FMGT 3410 CHAPTER 3

Basic Rules s5 Inclusions s6 inclusions indentified s7 Stock Option Benefits STOB Deductions s8 deductions identified

Net amount equals Employment Income or Loss

Division B Sub-division a Income or loss from an office or employment Basic Rules Income from office or employment s5(1) Subject to this Part, a taxpayer's income for a taxation year from an office or employment is the salary, [I] [ s249(1) calendar year ] wages and other remuneration, including gratuities, received by the taxpayer in the year. [ "tips" are considered income ] [ cash basis ]

Employee vs. Self-Employed (Independent Contractor) refer to paragraphs 3,010 to 3,035 of textbook The definitions of "office" and "employment" in 248(1) provide a basis for distinguishing between sub a and sub b income: s248(1) " employment" means the position of an individual in the service of some other person (including Her Majesty or a foreign state or sovereign) and "servant" or "employee" means a person holding such a position; Self employment involves a contract for services instead of a contract of service. The reason this distinction is important is it affects: (a) withholding taxes, (b) fewer deductions per s8(2) vs. s18(2). Tests for distinguising employment from self-employment: 1. Economic reality test: control, ownership of tools, chance of profit or loss 2. Integration test: "whose business is it", economic dependency 3. Specified result test: services over time, or specific results? 4. The total relationship test: nonexhaustive list

Cash vs. Accural Basis Dec. 31/10 180 Tax planning Bonus accrual $10,000 Corporation expenses B(b) 181 Employee receives as income B(a) exception: s78(4) must be paid within 180 days of corporate year end

refer to 13,065.10 in text for discussion

s78(4) Unpaid remuneration and other amounts Where an amount in respect of a taxpayer's expense that is ... salary, wages
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s78(4) Unpaid remuneration and other amounts Where an amount in respect of a taxpayer's expense that is ... salary, wages or other remuneration (other than reasonable vacation or holiday pay ...) in respect of an office or employment is unpaid on the day that is 180 days after the end of the taxation year in which the expense was incurred, for the purposes of this Act other than this subsection, the amount shall be deemed not to have been incurred as an expense in the year and shall be deemed to be incurred as an expense in the taxation year in which the amount is paid. Inclusions s6 Amounts to be included as income from office or employment (1) There shall be included in computing the income of a taxpayer for a taxation year as income from an office or employment such of the following amounts as are applicable: (a) value of board, lodging and other benefits of any kind whatever, received or enjoyed by the taxpayer in the year in respect of, in the course of, or by virtue of an office or employment, except.... [some important exceptions listed here] (b) all amounts received by the taxpayer in the year as an allowance...except, [some important exceptions, see especially 6(1)(b)(v),(vii), and (vii.1) and (x)]... (c) director's or other fees...

s6(1)(e) Standby charge for automobile where the taxpayer's employer or a person related to the employer made an automobile available to the taxpayer, or to a person related to the taxpayer, in the year, the amount, if any, [ employee has the keys ] by which (i) an amount that is a reasonable standby charge for the automobile for the total number of days in the year during which it was made so available [ a reasonable standby charge is calculated using the formula in s6(2) ] exceeds (ii) the total of all amounts, each of which is an amount (other than an expense related to the operation of the automobile) paid in the year to the employer or the person related to the employer [ operating expenses are excluded when calculating the standby charge - s6(1)(k) deals with operating costs ] by the taxpayer or the person related to the taxpayer for the use of the automobile;

s6(2) Reasonable standby charge; s6(1)(k) Automobile operating expense benefit

Example:

Original cost to employer including GST and PST Personal use during the year 16,000 km. Available for use 12 months Paid to employer within 45 days of year end

$36,000 Total use for the year Period owned $500

20,000 km. 12 months

s6(2) Reasonable standby charge For the purposes of paragraph (1)(e), a reasonable standby charge for an automobile for the total
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For the purposes of paragraph (1)(e), a reasonable standby charge for an automobile for the total number of days (in this subsection referred to as the total available days) in a taxation year during which the automobile is made available to a taxpayer or to a person related to the taxpayer by the employer of the taxpayer or by a person related to the employer (both of whom are in this subsection referred to as the employer) shall be deemed to be the amount determined by the formula A - x [ 2% x (C B 2 - x (E 3

D)

F) ]

A - x B

[ 2% x (C x D)
1. 2.

2 - x (E - F) ] 3
n/a = $0 use only if leased

use only if owned n/a = $0

where A is (a) the lesser of the total kilometres that the automobile is driven (otherwise than in connection with or in the course of the taxpayer's office or employment) during the total available days and the value determined for the description of B for the year in respect of the standby charge for the automobile during the total available days, if (i) the taxpayer is required by the employer to use the automobile in connection with or in the course of the office employment, and [ first test ] or

(ii) the distance travelled by the automobile in the total available days is primarily in connection with or in the course of the office or employment, and [ second test; primarily is deemed to be 50% ] B is the product obtained when 1,667 is multiplied by the quotient obtained by dividing the total available days by 30 and, .... [ rounded to nearest whole number ]

