tools

Ability To Subcontract /Hire Assistants

Financial Risk

Responsibility For Investment And ManagementOpportunity For Profit

11Slide12

Inclusions

Salaries And Wages

The basic form of compensation

Fringe Benefits

Non-salary compensation

12Slide13

Non-Salary Compensation

ITA 6(1)(a) requires any benefit received by employee to be included in income.

13Slide14

Non-Salary Compensation

ITA 6(1)(a) Exceptions (Excluded From Income)

RPP Contributions By EmployerPremiums On Group Disability Insurance

(

If benefits are taxable

)

Private Health CareDeferred Profit Sharing Plans

Supplementary Unemployment Benefits

Counselling – Re: Mental Or Physical Health

Counselling – Re: Re-Employment Or Retirement

14Slide15

Other Fringe Benefits: IT-407R

Room and board

Travel BenefitsUse Of Employer Provided AutomobilePrizes Or Awards (Some)Provincial Health Care (Some)

Reimbursement of Cost of Tools

Wage Loss Plans

Low Rate Or Interest Free Loans

Counselling Fees (Some)

Tuition (See Later Slide)

Gifts From Employer (See Later Slide)

TaxableSlide16

Other Fringe Benefits: IT-470R

Loyalty programs (frequent flyer points resulting from employment

travel)Not a benefit if:Not converted to cash

Not an alternative form of compensation

Not a tax avoidance scheme

16Slide17

Other Fringe Benefits: IT-470R

Employer paid tuition

Specific employer related training (not taxable)General employment related training (not taxable

)

Personal interest training (taxable)

17Slide18

Other Fringe Benefits: IT-470R

Tax free gifts and awardsMust be non-cash

Any numberCannot be performance relatedIf total > $500, excess is taxable

Long-service award

Must be non-cash

Once every 5 years

If total > $500, excess is taxable

18Slide19

Other Fringe Benefits: IT-470R

Merchandise Discounts

Subsidized MealsUniformsSchool Services In Remote AreasJob Transportation In Employer Vehicles

Use Of Recreational

Facilities

Moving Expense Reimbursement

Private Health Care

Transportation Passes For Airline, Bus, Or Rail Companies

Non-TaxableSlide20

Tax Planning Considerations

Salary Is BenchmarkDeduct When Accrued

Taxed When PaidTax Reasons For Using AlternativesAvoidance Of

Tax (e.g., employer provided dental plan)

Deferral Of

Tax (e.g., RPP contributions)

20Slide21

GST/HST/PST On Taxable Benefits

ITA 6(7) Benefits Determined With GST/HST/PST Included

21Slide22

Board And Lodging

Excluded From Employment Income If:

At a temporary special work site where commuting would not be practicalAt remote work site where establishing a domestic establishment would not be reasonable

22Slide23

Employer Supplied Automobiles

Current Rules – IT-63R5

Fixed Costs - Standby ChargeVariable Costs - Operating Cost Benefit

Amounts Reduced By Employee Payments

23Slide24

Standby Charge - ITA 6(2)

Less Than 50% Employment Usage

Employer Owns Car[(2%)(Cost Of Car)(Months Of Availability)]

Employer Leases Car

[(2/3) (Lease Payments For The Year Excluding Insurance) (Availability Factor)

]

GST/HST/PST Included

24Slide25

Standby Charge

Primarily (50% Or More) Employment UsageMultiply Regular Charge By

Numerator

Cannot Exceed 1,667 Km. Per

Month

– This Means The Fraction Cannot Exceed 1

25Slide26

Operating Costs - ITA 6(1)(k)

Less Than 50% Employment Usage$

0.26 Per Kilometre Of Non-Employment Usage For 2016

Primarily Employment Usage

Can Substitute One-Half Of Standby Charge

(If employment usage more than 50 percent)

26Slide27

Tax Planning For

Employer Provided Automobiles Must Be Required To Return

The Keys And VehicleKeep Records

Leasing Vs.

Buying

Minimize Standby

ChargeAvoid Luxury CarsPay Employees To Use Own Cars

27Slide28

Allowances

An amount paid to an employee to cover some type of cost

Reimbursements (Reasonable Amounts)Not in employee’s incomeEmployee cannot deduct any of the actual costs

28Slide29

Allowances

Taxable

AllowancesIncluded in employee’s incomeEmployee can deduct actual

costs

Non-Taxable Allowances

Must be reasonable

Not in employee’s income

Employee cannot deduct actual costs

29Slide30

Allowances

Automobiles

To be considered reasonable, the allowance must be based on kilometersUpper Limit (For 2016)$0.54 for the first 5,000 kilometers

