May 2015 Newsletter

In general terms, an employee stock option is an option granted by a corporate employer to an employee to purchase shares in the corporation (or a related corporation). The option gives the employee the ability to purchase shares at a preset price (the exercise price) over a set period of time (the term of the option). Typically, the employee will exercise the option at a time when the value of the shares is greater than the exercise price, so that the employee will make a gain or profit on the exercise.

There are several possible ways that you can realize a foreign exchange gain (or loss) for income tax purposes.

For example, suppose you buy a property using foreign currency, and later sell it for foreign currency proceeds. For Canadian income tax purposes, the cost of the property must be converted into Canadian dollars (C$) at the time of the purchase. Similarly, you must convert the proceeds into C$ at the time of the sale. As a result, you may have a gain or loss due to the fluctuation of the C$ against the foreign currency, even if the value of the property does not change in terms of the foreign currency.

The caregiver and infirm dependant credits are similar, in that they are available to an individual on whom an infirm adult is dependent upon support. However, there are some circumstances in which they differ.

Basically, the caregiver credit can be claimed by an individual in respect of an adult relative 18 years of age or over who lives with the individual in the year and who is dependent upon the individual for support. The relative must either be physically or mentally infirm, or, in the case of the individual’s parent or grandparent, 65 years or age or older. The federal credit for 2015 is 15% of $6,701 (of $4,608 if the parent or grandparent is not infirm), but is reduced if the dependant’s income exceeds $15,735.

Many individuals are not required to make tax instalments. For example, if employment income is your main source of income, income taxes are withheld from your salary or wages by your employer and remitted to the government on their behalf. If you have little or no other sources of income, you likely will not have to pay instalments.

One of the limitations on making deductible contributions to a small  is your “earned income” for the preceding taxation year. Basically, the calculation of your contribution limit for the current year begins with the lesser of the set dollar amount for the year ($24,930 for 2015) and 18% of your earned income for the preceding year. Unused RRSP room from previous years will add to your current year’s room. If you are a member of a registered pension plan, your RRSP room will be reduced by your “pension adjustment” for the preceding year.

Corporations carried on “personalservices business” – small businessdeduction denied

A Canadian-controlled private corporation (CCPC) is generally eligible for the small business deduction on the first $500,000 of its active business income each year. However, an anti-avoidance rule in the Income Tax Act provides that if the corporation carries on a “personal services business”, it is not eligible for the small business deduction, and its deductions from income are significantly restricted. (As well, since 2011, it pays a much higher tax rate than even large corporations.)