Taxable Benefits and Non-Taxable Employee Perks in Canadian Tax Law | Quizlet

4 Principles of Taxable Benefits

1) Anything cash/near-cash is taxable 2) CRA wants to administer the system realistically 3) Promote social goals of healthcare and retirement saving 4) Consider who the primary beneficiary is - employee or employer?

Employer contributions to provincial health plan, group term life, non-group insurance

Always taxable benefit

Tax preparation services (employer-paid)

Always taxable benefit

Low/interest-free employee loans

Taxable; benefit = (prescribed rate - rate paid) x loan x (days in quarter/days in year), calculated each quarter

Forgiveness of employee loans

Always taxable benefit

Reimbursement of loss on sale of home due to relocation

Taxable; benefit = 50% x (Reimbursement - $15,000)

Stock Option Benefit

Taxable; benefit = (FMV at exercise - Exercise price) x # shares exercised. Recognized on exercise date for Pubco, on sale date for CCPC

Standby charge - Owned vehicle

Taxable (only include A/B if employment use <= 50% of total km); benefit = A/B x [2% x (cost of vehicle x # months)]

Standby charge - Leased vehicle

Taxable (only include A/B if employment use <= 50% of total km); benefit = A/B x [2/3 x (lease payments - portion related to insurance)]

Standby charge - definitions of A and B

A = lesser of (a) personal use km, or (b) 1,667km x # months; B = 1,667km x # months

Operating Benefit

Taxable; benefit = 0.34 x personal km driven. If employment km > 50% of total, benefit = 50% x standby charge instead

Board and lodging (general)

Always taxable benefit (unless provided at a special work site)

Director's fees

Always taxable benefit

Amounts received from a disability claim

Taxable if paid to employee from an employer-paid sickness, accident, or disability plan

Fitness membership at a third-party gym

Always taxable benefit

Cash and near-cash gifts (e.g., gift cards)

Always taxable benefit

Non-cash gifts

Taxable only on the excess over $500

Non-cash long-term service awards

Taxable only on the excess over $500

Allowances

Taxable by default unless a specific exception applies

Personal trips (employer-paid)

Always taxable benefit

Standard board and lodging

Always taxable benefit

Access to employer's yacht

Always taxable benefit

Employer contributions to Group RRSP

Always taxable benefit

Rent-free or low-rent housing

Always taxable benefit

Flat rate vehicle allowance

Always taxable benefit

Employer contributions to RPP, PRPP, DPSP

Always non-taxable benefit

Employer contributions to group sickness or accident health insurance plan

Always non-taxable benefit

Employer contributions to private health service plan premiums

Always non-taxable benefit

Employer contributions to supplementary unemployment benefit plan

Always non-taxable benefit

Nominal amounts (t-shirts, coffee, etc.)

Always non-taxable benefit

Non-cash gifts

Non-taxable up to $500 (only excess over $500 is taxable)

Non-cash service award

Non-taxable up to $500 for 5 years of service; the $500 threshold resets every 5 years

Uniforms and safety/protective clothing

Always non-taxable benefit

Per km reimbursement for work km driven

Non-taxable if using CRA prescribed rates

Relocation expenses reimbursed

Non-taxable if reimbursed for a work-related move

Mental/physical health counselling services

Always non-taxable benefit

Financial counselling services for reemployment/retirement

Always non-taxable benefit

Computers/cell phones provided by employer

Non-taxable IF they must be returned at end of employment

Overtime meals provided

Non-taxable IF meal is reasonable (up to $23), employee works 2+ hours overtime, and overtime is infrequent

Education assistance received

Non-taxable IF it relates to work duties

Reimbursements (general)

Non-taxable IF (a) substantiated by receipt AND (b) a legitimate business expense

Professional or union dues paid

Non-taxable IF they relate to your job duties

Training and education costs

Non-taxable IF they relate to your work duties

Employee discounts

Non-taxable IF available to all employees AND employee doesn't pay less than employer's cost

Childcare expenses

Non-taxable IF offered in-house by employer and isn't subsidized

Access to a fitness location

Non-taxable IF owned by employer and available to all employees

Employer programs for free/reduced tuition for family members

Non-taxable to employee IF not a substitute for salary and employee is unrelated to employer role (family member is taxed on their own return)

Club memberships (e.g., golf)

Non-taxable IF employer is the primary beneficiary (i.e., only business use is allowed)

