2012 Automobile Deduction Limits and Expense Benefit Rates for Business

The automobile expense deduction limits and the prescribed rates for the automobile operating expense benefits have changed for 2012.  The changes are a classic demonstration of how the government giveth with one hand but taketh [four] on the other.  As you can see from the details below the government has increased the tax-exempt allowance employers can pay to employees by 1 cent, but has increased the rate used by employers to calculate the taxable benefit  to employees for the used of a company car by 4 cents.  Specifically:

  • The ceiling on the capital cost of passenger vehicles for capital cost allowance (CCA) purposes will remain at $30,000 (plus applicable federal and provincial sales taxes) for purchases after 2011. This ceiling restricts the cost of a vehicle on which CCA may be claimed for business purposes.
  • The limit on deductible leasing costs will remain at $800 per month (plus applicable federal and provincial sales taxes) for leases entered into after 2011. This limit is one of two restrictions on the deduction of automobile lease payments. A separate restriction prorates deductible lease costs where the value of the vehicle exceeds the capital cost ceiling.
  • The maximum allowable interest deduction for amounts borrowed to purchase an automobile will remain at $300 per month for loans related to vehicles acquired after 2011.
  • The limit on the deduction of tax-exempt allowances paid by employers to employees using their personal vehicle for business purposes for 2012 will be increased by 1 cent to 53 cents per kilometre for the first 5,000 kilometres driven and to 47 cents for each additional kilometre. For Yukon, the Northwest Territories and Nunavut, the tax-exempt allowance is set 4 cents higher, and will also increase by 1 cent to 57 cents for the first 5,000 kilometres driven and to 51 cents for each additional kilometre. The allowance amounts reflect the key cost components of owning and operating an automobile, such as depreciation, financing, insurance, maintenance and fuel costs.
  • The general prescribed rate used to determine the taxable benefit relating to the personal portion of automobile operating expenses paid by employers for 2012 will increase by 2 cents to 26 cents per kilometre. For taxpayers employed principally in selling or leasing automobiles, the prescribed rate will increase by 2 cents to 23 cents per kilometre. The amount of the benefit reflects the costs of operating an automobile. The additional benefit of having an employer-provided vehicle available for personal use (i.e., the automobile standby charge, which is not affected by this announcement) is calculated separately and is also included in the employee’s income.

For more information go to:

http://www.fin.gc.ca/n11/11-146-eng.asp

 

Changes to the CPP Contribution rules in 2012

What are the changes to the CPP contribution rules?

Current rules

Under the current rules (before January 1, 2012), as an employer you have to stop deducting CPP contributions from an employee’s pensionable earnings when the employee:

  • is 60 to 70 years of age; and
  • gives you proof that he or she is receiving a CPP or Quebec Pension Plan (QPP) retirement pension (for example, an award letter issued by Human Resources and Skills Development Canada).

For more information, go to Employees who are 60 to 70 years of age.

New rules

Starting January 1, 2012, you may have to deduct CPP contributions from the pensionable earnings you pay an employee who is 60 to 70 years of age, even if the employee is receiving a CPP or QPP retirement pension.

Under the new rules, an employee who works and receives a CPP or QPP retirement pension will now have to contribute to the CPP if he or she is:

  • 60 to 65 years of age;
  • 65 to 70 years of age, unless the employee has filed an election with you or another employer to stop paying CPP contributions (the election will take effect on the first day of the month following the month the employee provides you with a completed and signed election form);
  • 65 to 70 years of age, if the employee revoked his or her election to stop paying CPP contributions in 2013 or later.

Notes
These legislative amendments do not affect the salary or wages of an employee who is considered to be disabled under the CPP or QPP, nor do they affect the salary and wages of a person who has reached 70 years of age. Do not deduct CPP contributions from the salary and wages that you pay these employees.

Employees working in Quebec and other workers not subject to the CPP will not be affected by these changes.

