When Free Parking is not Free

In a recent court case Anthony v. Canada(2011 FCA 336) it was held that free parking provided to employees at a workplace is a taxable benefit that must be included in an employee’s income.  This case involved approximately 100 employees of Branksome Hall, a private girls’ school in Toronto.  The employees were assessed a taxable benefit by the CRA based on the Fair market value of the free parking provided by the school.

The wording in the Income Tax Act  as it pertains to taxable benefits seems to give the  CRA  considerable scope in determining what is a taxable benefit.  Armed with this broad definition and a need for ever increasing tax revenues one can only wonder what employee benefit CRA will  set its sights on next.

 

2012 Automobile Benefits Online Calculator

On January 17 2012 CRA updated the Automobile Benefits Online Calculator to calculate benefits for 2012:

http://www.cra-arc.gc.ca/ebci/rhac/welcome.do

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).

 

Ontario Trillium Benefit

The Government of Ontario recently announced they are changing the way they will be paying the Ontario Energy and Property Tax Credit (OEPTC) and Northern Ontario Energy Credit (NOEC) the Ontario Sales Tax Credit (OSTC).  The following information is from visit ontario.ca/trilliumbenefit.

Through refundable tax credits, the Province provides relief to low- to moderate-income Ontarians for the taxes and energy costs they face. Through the Ontario Trillium Benefit (OTB), the Province transformed the delivery of Ontario’s key refundable tax credits by making payments to Ontarians earlier and more frequently than before. This approach ensures that the payments better match when people incur these costs. In the past, most refundable tax credits were paid once a year, after people filed their tax returns.

Ontario Trillium Benefit

Eligible Ontarians received the first of four instalments for the 2011 Ontario Energy and Property Tax Credit (OEPTC) and Northern Ontario Energy Credit (NOEC) in July. Subsequent payments will be made in December 2011, and March and June 2012. In addition, they received the first two of four instalments of the 2011 Ontario Sales Tax Credit (OSTC) in August and November 2011 with more payments coming in February and May 2012.

The Province is providing a total of $2.4 billion each year through the OSTC, OEPTC and NOEC. The payments of these three credits will be combined and delivered monthly as the OTB, starting in July 2012.

Summary of Tax Credit Payment Schedule
  2011 2012
  Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
NOEC Payment         Payment     Payment     Payment            
OEPTC Payment         Payment     Payment     Payment            
OSTC   Payment     Payment     Payment     Payment              
OTB                         Payment Payment Payment Payment Payment Payment

See below for examples.

Eligibility

You must be eligible for at least one of the OSTC, OEPTC or NOEC to receive the OTB. For more information on eligibility requirements for these credits, visit ontario.ca/taxcredits.

Application

To apply, you must complete Ontario Form ON-BEN which is part of the 2011 T1 General Income Tax and Benefit Return package and file it with the Canada Revenue Agency (CRA). The normal deadline for filing individual tax returns is April 30th each year. Failure to file by this deadline may result in delay in receiving OTB payments.

Direct Deposit

To ensure timely delivery of payments, benefit recipients can have payments deposited directly into their bank accounts.

For the OSTC, OEPTC, NOEC and other federally-administered benefits, recipients can request direct deposit using the ‘My Account’ service or by completing a Direct Deposit Request form available on the CRA website. Help in completing the form is available by calling the CRA at 1 800 959-8281.

Tax Filing Assistance

There are no-cost ways to file a personal tax return.

People with simple tax returns may be able to use the CRA‘s Telefile service to file by telephone, or free tax preparation software from a variety of online services.

The Community Volunteer Income Tax Program is a partnership between the CRA and various community organizations through which volunteers in communities help eligible people who are not able to prepare their income tax and benefit returns by themselves.

For more information about the volunteer tax preparation clinics visit www.cra.gc.ca/volunteer or call the CRA‘s individual income tax enquiries line at 1 800 959-8281. New clinics are added as they become available, especially leading up to the tax filing deadline.


Illustrative Examples (Using 2011 Credit Amounts)

Example 1:

A single parent with one child and adjusted net income of $20,000 paying $629 per month in rent would receive a total of $936 from the OSTC and OEPTC over eight payments. Under the proposed OTB, the single parent would receive 12 equal monthly payments.

   2012 2013   
  Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Total
Current ($) 133 101 133 101 133 101 133 101 936
OTB ($) 78 78 78 78 78 78 78 78 78 78 78 78 936

Example 2:

A senior couple with adjusted family net income of $35,000 paying $1,200 per month in rent would receive a total of $984 from the OSTC and OEPTC over eight payments. Under the proposed OTB, the couple would receive 12 equal monthly payments.

   2012  2013  
  Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Total
Current ($) 37 209 37 209 37 209 37 209 984
OTB ($) 82 82 82 82 82 82 82 82 82 82 82 82 984

Example 3:

A family of four with adjusted family net income of $25,000 paying $920 per month in rent would receive a total of $1,536 from the OSTC and OEPTC over eight payments. Under the proposed OTB, the family would receive 12 equal monthly payments.

  2012  2013   
  Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Total
Current ($) 265 119 265 119 265 119 265 119 1,536
OTB ($) 128 128 128 128 128 128 128 128 128 128 128 128 1,536

 

 

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