November 2017 Newsletter

Historically, the administrative position of the Canada Revenue Agency (“CRA”) in respect of employee discounts was as follows: Generally, if the employer sold its goods to its employees at a discount, but at a price that was at least equal to the employer’s cost, there was no taxable benefit for the employees.

In an apparent about-face, a recent Income Tax Folio published by the CRA indicated that employee discounts would be taxable, unless the discount was available to the general public. Not surprisingly, this position caused an outcry and made front page news.

General rules

Personal use property (“PUP”) is defined generally as property that you or a non-arm’s length person uses primarily for personal purposes. PUP typically includes property such as your home, cottage, car, furniture, appliances, clothing, art work, bicycles, and so on.

If you sell a PUP at a gain, one-half of it is included in your income as a taxable capital gain. This is the same rule that applies to any capital property.

If you sell a PUP at a loss, the loss is normally denied. However, a loss may be claimed if the property is a “listed personal property”, though only against gains from listed personal property.

General rules

There are three types of persons and taxpayers for income tax purposes: an individual, a corporation, and a trust.

A partnership is not considered a person or a taxpayer. It is a relationship, generally defined as two or more persons carrying on business with a view to profit.

Therefore, a partnership does not file a tax return and does not pay taxes. (However, as noted below, a partnership may have to file an information form.) Instead, the partners report their shares of the partnership income or loss on their tax returns, along with their other income or losses. The partnership is essentially treated as a “flow-through” entity or relationship rather than a person.

Deduction for Business

If you use your car in the course of carrying on your business, you can deduct most of your car expenses associated with the business travel. The deductible expenses include items such as:

  • Gas;
  • Insurance;
  • Licenses;
  • Repairs and maintenance;
  • Leasing costs if you lease the car;
  • Interest on car loan to buy the car;
  • Capital cost allowance ("CCA"), which is depreciation claimed for tax purposes, if you own the car.

Until recently, your employer was required to mail your T4 slips (reporting your employment income, taxes withheld, etc.). Your employer could provide them by electronic means, but only if you had previously consented.

Lawyer not allowed to deduct losses from law practice

If you carry on a business and incur a net business loss in a taxation year, the loss can be used to offset other sources of income for the year. However, if your activities do not constitute a business so that you do not have a "source of income", your loss will not be deductible.

Normally, if your activities are clearly commercial in nature and there is no personal element to them, you will have a source of income and any losses will be deductible as noted above.

An unusual recent case held that a lawyer practising law on a part-time basis did not have a business, so her losses from the practice were disallowed. Normally, one would think that a law practice has little or no personal element and that losses would be allowed.