2021 (10)

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January 2021 Newsletter

January 2021 Newsletter (5)

  • Taxation of employee stock options and upcoming changes
  • Taxation of shareholder loans
  • Foreign exchange gains and losses
  • Patronage dividends of agricultural cooperatives
  • Around the courts

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February 2021 Newsletter

February 2021 Newsletter (5)

  • Income splitting and attribution rules
  • Extra deductions for commissioned salespersons
  • Employee home office expenses:flat rate method during COVID
  • Principal-residence exemption
  • Car expense limits for 2021

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The Canadian income tax system employs a graduated tax rate system, which means that the higher your taxable income, the higher the tax rate or tax bracket that applies to the income.

Employees are allowed fairly limited deductions in computing their employment income for tax purposes. For example, they can normally deduct union dues, professional fees, the cost of supplies, and home office expenses for items like rent, supplies, heat, utilities and maintenance. Certain conditions must be met. We provided information about deductible home office expenses in our June 2020 Letter. (As discussed in the next section of this Letter, the CRA will allow a simplified “flat rate” method for employees working at home during the COVID-19 pandemic.)

As noted above and discussed in more detail in our June 2020 Tax Letter, employees can deduct certain home office expenses. Normally, you need to keep records or receipts, certain conditions apply, and the Form T2200 must be signed by their employer.

Obviously, during the current COVID-19 pandemic, many employees have been working from home. As a result, the Canada Revenue Agency will allow an alternative, simplified “flat rate” method for deducting home office expenses for the 2020 year. If you qualify and choose this method, you do not need to keep records or receipts or obtain the Form T2200.

If you sell your home for a gain, it is normally considered a capital gain. However, the principal residence exemption allows homeowners to sell their residences at a gain with no or little tax.

In 2021, the maximum tax-free car allowance deductible for employers for allowances paid to their employees remains the same as the 2020 amount: 59 cents per kilometre for the first 5,000 kilometres driven, and 53 cents per kilometre for each additional kilometre driven during the year. For the Northwest Territories, Nunavut and Yukon, the maximum deductible tax-exempt allowance is 4 cents higher: 63 cents per kilometre for the first 5,000 kilometres driven, and 57 cents per kilometre above that. 

Currently, employee stock options are taxed preferentially under the Income Tax Act relative to other forms of remuneration. 

There is no taxable benefit to the employee when the stock option is granted. Instead, the inclusion of the stock option benefit is normally deferred to the year that the option is exercised and the underlying shares are acquired. However, if the employer issuing the shares is a Canadian-controlled private corporation (CCPC), the inclusion of the benefit is deferred further to the year that the shares are sold

When you take out a loan from a bank or otherwise, the amount of the loan is obviously not included in your income.

However, if you are a shareholder of a corporation and receive a loan from the corporation, the "shareholder loan rule” under the Income Tax Act applies such that the principal amount of the loan will be included in your income, unless you fall within one of the exceptions discussed below.

There are a few ways you can have a foreign exchange (FX) gain or loss. 

If you do, you will have a taxable capital gain or allowable capital loss (unless you are in the business of trading foreign currency, in which case your gains and losses will be business income or loss).

When an agricultural cooperative corporation pays a patronage dividend, the recipient is normally required to include the dividend in the year of receipt. The cooperative is required to withhold tax on the dividend.

Grievance payment included in income

Most payments received in relation to your employment or loss of employment are included in your income. 

However, a payment of damages for personal injury (for example, physical or mental injury or distress) is normally not included in income.