Tax

Question 1

Membership / Club Dues (EE and ER implications)

Answer 1

ER:
- not deductible expense
EE:
- non-taxable only if this benefit is offered to all employees

Question 2

Tuition Fees (EE and ER implications)

Answer 2

ER:
- tax deductible
EE: is the course work related?
- work related: not taxable
- non-work related: taxable

Question 3

Gifts (EE and ER implications)

Answer 3

ER:
- tax deductible
EE: performance related? >$500? cash/near cash gift?
- gift = performance related -> taxable
- gift = cash or near cash gift -> taxable
- gift = non-perf and non-cash, but $500/yr -> taxable

Question 4

CCA - which classes are NOT subject to 1/2 year rule?

Answer 4

Class 12 - china, cutlery, linen, uniforms, dies, jigs, moulds, cutting or shaping parts of a machine, tools, computer software
Class 52 - Computer hardware equipment and systems software, as well as its ancillary data processing equipment, bought after January 27, 2009 and before February 2011, is included here.

Question 5

When does terminal loss occur?

Answer 5

The lower of Proceed or Cost - UCC = Negative
Terminal loss arises when there is a balance of UCC in the class but there are no assets remaining, the UCC can be claimed as a terminal loss (capital loss cannot arise on the disposition of depreciable property

Question 6

When does recapture occur?

Answer 6

The lower of Proceed or Cost - UCC = Positive
Recapture arises when the balance in the class is negative (i.e. when the adjustment re: disposal is in excess of the UCC) and is taken into income

Question 7

Explain the tax implication of shareholder loan.

Answer 7

• Shareholder loan is the loan provided to shareholder
• Not included as shareholder’s personal income if the shareholder repay the loan back before the end of next year’s reporting period.
• If it’s not repaid by then, it should be included as shareholder’s personal income in the year which the loan is borrowed
• If the loan is interest-free, income should be included for the portion of interest that would’ve been paid at the market rate

Question 8

Explain the tax implications of retirement allowance (also known as severance).

Answer 8

Severance payment consists of:
• Unpaid vacation or leave
• Amount paid to employee for their lengths of service or damages
Severance can be rollover to RPP or RRSP for year of service prior to 1996.
• 1989-1996: $2000/yr
• Before 1989: $1500/yr

Question 9

Determine EE vs. Contractor

Answer 9

1) Economic Reality / Entrepreneur Test
a. Control - over hours, location, what and how work is being performed
b. Tools - ownership and who supplies them
c. Risk of profit and loss
d. ability to subcontract workers
2) Integration / Organizational Test
- economically dependent on the organization?
3) Specific results test
- Does the relationship end when the work completes?

Question 10

ER give owned vehicle for EE to use. Explain tax implication.

Answer 10

If car is used < 50% of the times for employment, then standby charge will be:
2% x # months x Cost of Vehicle (HST/GST)
PLUS
Op Benefit
$0.27/km x personal km used

If car is used > 50% of the times for employment, then standby charge will be:
2% x # months x Cost of Vehicle (HST/GST)
X
personal km / (1667 km x # months)
PLUS
Op Benefit - lesser of:
1/2 standby charge OR $0.27/km x personal km used

Question 11

ER give leased vehicle for EE to use. Explain tax implication.

Answer 11

If car is used < 50% of the times for employment, then standby charge will be:
2/3 x # months x monthly lease payment
PLUS
Op Benefit
$0.27/km x personal km used

If car is used > 50% of the times for employment, then standby charge will be:
2/3 x # months x monthly lease payment
X
personal km / (1667 km x # months)
PLUS
Op Benefit - lesser of:
1/2 standby charge OR $0.27/km x personal km used

Question 12

In order for a corporation to be a resident of Canada, what are some of the requirements?

Answer 12

1) Incorporated in Canada (after April 26, 1965)

2) If BoD meets and makes decision on company policy in Canada, even though it’s not incorporated in Canada

Question 13

How is a CCPC defined?

Answer 13

CCPC (Canadian-Controlled Private Corp)
- private corporation
- is a Canadian corporation
- not control by any of:
 o one or more non-resident persons
 o one or more public corporations; or 
 o any combination of the two

Question 14

What are the two types of partnerships?

Answer 14

General Partnerships
- business arrangement between two or more individual sharing the profits and liabilities of the business
Limited Partnerships
- one or more general partners (unlimited liability)
- one or more limited partners (limited liability) - and depends on contribution to partnership

Question 15

What are the 5 basic source of income?

Answer 15

1) Employment
2) Business
3) Property
4) Capital gain or losses
5) Other Income

Question 16

What is the difference between net capital loss vs. non capital loss?

Answer 16

Net Capital Loss: Allowable capital loss > taxable capital gain
Non Capital Loss (?): Income < Losses (loss from employment/business/property/ABIL)

Question 17

What are the loss carry-back and carry-forward for:

a) Net Capital Loss?
b) Non-Capital Loss?