Spousal costs from business trips

Non-taxable IF spouse was required to attend by employer and trip was for business purpose only

Subsidized meals

Non-taxable IF employee pays a reasonable amount

5 Principles of Business Expense Deductibility

1) Income Earning Test - expense incurred for purpose of earning business income 2) Capital Test - cannot deduct capital asset purchases or book depreciation, claim CCA instead 3) Reserve Test - no deduction for reserves unless listed 4) Personal Expense Test - no deduction for personal expenses 5) Reasonableness Test - must be reasonable in the circumstances

Book depreciation/amortization

Always NOT deductible (add back)

Accounting losses

Always NOT deductible (add back); deduct accounting gains instead

Unreasonable salaries

Always NOT deductible (add back)

Stock option compensation

Always NOT deductible (add back)

Charitable and political donations

Always NOT deductible (add back)

Capital expenditures

Always NOT deductible (add back)

Meals & Entertainment (M&E)

50% is NOT deductible (add back) as a general rule

Contingent liabilities

Always NOT deductible (add back)

Use of recreational facilities (yacht, camp, lodge, golf course)

Always NOT deductible (add back)

Fines and penalties

Always NOT deductible (add back)

Income tax provision

Always NOT deductible (add back)

Safety deposit box fees

Always NOT deductible (add back)

Expenses incurred for illegal activity

Always NOT deductible (add back)

CRA interest paid

Always NOT deductible (add back)

Prior year reasonable reserve

Always NOT deductible (add back) - reverse it out in the current year

Warranty expenses accrued

Always NOT deductible (add back); only deductible when paid

Interest expense accrued

Always NOT deductible (add back); only deductible when paid

Recapture

Always NOT deductible (add back)

Pension expense (accounting)

Always NOT deductible (add back); pension contributions actually paid are deductible instead

Carrying charges on vacant land

NOT deductible to the extent they exceed net income from the vacant land

Capital cost allowance (CCA)

Always deductible/omitted - accounting = tax (reduces income directly, no add back needed)

Terminal losses

Always deductible/omitted - accounting = tax

Reasonable allowances/reimbursements

Always deductible/omitted - accounting = tax

Disability-related modifications and equipment

Always deductible/omitted - accounting = tax

Landscaping

Always deductible/omitted - accounting = tax

Employee incentives (non-cash gifts, discounts)

Always deductible/omitted - accounting = tax

Financial counselling/tax prep fees (paid by employer)

Always deductible/omitted - accounting = tax

Professional and union dues (paid by employer)

Always deductible/omitted - accounting = tax

Salaries and CPP/EI contributions made by employer

Always deductible/omitted - accounting = tax

Prepaid expenses

Deductible/omitted IF incurred in the year

Expenses of issuing shares/borrowing money

Deductible/omitted - amortized over 5 years

Business clubs (chamber of commerce, board of trade, rotary)

Always deductible/omitted - accounting = tax

Actual bad debts

Always deductible/omitted - accounting = tax

Reasonable reserves - Doubtful debts

Deductible/omitted; analyze on a debt-by-debt basis

Reasonable reserves - Goods not delivered/services not rendered

Always deductible/omitted - accounting = tax

Reasonable reserves - Amounts not due under an instalment contract

Always deductible/omitted - accounting = tax

100% M&E - 6 events to benefit all employees

Fully deductible/omitted (exception to the 50% M&E limit)

100% M&E - charity event

Fully deductible/omitted (exception to the 50% M&E limit)

100% M&E - meals that are COGS

Fully deductible/omitted (e.g., meals sold by a restaurant - exception to the 50% M&E limit)

Representation fees made to a government body

Always deductible/omitted - accounting = tax

Investigation of site fees

Always deductible/omitted - accounting = tax

Cancellation of lease fees

Always deductible/omitted - accounting = tax

Convention expenses

Deductible/omitted - limited to 2 conventions per year

Utility hook-up costs

Always deductible/omitted - accounting = tax

Operating costs (COGS, legal fees, advertising, rent)

Always deductible/omitted - accounting = tax

First $3,000 of incorporation expenses

Always deductible/omitted - accounting = tax

Interest paid on funds borrowed to earn business income

Always deductible/omitted - accounting = tax

Business travel (accommodations and travel)

Always deductible/omitted - accounting = tax

Office supplies

Always deductible/omitted - accounting = tax