Self-employed professionals who are accountants, dentists, lawyers (including a Quebec notary), medical doctors, veterinarians, or chiropractors have the ability to defer a portion of their professional income for tax purposes. Where, in the normal course of operations, the professional tracks hours expended on a project that have not yet been billed, this unbilled time, or “work in progress” (WIP), would normally be included in the professional's income for accounting purposes. However, the Income Tax Act provides that where the professional elects in his or her return of income, this WIP can be excluded from the determination of income for income tax purposes until it is actually billed.
The election is made by either attaching a letter to the taxpayer's return stating that the election has been made, or by clearly indicating this information in the financial statements or in an income reconciliation submitted with the return. Once made, the election is valid for all subsequent taxation years and can only be revoked with the consent of the Minister of National Revenue through your local Tax Services Office.
If you are a professional and believe you could qualify for this election, contact a Chartered Professional Accountant to help you determine if it is available to you.
Income received by an individual in the form of tips and gratuities related to employment is considered taxable income for the year and must be reported on the personal income tax return. Individuals who receive such income should keep a record of the amount they receive. These records do not have to be submitted with the income tax return but they should be available if the Canada Revenue Agency (CRA) requests them.
Failure to report tips and gratuities as income can result in potentially significant income taxes, penalties, and arrears interest if the CRA reassesses an income tax return to include additional income. The CRA generally expects a person working at a restaurant to have earned tips and gratuities so a failure to report such income on a tax return might result in a query from the CRA when the return is being assessed.
If you have questions about including tips and gratuities in income, or if you failed to report tips and gratuities as income in prior years and would like to fix the omission before the CRA reassesses you, consult a Chartered Professional Accountant.
Low income individuals will be eligible for a refundable Working Income Tax Benefit (WITB) tax credit in 2016. You must be a Canadian resident for income tax purposes throughout 2016 and be at least 19 years of age or living with a spouse or common law partner at the end of 2016 to qualify.
The refundable tax credit is available on earned income exceeding $4,750 to a maximum tax credit for British Columbia residents of $1,242 (with net income of $12,786) for individuals, and $1,972 for families (with net income of $17,234).
The credit is reduced where the income of the BC resident is in excess of $12,786 for individuals or $17,234 for families, and declines to zero at an income level of $20,314 for individuals or $29,186 for families.
The credit is not available to individuals who are enrolled as a full-time student for more than 13 weeks in the year and do not have an eligible dependent.
You may also be eligible to apply for an advance of up to 50% of the WITB you expect to receive for 2017. You should apply for the advance using Form RC201 between January 2 and August 1, 2017. The calculated advance amount must be at least $100 in order to be paid as an advance; amounts less than $100 can be claimed only with your income tax return at the end of the year.
Please refer to the Canada Revenue Agency website for the scheduled advanced payment dates.
Do you or your family members regularly use public transit? If so, then you might be eligible to claim a special tax credit for transit passes purchased in 2016 on your 2016 personal income tax return.
This tax credit is available for transit passes used in 2016. There is no limit to the amount you may claim. Claims may be made in respect of passes that provide unlimited use of public transit for at least 20 days in any 28-day period.
A claim is also available for short-term passes provided that each pass provides at least 5 consecutive days of unlimited public transit use or at least 20 days in any 28-day period.
Eligible cost-per-trip electronic payment cards may also qualify in 2016 provided they are used for at least 32 one-way trips during an uninterrupted period of no more than 31 days. Check with your public transit authority to ensure the card they issue is eligible.
You may claim the eligible cost for yourself, your spouse or common-law partner, and your children under the age of 19 at the end of the year.
Save those old transit passes. They could be worth 15 cents per dollar when you file your tax return.
If you are making RRSP contributions, you might be able to reduce the income tax deducted from your paycheque. Consider asking your employer to make your RRSP contribution(s) directly to your RRSP administrator and deduct the payments from your salary. Your employer can then reduce your tax withholdings because the payments made directly to your RRSP are not subject to income tax withholdings.
If you have an employer willing to make direct RRSP contributions without tax withholdings, be prepared to provide proof to your employer of your RRSP deduction room for the year. This will generally require you to provide to your employer a copy of your Notice of Assessment for the prior year showing your RRSP deduction limit for the year. You do not need to apply to the CRA for the reduced withholdings.