You will have to deduct CPP contributions from an employee who is employed in pensionable employment and is receiving pensionable earnings, and meets one of these conditions:

  • who is currently receiving a CPP or QPP retirement pension and is 60 to 65 years of age, even if it means deducting from someone who was not contributing in a previous year because he or she was receiving a CPP/QPP retirement pension;
    OR
  • who is currently receiving a CPP or QPP retirement pension and is 65 to 70 years of age, and who has not given you a copy of a signed and completed Form CPT30, Election to Stop Contributing to the Canada Pension Plan, or Revocation of a Prior Election.

Note
The CRA can assess you for failing to deduct CPP contributions or for failing to remit the CPP contributions to the CRA as required. The assessment may also include penalty and interest charges. For more information, go to Penalties, interest, and other consequences.

Starting dates for implementing Form CPT30

If, in December 2011, an employee is at least 65 years of age and is receiving a CPP or QPP retirement pension and does not want to start contributing to the CPP in January 2012, then that employee should make his or her election to stop contributing to the CPP by providing a copy of a signed and completed Form CPT30 to you and any other employer he or she has as early as possible in December and sending the original form to the CRA.

Source: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/clcltng/cpp-rpc/cppchng-wh-eng.html

 

Employment Insurance rates for 2012

Employment Insurance 2012

Employment Insurance (EI) premiums will be increasing in 2012.  The maximum insurable earnings for 2012, applicable to all provinces and territories, will be $45,900 – up from $44,200 in 2011.

The employee’s premium rate will be 1.83% for a maximum annual premium of $839.97 ($786.76 for 2011) for the country except for Quebec.

Contributions for employers will remain at 1.4 times the amount of the employee’s premiums, for all provinces and territories.  The  maximum annual premium is $1,175.95 ($1,101.46 for 2011) in all provinces and territories except for Quebec unless the employer qualifies for a reduced rate.

EI premium rates and maximums

Year Max. Annual Insurable Earnings Rate (%) Max. Annual Employee Premium Max. Annual  Employer Premium
Federal Quebec Federal Quebec Federal Quebec
2012     $45,900 1.83 1.47 $839.97 $674.73 $1,175.96 $944.62
2011     $44,200 1.78 1.41 $786.76 $623.22 $1,101.46 $872.51
2010     $43,200 1.73 1.36 $747.36 $587.52 $1,046.30 $822.53
2009     $42,300 1.73 1.38 $731.79 $583.74 $1,024.51 $817.24
2008     $41,100 1.73 1.39 $711.03 $571.29 $995.44 $799.81
2007     $40,000 1.80 1.46 $720.00 $584.00 $1,008.00 $817.60
2006     $39,000 1.87 1.53 $729.30 $596.70 $1,021.02 $835.38

Canada Pension Plan 2012

Canada Revenue Agency announces maximum pensionable earnings for 2012

The Canada Revenue Agency (CRA) recently announced that the maximum pensionable earnings under the Canada Pension Plan (CPP) for 2012 will be $50,100 — up from $48,300 in 2011.

Contributors who earn more than $50,100 in 2011 are not required or permitted to make additional contributions to the CPP.

The basic exemption amount for 2012 remains $3,500. Individuals who earn less than that amount do not have to contribute to the CPP.

The employee and employer contribution rates for 2012 will be unchanged at 4.95%, and the self-employed contribution rate will remain at 9.9%.

The maximum employer and employee contribution to the plan for 2012 will be $2,306.70, and the maximum self-employed contribution will be $4,613.40. The maximums in 2011 were $2,217.60 and $4,435.20, respectively.