C is the cost of the automobile to the employer where the employer owns the vehicle at any time in the year; [ original cost, not tax or amortized accounting cost ] D is the number obtained by dividing such of the total available days as are days when the employer owns the automobile by 30
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D is the number obtained by dividing such of the total available days as are days when the employer owns the automobile by 30 and, .... E is the total of all amounts that may reasonably be regarded as having been payable by the employer to a lessor for the purpose of leasing the automobile during such of the total available days as are days when the automobile is leased to the employer; and F is the part of the amount determined for E that may reasonably be regarded as having been payable to the lessor in respect of all or part of the cost to the lessor of insuring against (a) loss of, or damage to, the automobile, or (b) liability resulting from the use or operation of the automobile. [ operating expenses ]

s6(1)(k) Automobile operating expense benefit where (i) an amount is determined under subparagraph (e)(i) in respect of an automobile in computing the taxpayer's income for the year, [ only applies to employer owned vehicle; if employee owned vehicle then s6(1)(l) applies ] (ii) amounts related to the operation (otherwise than in connection with or in the course of the taxpayer's office or employment) of the automobile for the period or periods in the year during which the automobile was made available to the taxpayer or a person related to the taxpayer are paid or payable by the taxpayer's employer or a person related to the taxpayer's employer (each of whom is in this paragraph referred to as the payor), and [ even if employer only contributes just a portion of operating expenses, s6(1)(k) applies ] (iii) the total of the amounts so paid or payable is not paid in the year or within 45 days after the end of the year to the payor by the taxpayer or by the person related to the taxpayer, the amount in respect of the operation of the automobile determined by the formula

A - B
where A is (iv) where the automobile is used primarily in the performance of the duties of the taxpayer's office or employment during the period or periods referred to in subparagraph (ii) and the [ primarily is deemed to be 50% ] taxpayer notifies the employer in writing before the end of the year of the taxpayer's intention to have this subparagraph apply, 1/2 of the amount determined under subparagraph (e)(i) in respect of the automobile in computing the taxpayer's income for the year, and....

(v) in any other case, the amount equal to the product obtained when the amount prescribed for the year is multiplied by the total number of kilometres that the automobile is driven (otherwise than in connection with or in the course of the taxpayer's office or employment) during the period or periods referred to in subparagraph (ii), and B is the total of all amounts in respect of the operation of the automobile in the year paid in the year or within 45 days after the end of the year to the payor by the taxpayer or by the person related to the taxpayer; and

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ALLOWANCES vs. REIMBURSEMENTS Allowances vs. reimbursements: Reimbursements of expenses are not taxed; allowances for personal or living expenses are taxed under s6(1)(b) unless... EMPLOYER ALLOWANCE specifically allowed per s6(1)(b) No Yes Taxable benefit unreasonable reasonable amount No Taxable Benefit

An allowance is deemed to be in excess of a reasonable amount if the employee is also reimbursed in whole or in part for expenses in respect of that use. s8(1) Deductions allowed In computing a taxpayer's income for a taxation year from an office or employment, there may be deducted such of the following amounts as are wholly applicable to that source or such part of the following amounts as may reasonably be regarded as applicable thereto: s8(2) General limitation Except as permitted by this section, no deductions shall be made in computing a taxpayer's income for a taxation year from an office or employment.

Employment Income Deductions Permitted s8 cont. s8(1)(j) provides some relief to the restrictions re CCA and interest... s8(1)(h) Travel expenses - conditions s8(1)(h.1) Motor Vehicle Travel Expenses - conditions apply s8(4) Meals, conditions apply, also, subject to 50% deduction limitation per s67.1 s8(13)

Office in the Home: Any home office space deduction must be taken under s8(1)(f) or s8(1)(i) and is limited to: (see s8(13)) (a)(i) Employees who are required to perform duties of employment principally (50%) in their home office; (a)(ii) The work space must be used exclusively (100%) for the purpose of earning employment income, and must be used on a regular and continuous basis for meeting customers. IT-352R disallows any deductions for, insurance, or property taxes unless the employee is a commissioned sales person. If home expenses exceed the related commissions they may be carried forward and applied against income of future years. No deductions can be claimed for the mortgage interest or capital cost of the home or for any other capital property such as computers.

8(1)Deductions allowed....
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8(1)Deductions allowed.... (f) Sales expenses where the taxpayer was employed in the year in connection with the selling of property or negotiating of contracts for the taxpayer's employer, and and is conjunctive, therefore, all of the tests must be met (i) under the contract of employment was required to pay the taxpayer's own expenses, (ii) was ordinarily required to carry on the duties of the employment away from the employer's place of business, (iii) was remunerated in whole or part by commissions or other similar amounts fixed by reference to the volume of the sales made or the contracts negotiated, and (iv) was not in receipt of an allowance for travel expenses in respect of the taxation year that was, by virtue of subparagraph 6(1) (b)(v), not included in computing the taxpayer's income, amounts expended by the taxpayer in the year for the purpose of earning the income from the employment (not exceeding the commissions or other similar amounts referred to in subparagraph (iii) and received by the taxpayer in the year) to the extent that those amounts were not (v) outlays, losses or replacements of capital or payments on account of capital, except as described in paragraph (j), [ motor and aircraft costs ] (vi) outlays or expenses that would, by virtue of paragraph 18(1)(l), not be deductible in computing the taxpayer's income for the year if the employment were a business carried on by the taxpayer, or (vii) amounts the payment of which reduced the amount that would otherwise be included in computing the taxpayer's income for the year because of paragraph 6(1)(e)

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sub b income:

er Majesty or a

hin 180 days

is ... salary, wages

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is ... salary, wages is unpaid on the is Act other than eemed to be

ce or employment

e year in respect

ear during which it

the automobile) paid

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loyer of the taxpayer l be deemed to be the

e course of the of B for the year in

e course of the office

by 30 and, ....

automobile by 30
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automobile by 30

r for the purpose of mployer; and

r's income for the

ice or employment) taxpayer or a person ployer (each of

year to the payor by

oyment during the

bparagraph apply, yer's income for the

ultiplied by the total taxpayer's office or

n 45 days after the

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such of the following e regarded as

ation year from an

ed to: (see s8(13))

nd must be used on a

d sales person. If future years. No operty such as

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racts for the

ume of the sales made

f subparagraph 6(1)

ot exceeding the ear) to the extent that

aph (j), [ motor and

he taxpayer, or

axpayer's income for

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