If you pay amounts for spousal support, childcare expenses, charitable donations deducted from your paycheque, employment expenses, rental losses, foreign tax credits as well as interest and carrying charges on investments, consider completing Form T1213 and filing it with your taxpayer services regional correspondence centre along with documentary support for the various expenses. You will also need to make sure your income tax returns for the previous years are filed and any tax amounts owing are paid. If accepted by the CRA, your employer will be authorized to reduce your payroll withholdings.
Payroll withholdings will generally not be reduced for amounts related to child support because these payments are not deductible for income tax purposes, or for deductions from tax shelter investments.
Reduced tax withholdings generally means a smaller tax refund when you file your income tax return because a tax refund is inevitably the return of the overpayment of withholdings.
If you think you might be able to reduce your payroll withholdings, you should consult a Chartered Professional Accountant to see if you qualify and to understand the implications of reducing your withholdings.
If you were required to pay trade union or professional organization dues as part of your terms and conditions of employment, those costs may be tax deductible to you. Keep your receipts or proof of payment should the CRA request support for the deduction. You do not have to submit these receipts with your personal income tax return; however, you should keep them for 6 years in case the Canada Revenue Agency (CRA) asks to see them.
If you think you may be able to claim a deduction for union or professional dues, or if you want to amend prior years' tax returns to claim a deduction you missed in those years, consult a Chartered Professional Accountant.
Many employed tradespeople must provide their own tools as a condition of employment. In recognition of this, an employed tradesperson is entitled to deduct the cost of eligible new tools acquired in a taxation year with a cost in excess of $1,161, including GST/HST. The maximum deduction for eligible tools is $500 for the year.
An eligible tool is a tool that is acquired by the taxpayer for use in connection with the taxpayer's employment as a tradesperson that has not been used for any purpose before it is acquired by the taxpayer. Electronic communication devices and electronic data processing equipment will not qualify as eligible tools (unless the device or equipment can be used only for the purpose of measuring, locating or calculating).
Your employer must certify the conditions of your employment on Form T2200 to verify your eligibility to claim the cost of tools. The Canada Revenue Agency does not require you to file the form with your tax return; however you must retain it in case they wish to see it.
The tradesperson will also be eligible for a rebate of the GST/HST tax paid on the portion of the purchase price of the new tools that is deducted in computing employment income.
Consult a Chartered Professional Accountant for more information.
For the 2016, 2017, and 2018 tax years farming corporations, farmers, and farmers’ spouses or common-law partners may be eligible for the farmers' food donation tax credit.
This non-refundable credit is equal to 25% of eligible donations made during the tax year. Eligible donations must be made after February 16, 2016 and before January 1, 2019. The credit must be claimed within 5 years after the donation was made.
To be eligible the following criteria must be met:
Eligible donations include, but are not limited to, meat products, fruits, vegetables, and eggs or dairy products. An eligible registered charity must provide free food to persons in BC in need or to help operate a school meal program.
Where you earn income from employment and are required by the terms of your employment to incur certain expenses, you might be able to claim a deduction in respect of these expenses on your tax return. Such expenses might include expenses for commission employees, travel expenses, motor vehicle expenses, professional or union dues, office rent, assistant’s salary, and consumable supplies. In general, with the exception of depreciation (capital cost allowance) in respect of an automobile or aircraft, employees are not permitted to claim any deductions in respect of capital expenditures.
Your employer must certify the conditions of your employment on Form T2200 to verify your eligibility to claim employment expenses. The Canada Revenue Agency does not require you to file the form with your tax return; however you must retain it in case they wish to see it.
In addition to the restriction on capital expenditures, there are other specific restrictions and limits on the expenses you may deduct. Consult a Chartered Professional Accountant to determine what employment expenses you might be able to claim.
If you moved in 2016 for employment, self-employment, or to attend a university or other post-secondary educational institution, you may claim a tax deduction for certain moving expenses if:
You may claim mover’s transportation costs, storage charges, insurance, personal transportation costs for you and your family, the costs of cancelling a lease at your former living location, and lodging and meals for up to 15 days near your former or new living location. If you sold your former residence, you can claim the costs of selling that residence including advertising costs, legal fees, real estate sales commission, mortgage prepayment penalties, and various other costs. If you sold a property at your former living location and acquired a property at your new living location you can deduct certain costs of the purchase such as property transfer taxes in connection with the purchase of your new residence (but not GST or HST on the new residence).