Answer 17

a) Net Capital Loss: back 3, forward indefinitely

b) Non-Capital Loss: back 3, forward 20 tax years

Question 18

What are the 7 criteria to determine Employee vs. Self-Employed?

Answer 18

1) Control Test: set schedule or make your own schedule, location of work
2) Relationship Test: does relationship end when work ends?
3) Ownership of Tools: does the person supply own tools
4) Integration Test
5) Risk of Profit or Loss
6) Specific Result Test
7) Ability to hire helpers

Question 19

Cash gift - explain tax implication

Answer 19

All cash gifts are taxable benefit

- according to CRA, EE may receive non-cash gifts or award tax free

Question 20

Tax Return paid by ER - explain tax implication

Answer 20

Tax return paid for by the ER is considered a taxable benefit

Question 21

BoD Fees - explain tax implication

Answer 21

BoD Fees paid by the company is considered to be an income

Question 22

Home relocation loan - explain tax implication
ie. ER offer $100K interest-free relocation loan, and the market interest rate is 1%, what’s the taxable benefit? what’s the deductions?

Answer 22

[benefit]
Imputed interest benefit = 1% x $100K
Since this loan qualifies as home purchase loan, interest rate is capped at the rate in effect when the loan was made (ie. now)

the loan qualifies for relocation when:

• commence work in new location in Canada
• moved from former residence to new one
• move was 40km closer to new work location

[deductions]
home relocation deducts benefit, based on the last of the following:
1) imputed interest benefit
2) $25,000 x mkt interest rate
3) imputed interest

Question 23

Provide a list of common ER contributions that are not considered a taxable benefit

Answer 23

• registered pension plan
• group sickness/accident insurance plan
• private health service plans
• supplementary unemployment benefit plans
• deferred profit sharing plans
• employee life and health trusts
• counseling services to mental/physical health of EE
• discounts on merchandise (ie. TD perks)
• subsidized meal provided in ER facilities
• use of ER in-house recreational facilities or membership fees to other gyms (as long as it’s provided to all EE)
• reimbursement of certain moving expenses (?!)
• premiums under private health services plan
• EE professional membership fees or dues (must be req’d for employment)

Question 24

Provide a list of common ER benefit that are considered taxable benefit

Answer 24

• allowance for personal/living expenses (or other purpose)
• director’s or other fees
• allocation under profit sharing plans
• standby charge of automobiles
• wage loss replacement (if ER pays for the premium)
• employee benefit plans
• automobile operating expense benefit
• reimbursement or awards >$500 (or any amount of cash/near-cash awards or performance related awards)
• ER paid education costs
• amount relates to low interest loans
• financial counseling and income tax return prep
• ## group term life insurance (?!)

Question 25

Automobile supplied by the ER - what is the upper limit price of the vehicle (owned and leased) to calculate taxable benefit for EE and deductibility for ER?

