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Lecture

Notes Chapter2.pdf

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Department
Economics
Course
ECON 4400
Professor
All Professors
Semester
N/A

Description
Ch. 2 Employment Income + Salary CommissionIncome + Taxable Benefits (paid by employer) - Allowable Deductions (paid by employee) = Net Employment Income A-1 AUTOMOBILE BENEFITS Standby Charge – Owned car 2% x Cost of Car x number of months Operating Cost Benefit Personal km x 24¢ If car is leased by employer, the standby charge 2/3 x monthly lease x number of months (exclude any insurance cost) A – 2 AUTOMOBILE BENEFITS Compute Employment use of Automobile - km for Employment = % Total km Driven If Employment use > 50% Operating Cost Benefit can be reduced to ½ Standby Charge (if lower) A – 3 If Employment use is > 50% Standby Charge is reduced Original Standby Charge x Personal km 1,667 x number of months Net Employment Income Problems Approach (1) Determine who is making the payment for the amount. Whether it is: Employer Employee (2) If it is Employer Payment ↓ Is it taxable or non-taxable? (3) If it is Employee making payment ↓ Is it an allowable deduction or non-deductible payment? S – 1 Salesperson’s Expenses - are allowed to claim all expenses considered necessary in performance of duties - must receive part of remuneration in form of commissions - Employer signs T2200 to authorize salesperson to deduct expenses - ordinarily required to carry out duties away from employer’s place of business S – 2 Salesperson’s Expenses - expenses, except for CCA on automobile, and interest expense on car loan, are limited to total amount of commission income - if employer reimburses employee for expenses, the reimbursement must be included in income SO – 1 Stock Option Benefits - Stock option is given to employee to purchase shares at a specific price. Option price is price indicated on stock option Stock Option Benefit Example Option to purchase 1,000 shares at $25. The option is exercised when market value of shares is $40. Taxable Benefit is: Proceeds 1,000 X 40 = $ 40,000 Cost 1,000 X 25 = 25,000 Employment Income 15,000 SO – 2 rd When shares are sold to a 3 party, for $50, there is a capital gain Proceeds 1,000 X 50 = $ 50,000 ACB (Cost) 40,000 Capital Gain = 10,000 (50%) Taxable Capital Gain = 5,000 When is employment income recorded? rd a) For CCPC shares, it is recognized when shares are sold to 3 party b) For public company shares, it is taxable when exercised. However, an employee can elect to defer recording employment income to up to $100,000 of shares until the shares are sold to a 3rdparty. If no election is filed, it is taxable when the option is exercised. This election can only be filed if the option price is more than the fair market value of the shares when the option is granted, and the employee does not own 10% or more of the corporation’s shares. SO – 3 When does the ½ deductions apply as a reduction in employment income? It applies as follows: a) If share are for a public company, option price must be ≥ the market value of the shares when the option is issued b) If shares are for a CCPC, option price must be ≥ the market value of shares when the option is issued or the shares must be held for at least two years after acquisition Taxable Benefit Loans to Employees If a low – interest or interest free loan is given to employee, a taxable benefit is calculated based on the imputed interest calculated at the prescribed rates specified in ITA Home Office Expenses - are deductible if: 1) it is the employee’s principal place of employment or 2)the office is us
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