The costs of automobile and meals incurred in the move may be the actual costs (within reason and subject to certain limits) or the CRA flat rate costs. For an automobile, it can be the actual operating costs for the year prorated over the total mileage for the year relative to the mileage for the move. Alternatively it can be based on the 2017 flat rate in British Columbia of $0.475 per km. For meals it can be the actual costs or the 2016 flat rate of $17 per person per meal up to a maximum of $51 per person per day.
You must claim the deduction for eligible moving expenses in the year of the move up to the amount of your income from your new living location. If your deductible moving expenses exceed your income in the new living location, the excess can be deducted in the following years. Deductible moving expenses to study as a full-time student at a university or other post-secondary educational institution can only be deducted against income earned in the year from scholarships, fellowships, bursaries, certain prizes, and research grants, that are included in income for tax purposes.
If you move for employment purposes, you may not claim a deduction for any expenses paid by your employer on your behalf that were not included as a taxable benefit to you. Expenses you incurred that your employer reimbursed or expenses for which you have received an allowance are also not deductible unless the reimbursement or the allowance is included in calculating your income.
You should consult a Chartered Professional Accountant when considering a move to determine what costs are deductible.
If you are required to use your passenger vehicle for business or employment purposes, you are permitted to deduct reasonable expenses for operation and ownership of the vehicle. Such expenses include fuel, licence fees, insurance, repairs and maintenance, depreciation finance charges, and lease payments. There are specific limits placed on the amount of depreciation, finance charges, and lease payments you are permitted to deduct, which vary from year to year. The deductible portion of automobile expenses is based on the proportion of your total kilometres driven in the year for business or employment purposes relative to the total kilometres driven in the year.
Driving between your home and your normal place of business or employment is generally considered a personal activity, therefore, the automobile expenses in respect of this portion of your driving is not deductible unless you make a stop for business or employment purposes while traveling to or from your home. The travel between your home and your employment is considered a personal activity even if you drive a vehicle with your employer's logo on it or your employer requires you to have the vehicle to be "on call".
To support your automobile expense deduction you should maintain a complete record of your business and employment use of the vehicle, including the date, destination, the distance driven, and purpose for each business trip. If you are audited by the Canada Revenue Agency (CRA) and you do not have a mileage log, the CRA may deny your claim for the expense. There are mileage tracking software programs and apps to make recording your mileage easier.
If you receive a reasonable per-kilometre allowance from your employer for the use of a motor vehicle, that allowance is not included in your income and you are not permitted to deduct your actual motor vehicle expenses. The reasonable per-kilometre allowance rates for 2016 are $0.54 per kilometre for the first 5,000 kilometres driven and $0.48 per kilometre driven after that.
Where you receive both a reasonable per-kilometre allowance and a flat allowance, the entire amount must be included in your income but you may deduct your actual expenses. To deduct your actual expenses, you must have a Form T2200 signed by your employer to certify that the conditions of your employment require you to use your vehicle. A separate Form T2200 is required for each year that you deduct automobile expenses. The CRA does not require you to file the T2200 with your tax return but you must retain it in case they wish to see it.
If you believe you might be eligible to claim automobile expenses on your personal income tax return, consult a Chartered Professional Accountant to help you calculate your allowable deduction.
The income tax rules related to home office expenses (technically called "work-space-in-the-home expenses") are similar for self-employed individuals, non-commissioned employees, and commissioned salespersons, but there are certain important differences.
For Self-Employed Persons
In order for you to deduce your home office expenses from self-employment (business) income, your home office must be
Deductible home office expenses for a self-employed person include rent, repairs and maintenance, insurance, property taxes, mortgage interest (but not the mortgage principal), and utilities (to name a few). The deductible portion of these costs is a "reasonable amount" which is typically calculated based on the square footage of the home office as a percentage of the total square footage of the home.
You may claim a deduction for depreciation on the building but doing so could jeopardize the status of your home as your "principal residence" for purposes of claiming the "principal residence exemption" to offset the capital gain on the property when it is sold.