Answer 25

``` Taxable benefit for EE - no upper limit Deductibility for ER - $30,000+ tax for owned - $800+tax for leased ``` ie. if ER provide EE with auto that cost $150K, EE 's benefit will be based on $150K while ER can only deduct CCA on $30K

Question 26

Provide tax planning advice regarding employer provided cars.

Answer 26

1) ER leased is typically cheaper than ER owned - 2/3 of lease payment is typically cheaper than 2% of the car cost 2) ER should have a policy of EE to return car when they are away (so the EE will not incur taxable benefit) 3) Record keeping - it is very important to track employment vs. personal km. If absent, EE may charge with full stand by charge even if employment mileage > 50% 4) Ways to lower standby charge - longest possible lease / larger deposit - older vehicle to purchase (lower cost) 5) ER Cars costing < $30K - EE does not have upper limit for taxable benefit on standby charge (ie. if ER owned luxury vehicle was used, 2% of the full cost of the luxury vehicle will be used to calculate standby charge)

Question 27

What is the prescribed rate for vehicle allowance as of 2015? What's the tax implication for this kind of allowance?

Answer 27

First 5000km @ $0.55/km Thereafter @ $0.49/km If allowance is lump sum (ie. $4000 per year), since it's not related to mileage, it should be included as income and cost are deductible If allowance is based on per km, and it is higher than CRA prescribed rate, it should be included as income and cost are deductible If allowance is based on per km, and it is lower than CRA prescribed rate, it cannot be included as income and the costs are not deductible

Question 28

If the prescribed rate of vehicle allowance is $0.55/km (first 5000km) and then $0.49/km there after, what is the tax implication if ER pays an allowance of $5000 per year and the EE has operating cost of $3000? (personal km 10,000 / total mileage 18,000km)

Answer 28

Since allowance is not tied to mileage, full amount of allowance required to be included as income. Operating cost are deductible. +$5000 -$3000 x 8000km/18,000km = $3667

Question 29

If the prescribed rate of vehicle allowance is $0.55/km (first 5000km) and then $0.49/km there after, what is the tax implication if ER pays $0.20/km and the EE has operating cost of $3000? (personal km 10,000 / total mileage 18,000km)

Answer 29

Since the allowance mileage rate < prescribed rate, income cannot be included and operating cost cannot be deducted.

Question 30

What is the tax treatment for life insurance benefit to EE?

Answer 30

Life insurance is a taxable benefit when the premiums are paid by the ER. In the event of EE's death, benefit will not be taxable by the estate.

Question 31

What is the tax treatment for disability insurance benefit to EE?

Answer 31

1) EE pays for premium - benefit payout - not a taxable benefit - premium - not deductible, but can offset benefit payout 2) ER pays for premium * if benefit covers wage loss and ER pays premium periodically - benefit payout - taxable benefit - premium - not taxable benefit - EE contribution - not deductible, but can offset benefit payout * if not, - benefit payout - not taxable benefit - premium - taxable benefit - EE contribution - not deductible

Question 32

What is the tax treatment for private health care plan to EE?

Answer 32

- premium paid by ER - not a taxable benefit - beneift received by EE - not a taxable benefit - EE contribution - eligible for medical expense credit

Question 33

For stock option to EE, what is the difference if the ER is CCPC vs. Public Companies?

Answer 33

Stock option - > received: does not have tax implications - > exercise: incurs taxable benefit - > sold: incurs capital gain benefit CCPC does not trade stock publicly. Therefore, if the ER is a CCPC, the stock option benefit is deferred when option is exercised (ie. if stock option is exercised in 2015 and incurs $5000 benefit, it will not be included in income until the the year when the stocks are sold. The $5000 benefit will be deferred.)

Question 34

What is the purpose of tax treaties?

Answer 34

It is an agreement between two countries for the purposes of avoiding double taxation and preventing evasion. To the extent that a taxpayer is subject to tax in Canada and also in another jurisdiction, the provisions of the treaty between these two jurisdictions are used to determine the tax liability. Typically, the terms of the treaty **take precedence over the provisions of the ITA**.

Question 35

Who are the individuals that requires to pay tax in Canada?

Answer 35

* Factual full-time residents: Taxed on worldwide income for the year. * Factual part-year residents: Taxed on worldwide income for the part of the year they are resident in Canada. * Deemed full-time residents: Taxed on worldwide income for the year. * Non-residents: taxed on canadian-source income - employed in canada - carried business in canada at a permanent location in canada - disposed of taxable canadian property

Question 36

How does CRA determine residency for full-time and part-time residents?

Answer 36

Primary Residential Ties 1. Dwelling in Canada maintained for taxpayer's use 2. Spouse / Common Law of taxpayer 3. Dependent of taxpayer Secondary Residential Ties 1. Personal Properties kept in Canada (ie. car, clothes, furnitures) 2. Social Ties (ie. club membership) 3. Economic Ties (ie. employment, canadian business, bank accounts & credit cards, savings plan) 4. Other Ties (ie. cottage, DL, passport, part of professional org / union) None of the secondary residential ties alone are sufficient to establish Canadian residency. The CRA would consider a combination of secondary ties together with primary residential ties in determining whether an individual is a Canadian resident under common law.

Question 37

What are deemed residents?

Answer 37

* an individual who sojourns* in Canada for a total of 183 days or more in the year (for the purposes of this rule, part days are considered full days) * a member of the Canadian armed forces * an ambassador, minister, high commissioner, officer or servant of Canada or a province, if the individual was resident in Canada prior to his or her appointment *A sojourner is an individual who travels in and out of Canada in a year and, because of those travels, is in Canada for a total of at least 183 days in the year. Sojourners are taxed in Canada on their worldwide income for the year.

Question 38

For part-year residents, what is the CRA rule determine the date in which they become non-resident?

Answer 38

the later of: * the date the individual leaves Canada * the date the individual's spouse and/or dependants leave Canada * the date the individual becomes a resident of the new country he or she has emigrated to

Question 39

Corporations - how are the deemed resident of Canada? | What about non-resident corporations?

Answer 39

* The corporation was incorporated in Canada before April 27, 1965, and it either carried on business in Canada or was resident under common law at any time after April 26, 1965. * The corporation was incorporated in Canada after April 26, 1965. * A corporation that was not incorporated in Canada may still be considered a Canadian resident under common-law principle if its central management and control is located in Canada. Central management and control is located where the Board of Directors of the company meets to make decisions on how the corporation is to be run. * If a non-resident corporation carries on business in Canada, it is subject to tax in Canada on its Canadian-source business income. A corporation is generally considered to be carrying on business in Canada if the business is run through a permanent establishment located in Canada.

Question 40

What are the tax filing deadlines? Individual Deceased Corporation

Answer 40

Individual - April 30 - June 15 if taxpayer or spouse carried a business Deceased - later of... - regular deadline OR - 6 month from date of death Corporation - 6 months after year end

Question 41

What are the balance owing due dates?

Answer 41

Individual - Apr 30 Corporations - 2 months after year end OR - 3 months after year end for certain CCPCs