February 2016 Newsletter

Deductible Tax-Free Car Allowances

Employers can normally deduct reasonable tax-free car allowances provided to employees. The limit on the employer’s deduction of tax-free car allowances is determined each year on a per-kilometer basis. It usually stays the same as the previous year or increases. 

Readers are likely aware of the principal residence exemption under the Income Tax Act (“Act”), which normally exempts all or part of the gain from the sale of your home from income tax. For example, if you have lived in the home during all years during which you owned it (or all years but one), the rule will normally exempt the entire gain on the sale of the property. If you have lived in the residence for fewer years, typically only a part of the gain will be exempt.

A special rule in the Act allows to rent out your home for a specified period and still claim the exemption in respect of the rental period.

An ABIL is a special type of allowable capital loss that is subject to preferential tax treatment. The special rule relating to an ABIL is that, unlike an ordinary allowable capital loss, it is deductible against all sources of income and not just taxable capital gains. Generally speaking, other allowable capital losses can be deducted only against taxable capital gains.

 A special reporting rule in section 233.3 of the Income Tax Act requires you to file an information return with the CRA if the total cost of your foreign investment property at any time in the year exceeds $100,000. This form, T1135, requires quite detailed information. The property that must be reported includes foreign securities in your Canadian brokerage accounts, and any securities in foreign brokerage accounts, as well as many other assets. However, investments in your RRSP, RRIF or TFSA need not be reported as you don't own them directly.

 The CRA recently announced the new prescribed interest rates that apply to amounts owed to the CRA and to amounts the CRA owes to individuals and corporations. The amounts are subject to change every calendar quarter. The following rates are in effect from January 1, 2016 to March 31, 2016, and remain unchanged from the last several quarters.

Pooled tips at restaurant were subject to CPP and EI withholding

In the recent Andrew Peller Ltd. case, the taxpayer was a company that operated some restaurants at its wineries. In the restaurants, the taxpayer employed numerous servers, wait staff, bus persons, and so on. Instead of allowing servers or wait staff to retain for themselves the tips they received from customers, the taxpayer had a system under which the tips were pooled into one large “account”, and later divided up and paid to the various employees in the restaurants.