Your home office expense deduction in a year cannot exceed your net business income for the year before the deduction.
For Non-Commissioned Employees and Employees who are Commissioned Salespersons
For employees, the home office must be the place where the employee principally (more than 50%) performs his or her duties of employment or the home office is used exclusively by the employee on a regular and continuous basis for meeting customers and other persons in the ordinary course of employment.
Deductible home offices expenses for an employee who does not earn sales commissions include rent, heat, light, water, and maintenance costs; while mortgage interest, property taxes, and Capital cost allowance is the deduction you can claim over a period of several years for the cost of depreciable property, that is, property that wears out or becomes obsolete over time such as a building, furniture, or equipment, that you use in your business or professional activities.capital cost allowance are not deductible. The deductible portion of home office expenses for an employee is the same as for a self-employed person, being a "reasonable amount" typically calculated based on the square footage of the home office as a percentage of the total square footage of the home.
Employees who are commissioned salespersons may also claim a proportionate amount of insurance and property taxes, but they cannot deduct mortgage interest or capital cost allowance.
For both the commission and non-commission employees, the home office expenses deducted in the year cannot exceed the income from that particular source of employment for the year. Unused expenses may be carried forward and deducted against that particular employment income following year.
Your employer must certify that the conditions of your employment require you to have a home office by signing the Form T2200. Form T2200 is required for each year you wish to claim home office expenses. The CRA does not require you to file the T2200 with your tax return but you must retain the form in case the CRA wishes to see it.
Contact a Chartered Professional Accountant if you have any questions regarding your ability to claim home office expenses as a deduction against employment income or self-employment income.
In general, when employers provide employees with benefits in addition to their regular salary, the value of such benefits must be included in the employee's income as a taxable benefit unless there is a specific exception provided in the Income Tax Act or the Canada Revenue Agency (CRA) has an administrative position not to tax a particular benefit in the hands of an employee.
With respect to employer provided medical benefits, the rules can be quite complex. For example, if the employer pays an employee's Medical Services Plan (MSP) premiums, a taxable benefit results for the employee. On the other hand, premiums for group medical plans (including private extended health plans, vision care plans, prescription coverage and dental plans) paid by the employer are not a taxable benefit to the employee, provided the plans only pay the costs of medical expenses that can be claimed as tax credits under the Income Tax Act. The employee participating in such plans cannot claim a tax deduction for the medical costs incurred except to the extent the costs are not covered or reimbursed by the plan.
The benefits or payments from certain kinds of insurance plans, such as disability insurance and sickness income maintenance plans, will be tax-free to the employee even if the plan is organized and sponsored by the employer, provided the employee pays the premiums. If the employer pays the premiums as a taxable benefit, a portion of such plans may be taxable to the employee. Typically the premiums are withheld by the employer from the employee's net pay, which means the employee is paying the premium with his or her after-tax income. As a result, benefits or payments to the employee from such an insurance plan are tax-free to the employee.
If an employer pays the premiums for the employee under a group term life insurance plan (generally an insurance plan that is in place only as long as the individual is an employee and where the employee's spouse or family is the beneficiary), the premium will be a taxable benefit to the employee and a payment out of the plan on the death of an employee will not be taxable.
The employee will not receive a taxable benefit for accessing counselling services provided for or paid for by the employer. These tax-free counselling services are limited to counselling related to the physical or mental health of the employee, or retirement or re-employment counselling.
Contact a Chartered Professional Accountant if you have any questions about taxable benefits from employment.
It is increasingly common for employers (both private and public companies) to grant stock options to their employees. The grant of an option to an employee is not a taxable event, even if the exercise price is less than the fair market value of the shares, provided the option is granted to the individual by virtue of his or her employment.
Employees who are granted an option to acquire shares of a public corporation have a taxable benefit from employment in the year they acquire shares of the corporation. The taxable benefit amount is the difference between the option price (sometimes called the "strike price") and the fair market value of the shares on the date the shares are acquired (if the employee has paid to acquire the option, the taxable benefit is reduced by the purchase price of the option). Even if the employer simply grants shares to the employee (i.e. the price paid by the employee to acquire the shares is zero), the rules discussed here still apply.
