ACCO 340 Study Guide - Midterm Guide: Taxation In Canada, Withholding Tax, Departure Tax
11 Jan 2017
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Chapter 1: The Canadian Tax System
The Law should provide the following:
(1) Who is liable for tax? (2) Amounts (base) subject to tax (3) What are the rates of tax (4) When & how is the tax to be paid?
Chapter 20: Residency
Under Canadian tax law, it is important to determine if the taxpayer is a resident or not of Canada. A resident will be taxed on
his worldwide income, while a non- resident is taxed only on Canadian source income.
Citizenship ≠resident
Primary social & economic ties:
• Dwelling place
• Spouse/common law partner
• Dependents: kids
Secondary residential ties:
• Personal property
• Social ties: social clubs, passports, HTL, DRL
• Economic ties: Employment income, investment
income
• Member of Canadian union, profession association
Temporary absence
1. Intention (seen thru actions)
2. Frequency of visits (how long)
3. Residential ties outside Canada
Become a non-resident:
• Sell home or lease it on a long term bases
• Move personal effects or sell them
• Close bank accounts
• Cancel credit card with Canadian financial institutions
• Immediate family should move ASAP
• Cancel Canadian registration of cars, boats
• Keep visits to Canada to a minimum
• Cancel provincial hospitalization plan (i.e., Medical
Card)
Sojourner Rule:
For any visitors, in any year that stayed 183 days (non-
consecutive) in Canada. The commute doesn’t count.
Deemed Resident of Canada (army, ambassador)
Spouses and children (-11k income); sojourner rule
Part-year resident
An individual coming to Canada or leaving Canada will be
considered a part year resident for that particular year:
• Taxed on worldwide income while resident
• Taxed on Canadian source income while a non-resident
• Personal credits will be pro-rated
Non-residents
1. Employment income earned in Canada
2. Business income earned in Canada
3. Taxable capital gains from the disposition of Taxable
Canadian Property
Investment & other sources of income earned in Canada
will be taxed under Part XIII of the ITA
• Withholding tax of 25%.
• Legal obligation of the payer (security for departure
tax)
• Election; elective dispositions (farm property, elect to
have a deemed disposition on a certain type of property
that is exempt for general deemed disposition rule.)
• Tax Treaties: entered between countries to facilitate
cross-boarder trade & investment (double taxation
problems)
Concept of income:
1. Employment income (cash basis)
2. Business & Property income
3. Taxable capital gains
4. Other income
5. Other deductions
Person
• Individual – Calendar year
• Corporation – Fiscal period (53 weeks)
• Trust – Calendar year or other
Corporations
• Incorporated in Canada after April 26, 1965:
Deemed to be a Canadian resident
• Incorporated in Canada before April 26, 1965:
Treated as a resident if: Mind & management is in
Canada; Carries on business in Canada
• Incorporated outside of Canada
Where is Mind & Management? If it’s in Canada they
will be a Canadian Resident
• Mind & management: Resides where the highest
functional decisions of a corporation are made (not day
to day). Residence of BOD
find more resources at oneclass.com
find more resources at oneclass.com
Chapter 3: Income/Loss From an office or employment
Bonus Arrangements
• Cash basis: the employee declares the bonus the year
he receives it
• Salary deferral Arrangement: accrual basis. When a big
amount is announced after a LT project, employee can
declare it on several years (not to pay the taxes all in
one year)
Employee VS Self-employed
• Deductions: self employed has more deductions than
employee
• CPP: Employee pays ½ Employer pays ½ self-employed
pays 2/2
• EI: employee must pay, self-employed has the option.
• Fringe benefits: employee has more benefits than self
employed
• Opportunity of tax evasion: employee doesn’t have the
choice to declare or not revenues. Self-employed the
government must look, audit
• GST/QST registration: self-employee must register and
charge them.
The tests to determine self-employment (ALL FACTORS)
• Control: Who? (Schedule)
• Ownership of tools & equipment: Who owns them?
• Ability to subcontract/Hire assistants: Need an
approval?
• Financial risk: loose cx = loose income
• Responsibility for investment & management
• Opportunity for profit: receives all the income?
Employer’s car usage
Standby Charge:
• Owned: 2% * cost of car (paid at beg) * #months available
• Leased: 2/3 * monthly lease * #months available
• Reduced by any reimbursement
• Home to work is considered personal usage
Reduced Standby Charge:
• Less than 1667 km/month AND
• 50% or more for work related
SC * [personal KM/(1667*#months available)]
Operating Cost Benefit (lease of):
• Rate method: $0.27 * personal KM
• 50% * reduced standby charge
• Always choose the lease
• Leave keys to employer when not needed
• Record keeping: keep a log
Gas Allowance
• $0.55 first 5000km
• $0.49 exceeding km
Employee loans
• Benefit
• Capital loan * [Prescribed rate –
Interest rate paid]* X/12
• Usually calculated per quarter
Housing Loans
• New Job, 40 KM of old residence
• Prescribed rate VS rate paid, every 5 years
Forgiveness of employee loan
• Becomes an income
• Remove the employee loan taxed benefit of previous
years (deduction)
Eligible Housing Loans
• 40 km
• First 15K not taxable, exceed 50 % taxable
Non- Taxable Benefits:
(Employer pays but not work related)
• Registered pension plan
• Private health service plans
• Deferred profit sharing plan
• Counselling services: (physical, mental, re-employment,
retirement)
• Discounts; recreational facilities; reimbursement of
moving expenses
• Employer provides computer/Internet home programs
• Uniforms
• Frequent Flyer points: Not for Tax evasion
• Group accident/sickness insurance plans
Benefits received are sometimes taxable: who paid
premium?
- Employee 100% = not taxable
- Employer 100% = 100% taxable
-% Employee % Employer = taxable – contributions since day
one of employee
Taxable benefits:
• Board & lodging: free/low rate for condo, vacation
• Non-cash gifts: Above 500$ (exceed)
• Non-cash awards: Above 500$ (exceed)
• Holiday trips: All taxable even for spouse
• Non-group employee’s premiums paid by employer: if
it’s not paid for ALL employees
• Tuition fees: if work related 0$ if not work related
taxable
• Financial counselling + tax prep
• Interest free/low interest loans
Difference between market and paid
• Employer provides automobile (operating cost benefit
+ Standby charge)
• Life insurance: except if REQ by bank
• Personal/living expenses
• Club dues & memberships: Personal benefit taxable,
business benefit non taxable
• Personal/living allowances: ALL ALLOWANCES are
TAXABLE except GAS
• Director fees: BOD always
Stock Option Benefit
Private CCPC
Public
Option date/price/Grant
0$
0$
Exercise date/price
Deffered
SOB
Sale date/price
SOB
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Under canadian tax law, it is important to determine if the taxpayer is a resident or not of canada. A resident will be taxed on his worldwide income, while a non- resident is taxed only on canadian source income. Primary social & economic ties: dwelling place, dependents: kids. Secondary residential ties: personal property, economic ties: employment income, investment. Concept of income: employment income (cash basis, business & property income, taxable capital gains, other income, other deductions. Intention (seen thru actions: member of canadian union, profession association. Temporary absence: frequency of visits (how long, residential ties outside canada. Become a non-resident: move personal effects or sell them, close bank accounts, cancel credit card with canadian financial institutions. Sell home or lease it on a long term bases. Immediate family should move asap: cancel canadian registration of cars, boats, keep visits to canada to a minimum, cancel provincial hospitalization plan (i. e. , medical.