 

CPP contribution rates, maximums and exemptions

Year Max. Annual Pensionable Earnings Basic Exemption Maximum Contributory Earnings Employee Contribution Rate (%) Max. Annual Employee Contribution Max. Annual Self – Employed Contribution
2012    $50,100 $3,500 $46,600 4.95 $2,306.70 $4,613.40
2011    $48,300 $3,500 $44,800 4.95 $2,217.60 $4,435.20
2010    $47,200 $3,500 $43,700 4.95 $2,163.15 $4,326.30
2009    $46,300 $3,500 $42,800 4.95 $2,118.60 $4,237.20
2008    $44,900 $3,500 $41,400 4.95 $2,049.30 $4,098.60
2007    $43,700 $3,500 $40,200 4.95 $1,989.90 $3,979.80
2006    $42,100 $3,500 $38,600 4.95 $1,910.70 $3,821.40

Personal Lines of Credit are Charge Cards on Steroids

The financial institution where you do your banking may offer you a line of credit.  If you have a good credit history they may offer to give you an unsecured line of credit for $5,000 or $10,000 depending on your credit worthiness etc.  If you want a large line of credit say $100,000 it will be a secured line of credit.  You will have to provide the bank with some form of security, such as the equity in your home or cottage.

The advantages of a line of credit are similar to those of credit cards.  You don’t have to use it, you can use it a little bit or you can max it out.  You don’t have to get any approval to use it and you can use it to buy whatever you want.  It can be a great resource to draw upon in a time of emergency, when you don’t have the cash to pay for it  e.g. your old car dies and you need to replace it.

Also, because the line of credit is often secured by one of your personal assets the risk to the financial institution is much lower than credit cards so instead of charging 19% interest, as is the case with credit cards, a line of credit may be around 4%.

However, like the credit card, the advantages of  the line of credit are also its disadvantages.  Just as you can go temporarily insane and buy all kinds of things you didn’t need on your credit card, you can do the same thing on your line of credit — except on a higher level!    You might regret those expensive shoes you bought when the VISA bill comes in the mail.  But that is nothing compared to the $30,000 kitchen renovation you financed on your line of credit.

Perhaps the main problem with a line of credit is that there is no requirement to pay back the principal, the amount you borrowed.  The monthly interest charges on that $30,000 kitchen renovation is only $100 per month and you can easily afford that.  Trouble is 5 years later you may still owe $30,000.  And then what happens when interest rates go from their current low levels to higher historic levels.

O Canada! That’s the Song Forbes Magazine is Singing

Here’s what Forbes Magazine had to say about Canada:

Canada ranks No. 1 in our annual look at the Best Countries for Business. While the U.S. is paralyzed by fears of a double-dip recession and Europe struggles with sovereign debt issues, Canada’s economy has held up better than most. The $1.6 trillion economy is the ninth biggest in the world and grew 3.1% last year. It is expected to expand 2.4% in 2011, according to the Royal Bank of Canada.

Canada skirted the banking meltdown that plagued the U.S. and Europe. Banks like Royal Bank of Canada, Bank of Nova Scotia and Bank of Montreal avoided bailouts and were profitable during the financial crises that started in 2007. Canadian banks emerged from the tumult among the strongest in the world thanks to their conservative lending practices.

Canada is the only country that ranks in the top 20 in 10 metrics that we considered to determine the Best Countries for Business (we factored in 11 overall). It ranks in the top five for both investor protection as well as lack of red tape, which measures how easy it is to start a business.

Reference: http://www.forbes.com/sites/kurtbadenhausen/2011/10/03/the-best-countries-for-business/

How to Give Like Santa and not end up like Scrooge

December is the time of year employers often choose to give a gift to their employees as a Christmas present.  However, anytime there is an exchange between the employer and an employee the tax consequences need to be considered.

Canada Revenue Agency has the following rules for gifts:

Cash and near-cash gifts or awards are always a taxable benefit to the employee.   A near-cash item is one that can be easily converted to cash such as a gift certificate, gift card, gold nuggets, securities, or stocks.

Non-cash gifts given to employees up to a total value of $500 are exempted from being treated as a taxable benefit to the employee with the following conditions:

  1. A gift has to be for a special occasion such as a religious holiday, a birthday, a wedding, or the birth of a child;
  2. There is no limit to the number of tax-free non-cash gifts and awards you may give your employee in a year;
  3. The employee must be unrelated [at arm's length] to the employer;
  4. If you give gifts totalling more than $500 the excess amount is taxable.  For example,  if you give an employee gifts in the year  with a total value of $650, there is a taxable benefit of $150 ($650 -$500).

 

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