$0.48 for each additional kilometer

30Slide31

Insurance Benefits

Life Insurance A benefit

Health CarePrivate – Not a benefitProvincial

Individual Premiums

–

a benefitPayroll Tax – not a benefit

31Slide32

Disability Insurance

Premiums Paid By EmployerITA 6(1)(a): Not A Taxable Benefit

(Benefits received are taxable)Premiums Paid By EmployeeNot Deductible When Paid

32Slide33

Disability Insurance

Benefits Received

Employer Makes Contributions – TaxableCan be offset by deducting cumulative employee contributions

Employer Does Not Make Contributions – Not Taxable

33Slide34

Loans To Employees

General Rules

ITA 80.4(1) - Imputed interest at prescribed rateITA 80.5 - Allows deemed interest to be deducted if purpose of loan is to produce business or property income

34Slide35

Loans To Employees

Home Purchase Loan

Benefit cannot exceed annual amount using original prescribed rateIf prescribed rate goes down – can use lower

rate

Rule applies for first 5 years of loan

35Slide36

Loans To Employees

Home Relocation Loan

Moving closer to work locationDeduction available in calculating Taxable

Income

(see Chapter 4 for details)

36Slide37

Tax Planning – Employee Loans

Cash Flow Analysis

Cash flows associated with granting loanCash flows associated with providing salary to cover loan from

third party

See Paragraph 3-162 example

37Slide38

Stock Options

Defined: An option to buy shares at a specified price for a specified period of time

.Provides incentive for employee performance

Tax considerations

Not a benefit for the employee

Does not provided a deduction for the employer

38Slide39

Stock Options

An employee receives options to purchase 100 shares at $10. At

this time, the FMV of the shares is $10. The options are exercised when the FMV is $15 and the shares are sold at $25.

39Slide40

Employer Is A Public Company

Granting

No Effect

Exercise [(100)($15 - $10)]

Employment Income $ 500

Sale [(100)(1/2)($25 - $15)]

Taxable Capital Gain

500

Net Income

1,000

40Slide41

Employer Is A CCPC

Issue - No Effect

Exercise - No Effect

Sale

Employment Income

[(100)($15 - $10)] $ 500

Taxable Capital Gain

[(1/2)(100)($25 - $15)]

500

Net Income

$1,000

41Slide42

ITA 110(1)(d) and (d.1) deduction

One-half of employment income inclusion

A deduction from Net Income to get Taxable Income

Available if:

At issue:

option price ≥ market price; o

rIf CCPC – Available if shares held for two years without regard to option price.

42Slide43

Other Inclusions

Payments by employer to employee

Forgiveness of employee loansHousing loss reimbursement (if a moving expense – see Chapter 9)

Discounts on employer merchandise are tax free

Club dues and recreational facilities – generally tax free

43Slide44

Deductions - ITA 8(1)(f)

ConditionsRequired To Pay

ExpensesRequired To Work Away From Office

Paid At Least In Part By

Commissions

If An Allowance Received, Included In

IncomeHave Signed Form T2200

44Slide45

Types Of Expenses - ITA 8(1)(f)

Accounting And Legal FeesAdvertising

Entertainment, Meals, And LodgingParkingSuppliesLicences

Bonding

, Insurance, And Medical Fees

Equipment (if leased)

Salaries, Rents (including home office)

Transportation And Motor Vehicle

Costs

45Slide46

Limitations – ITA 8(1)(f)

Can’t exceed commission i

ncomeCan’t use ITA 8(1)(h) or 8(1)(h.1) for excess over commission income

The basic trade-off

46Slide47

ITA 8(1)(h) – Travel

ITA 8(1)(h.1) – Motor VehicleConditions

Required To Pay ExpensesRequired To Work Away From

Office

If An Allowance, Included In

Income

Signed Form T2200No ITA 8(1)(f)

47Slide48

ITA 8(1)(i

) – Other Expenses Examples

Union or professional duesOffice rentSalary to an assistantCost of supplies

48Slide49

CCA And Interest Costs

Can only be deducted onAutomobiles

AircraftMusical instruments (CCA only)Not available on other assets (e.g., computers or cell phones)

49Slide50

Tool Costs

Tradespeople’s tool expenses

Employer must requireOnly costs in excess of $1,161

Limited to $

500 deduction

50Slide51

Work Space In Home

Space is principal place of business, or

Space is used exclusively to produce income and it is used on a regular and continuous basis for meeting clients or customers

51Slide52

Work Space In Home

Commission SalespersonOperating and maintenance

Property taxesInsurance

Other Employees

Operating

and maintenance

No CCA – No mortgage interest

52Slide53

The end

Slide54

Employment Income - PowerPoint Presentation

Employment Income - PPT Presentation

Share:

Link:

Embed:

Related Contents