Tax Lesson 5 YOURLOGO Start Lecture Note: This screen has no script. Static page. YOURLOGO Start Lecture

Employment Income Includes salary, director’s fees, bonuses, tips and taxable benefits. Only individuals can earn employment income Taxable benefits are, generally speaking, benefits paid to (or on behalf of) the employee that are not primarily for the benefit of the employer. If something is primarily for the benefit of the employer, like employee training/professional development or business travel, then this is not a taxable benefit. Examples of taxable benefits include: paying for personal expenses such as rent, vacation, providing a car, paying life insurance premiums or lending money at a low or zero interest rate. The fair market value of the taxable benefit is included in the employee’s income in the year received Deductions from employment income are very limited (discussed below)

Employed versus Self-Employed Sometimes it is not easy to determine if someone is an employee (earning employment income) or a self-employed business person (earning business income). The distinction matters since an employer must withhold (and remit) CPP, EI, and income tax from employees’ pay; and a self-employed business person can deduct all reasonable expenses incurred to earn income (as discussed above) You look to the contract and facts such as: control over work (an employee often has less control over their work than a self-employed business person) who owns the tools used (an employee often uses tools owned by his/her employer) the chance of profit and risk of loss (an employee typically receives a salary or hourly wage) how integrated or dependent the person is on the “employer” (an employee often works for one employer only and hence is very integrated with the employer) how the worker’s results are evaluated (an employee is evaluated over time, whereas a self-employed business person may be contracted to perform one or a set number of projects)

Employee Benefits Employer Provided Automobile The value of this benefit is computed by using a formula called a “standby charge”. Generally speaking the standby charge is: “2% x the cost of the automobile x the number of months in the year that the automobile is available to the employee” (if the employer owns the automobile) and “2/3 x lease payments” (if the employer leases the automobile) Note: if insurance is included in the lease payments then it is excluded when computing the standby charge Hence if a car is available for the entire year and the employer has purchased the car, 2% x 12 months = 24% x cost of car Note: for the standby charge you use the actual cost of the automobile (even if it costs more than $30,000) including PST and GST (or HST). (For CCA purposes, with “luxury” vehicles the maximum amount that can be added to UCC is $30,000 plus any applicable PST and GST (or HST) on $30,000.) The actual lease cost is used to compute the standby charge including PST and GST (or HST). (When deducting expenses, the maximum deduction for a leased “luxury” vehicle is $800 per month plus any applicable PST and GST (or HST) on $800)

Employee Benefits (cont) GST/HST registrants do not “pay” GST/HST (they pay it but get it back as an input tax credit, ITC). Hence the luxury car expense limits (above) for GST/HST registrants is $30,000/ $800 per month (but these limits do not apply when computing the standby charge) If the automobile is used more than 50% for business use you can reduce the standby charge to: (Personal use km / 20,004 km) x Standby charge 20,004 km is a standard amount that is used for all taxpayers and it is 1,667 km per month. So if the car is available for the entire year, 1,667 x 12 = 20,004. If personal use km are more than 20,004 then you just use 20,004/20,004 If the employer also pays for the operating costs of the car (gas, repairs, etc.) then the employee will also have an operating benefit in 2016 equal to “26 cents x personal use km driven in the year”. If the employee used the car for more than 50% business use then the employee can use ½ of the standby charge as their operating benefit if they want. (You must inform your employer before the end of the year in order to use ½ of the standby charge) Note: driving to and from work is considered personal use of an automobile (and not business use)