In the case of a publically-listed company, an employee may be entitled to a tax deduction equal to 50% of the stock option taxable benefit provided all of the following conditions are met:
The 50% deduction means an employee stock option is taxed at the same rate as a capital gain, but the income is employment income and not a capital gain. The employee stock option benefit cannot be offset by the individual's capital gains deduction or by capital losses.
For eligible securities of public companies acquired by employees under a stock option agreement entered into between February 27, 2000 and March 4, 2010, the employee's taxable benefit was determined when the option was exercised (when the shares were acquired) but the benefit was taxed only when the shares were sold. This income deferral was subject to an annual limit based on the fair market value of the eligible shares. For the year in which the employee stock option was exercised and the shares acquired and in each subsequent year the shares are held, the employee must file a Form T1212 with his or her personal income tax return to have the tax deferral in effect.
If the employee is granted an option to acquire shares of a "Canadian controlled private corporation" (CCPC) and the employee was dealing at arm's length with the employer immediately after the agreement was made, the employee stock option benefit, although calculated at the time the option is exercised, is deferred until the year the shares are sold (it does not matter if the employer is no longer a CCPC at the time the shares are sold). The employee can claim a deduction in that year equal to 50% of the taxable benefit if:
The "adjusted cost base" (ACB) of the shares acquired under an employee stock option plan is the fair market value of the shares on the date the option is exercised. The ACB is not reduced for the 50% deduction.
The rules related to stock options are complex and have changed considerably over the years. You should consult a Chartered Professional Accountant to see how these rules may apply to you.
The 2016 Budget introduced a teacher and early childhood educator school supply tax credit for 2016 and subsequent years. This credit allows an employee who is an eligible educator to claim a refundable 15% tax credit on up to $1,000 of expenditures on eligible supplies used by the employee in a school or child care facility in a taxation year.
To be an eligible teacher or early childhood educator, the employee must:
To be an eligible supplies expense, the teaching supplies must be:
For the 2015, 2016, and 2017 tax years, teachers and teaching assistants in BC may qualify for a new non-refundable tax credit if they perform at least ten hours of unpaid extracurricular activities. The credit amount is $500 which can provide a tax savings of up to $25.30.
To be eligible, you must be:
The unpaid extracurricular activities can include coaching or supervising sports, arts, or other activities, but must be performed after school hours or on weekends.
The Family Caregiver Tax Credit will allow people taking care of infirm or dependent relatives to claim a non-refundable tax credit based on an amount of up to $2,121 in 2016, resulting in tax savings of up to $318 a year for qualifying individuals. Only one family caregiver tax credit may be claimed per eligible dependent.
A dependent who is a minor child will be considered to be infirm only if the dependent is likely to be, for a long, continuous and indefinite time period, dependent on others for significantly more assistance in attending to the dependent’s personal needs and care than is generally the case for a person of the same age.
Caregivers will be able to claim the Family Caregiver Tax Credit for an infirm dependent as a supplement to their existing dependency-related credit (such as the Spousal or Common-Law Partner Credit, the Child Tax Credit, the Eligible Dependent Credit, the Caregiver Credit, and the Infirm Dependent Credit). The dependent’s income level at which the credit amounts are phased out will be increased to reflect the amount of the Family Caregiver Tax Credit.
Consult a Chartered Professional Accountant if you currently support and provide care for dependent relatives and would like more information.
You might be eligible for the caregiver credit if you provide in-home care for a relative who resides with you, and the relative is your or your spouse’s:
Generally, if you claim the caregiver credit for your relative, no individual will be allowed to claim the ‘equivalent-to-spouse” credit or the “infirm dependent” credit for the same relative. You can claim the caregiver credit for more than one eligible dependent. For example, if both parents qualify, you can claim the credit for both of them.
The combined federal and British Columbia caregiver credit will reduce your tax payable by up to $922 (for each relative claimed). However, the tax credit will start to be reduced where the relative’s income for 2016 exceeds $15,940 for federal tax purposes and $14,850 for BC tax purposes. The credit is completely eliminated when the relative’s income reaches $20,607 for federal tax purposes and $19,237 for BC tax purposes.
Check to see if you qualify for the Caregiver Credit. Consult a Chartered Professional Accountant for more information.