Published: March 9, 2020
Last Updated: October 25, 2021
Top 2016 Year End Income Tax Planning Tips by Canadian Tax Lawyer Part 3
In this Part 3 of our Canadian tax lawyer year end tax planning guide we discuss tax planning tips to benefit Canadian employees.
Top Employment Related Income Tax Planning Tips
While generally expenses incurred by an employee are not deductible there are certain specific exceptions. But beware, depending on the employee’s relationship with their employer there may be unforeseen tax problems.
Purchase Employment Assets
Although the Income Tax Act does not generally allow for the depreciation of employment related capital assets, employees are entitled to write off capital cost allowance (depreciation) on cars, planes and musical instruments. Employees planning on purchasing any of these assets should do so late in the year to enjoy the benefit of the capital cost allowance claim in the current year.
Tradespersons and apprentices are permitted to deduct the cost of their tools up to a prescribed limit. Qualifying individuals should make the purchase before the yearend to maximize deductions in this year.
Company Car Benefits
You are taxed for being provided with a company car, called the standby benefit, and for using it personally called the operating benefit. The taxable benefit is based on original cost of the automobile and does not decrease as it depreciates. You can eliminate the taxable car benefit by purchasing the car from your employer, can finance it by way of an interest-free loan from your boss and can then personally claim depreciation on the auto. You can also reduce the taxable car operating benefit if your auto is primarily used (normally greater than 50%) for business purposes and by keeping your personal use to less than 20,000 kilometers per year. Remember that you have to keep a car log of personal versus business use.
Loans From Your Employer
If an employee has taken a loan from an employer it can lead to tax problems at the end of the year if proper Canadian tax lawyer tax planning is not undertaken. If the loan does not have a reasonable interest rate attached CRA can assess the employee for a taxable benefit received. The amount of taxable benefit is calculated as a percentage of the loan, in a manner similar to interest. Any interest that is paid will reduce the tax liability. If the required interest is not paid within 30 days of the end of the taxation year the employee will be deemed to have received a taxable employment benefit.
Employees need to ensure that not only are they being charged reasonable interest on any loans from employers, but also that they pay that interest within 30 days of year end to prevent income tax problems.
Adjust Source Deduction Amounts
If you have tax deductions that result in a large tax refund when you file your tax return you can submit a form TD-1 form early in 2017 to reduce the amount of source deductions withheld by your employer from each pay cheque.
Employment Related Courses
If your employer pays for an employment related course you won’t have a taxable benefit, while if you pay for it any increased salary will be taxable to you.
Give Employees Non-taxable Gifts
Non-taxable gifts of up to $500 every year and non-cash long-service and anniversary awards (also under $500 annually) can be given to arm’s length employees and are eligible as deductible business expenses by the employer.
Continue on to part 4 of our Canadian tax lawyer year end tax planning tips to read our top suggestions for investors.
"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."