1. Lesson 2-Continued

2. Automobile Benefits 6(1)(e) 6(2)
When an automobile is provided by an employer to an employee there is a benefit for the non business km that are driven by that employee.
The benefit that the employee receives from having the use of employer owned automobile is broken down into
1) The standby charge-use of the asset
2) The automobile operating costs paid by the employer

3. Standby charge
A standby charge represents a benefit conferred upon an employee through the availability of a company-owned or leased car for any use, whether for employment or personal .
Through the principle of equity this should be taxed through the formula below
A/BX(2%X(CXD)+2/3 (E-F)

4. Standby charge continued
A* is the lessor of
(a) total personal-use kilometers driven during the available time period, and
(b) the value determined for B(as defined below) during the days the automobile is available
B IS 1667 KM X total available days/30
C is the full original cost of an employer owned vehicle
D is the total available days when the employer owned the automobile/30

5. Standby charge continued
E is the lease payments made by the employer
F is the portion of the lease payments which pertains to insurance.
A separate A/B ratio must be applied to each automobile available for use by an employee in a year
See example..

6. Operating benefit 6(1)(k)
Operating expenses for personal use, which are paid by the employer and not reimbursed by the employee, do give rise to a taxable benefit to the employee. Automobile operating costs include gasoline, insurance and maintenance costs, but not parking costs. Any benefit for personal parking is included in income separately.
Two options for computing operating costs benefit

7. KM method
The default method computes the operating benefit to an employee whose employer pays for operating costs including those for personal use of a employer-provided automobile. The KM method is required for employees who do not use their automobile primarily (more than 50%) for employment or for employees who choose not to elect the 50% calculation where use is primarily for employment.

8. KM method continued
The KM method computes the amount of the operating cost benefit by number of KM driven for personal use at 27 cents in 2014.The amount computed by this method is reduced by any reimbursement paid 45 days after the end of the year by the employee to the employer.
See example.

9. Employee-owned Automobile operating benefit
A separate rule applies where an employee provides his or her own automobile but the employer pays all the operating costs of the vehicle. The value of the benefit for personal use km must be included in income under 6(1)(l)
The calculation is based on personal use km over total km

10. Motor vehicle allowances
Vehicle allowances deemed to be reasonable do not have to be included in income.
CRA deems reasonable to be based on a per km amount paid for travelling in the performance of duties of an office or employment
2014 rates are 54c on the first 5000 km and 48 c on the remaining km.

11. Deductions from employment income allowed under sec 8
8(1)(b) Legal expenses
8(1)(f) Sales expenses
8(1)(h) Travel Expenses
8(1) (h.1) Motor Vehicle expenses
8(1)(i) Dues and other expenses of performing duties
8(1)(j) Motor vehicle and aircraft costs
8(1)(l.1) CPP contributions and EI premiums
1) Right to establish remuneration paid(cost to collect wages)

12. Deductions from employment income allowed under sec 8
8(1)(m) Employee’s registered pension plan contributions
8(1)(s) Deduction-tradesperson’s tools
8(2) General limitation
8(4) Meals
8(6.1) Eligible tool of tradesperson
8(7) cost of tool
8(13) Workspace in home

13. Legal expenses of employee
Legal expenses incurred by employees are deductible if they are incurred to establish a right to remuneration owed to the employee by an employer.
This is also the case for amounts not owed by the employer but when paid would be taxable as employment income. Wage loss replacement insurance benefits for example.

14. Sales expenses
Sales expenses incurred by individuals who sell goods or services for commissions and those who negotiate sales contracts for purposes of earning employment income may all be deductible.
Expenses must be incurred to earn employment income or commissions
T2200 must be filled out
Expenses must be substantiated

15. Commission sales expenses
The amount of expenses that can be deducted is limited to the amount of the employee’s commission income.
The employee must be required to pay his or her own expenses as stipulated in the employment contract
The employee must be ordinarily required to carry on the duties of employment away from the employer’s place of business
The remuneration must be dependant on volume of sales or contracts

16. Commission sales expenses
A non-taxable (reasonable) travel allowance cannot be received. Or any reimbursement for expenses incurred.
Travel allowance does not include an auto allowance

17. Travelling expenses
The travelling expenses of employees who are not involved in the selling of property or negotiating of contracts are deductible under two provisions
8(1)(h)-Travelling expenses other than motor vehicle expenses
8(1)(H.1) Motor vehicle expenses

18. Conditions
The deductible travelling expenses are not restricted as to type of employee or employer
However three specific conditions must be met to obtain the deduction
1) The employee must ordinarily be required to carry out his or her duties away from his or her employer’s place of business
2)The payment of traveling expenses by the employee must be part of his or her contract.
3)The employee cannot be in receipt of a tax exempt allowance for travelling

19. Limitations
The deductions under 8(1)(f) and (h) of the cost of meals consumed while travelling for an employer is restricted. These costs are deductible only where the meal is consumed when the taxpayer is away, for 12 hours or more from the municipality or metro area he or she usually reports for work

20. Limitations
The deduction for the costs of meals consumed and entertainment is limited to 50%
Some exemptions to this restriction
Moving expenses
Six special events available to all employees

21. Dues and other expenses
Annual professional membership dues paid to maintain standing in a profession recognized by statute
Office rent or salary paid to an assistant
Cost of supplies paid
Annual union membership dues

22. Workspace in home
There are restrictions on the deductibility of expenses related to workspace in the home for employees
The place where the individual principally performs the employment duties(more than 50%)
Used exclusively for the purpose of earning employment income during the period
Used on a regular and continuous basis for meeting customers or other persons in the ordinary course of performing the employment duties

23. Employees deduction no commissions
Rent
Repairs maintenance
Supplies
Telephone(long distance)
Utilities

24. Employees deduction commissions
Same as previous plus
Home insurance
Property taxes
Not allowed (Mortgage interest )

25. Tradesperson tools
A deduction is allowed from employment income earned as a tradesperson in a taxation year to a max of $500 for eligible new tools
No employees are allowed to claim CCA
Unless it is for a motor vehicle

26. Other restrictions CCA on vehicle max of $ 30,000
Interest on borrowed money restricted to $300 per month
Lease costs restricted to $800 per month