Home office costs

The costs of home office can only be deductible when:

  • The place where individual principally performs the duties of the office or employment or
  • Used exclusively during the period in respect of which the amount relates for the purpose of earning income from the office or employment and used on a regular and continuous basis for meeting customers or other persons in the ordinary course of performing the duties of the office or employment

If the home office is in rented property, the percentage of rent and any maintenance cost can be deductible only if it is related to the home office.

For an employee, the deductions of home office costs include maintenance costs such as fuel and electricity, light bulbs, cleaning materials and minor repairs. For a salesperson, he can deduct the maintenance cost in addition to property taxes and house insurance program.

Note that the deduction of home office is limited to the employment income. That means the home office cost cannot be used to create an employment loss. However, the excess amount can be carried forward to the following year.

Legal Expense

Employees are allowed to deduct any legal costs paid to collect or establish the right to salary or wages owed by an employer or former employer. Also deductible are legal costs incurred to recover benefits, such as health insurance that are not paid by an employer or former employer but that are required to be included in employment income when received.

Disability Insurance

Employees paying premiums on the disability insurance are not deductible by the employee at the time they are made. They can only be deducted later when the claim has being made. This also depends on if the employer has made any contributions to the plan. If the employer has made any contributions to the plan, benefits received by an employee must be included in employment income. However, the cumulative contributions made by the employee to the plan that is paying the benefits can be used deducted. On the other hand, if the employer did not make any contribution to the plan, the premiums paid by the employee are not taxable.

 

Employment benefits/expenses

According to the income tax act, employment is defined as the position of an individual in the service of some other person.

 

Bonus

Bonus is taxable to the employee as the employee receives it not when it is declared. However, employer can deduct this amount when it is declared if the bonus is paid within 180 days of the business year end. If it is paid after the 180 days after it is declared but before 3 years after the year end, then the employer can deduct the bonus amount when it is paid. However, if the bonus is paid after 3 years after the year end, the employer deducts it when it is earned. The table below summarizes the tax consequences of different types of bonus received by employees.

 

Types of Bonus Tax Consequences
Standard Bonus (Paid within 180 days of business year end) The employer deducts when declaredThe employee includes when received
Other Bonus (Paid more than 180 days after the employer’s year end, but prior to three years after the end of the year in which the bonus was earned) The employer deducts when paidThe employee includes when received
Salary Deferral Arrangement (Paid more than three years after the end of the year in which it was earned) The employer deducts when earnedThe employee includes when earned

Age Credit

The age credit is eligible for individuals who has attained the age of 65 years before the end of the year. However, this credit is reduced by the individual’s 15% of excess net income over the threshold amount ($32,961)

 

For example, an individual above the age of 65 earns a net income of $45,000. Then the tax credit available to this individual is:

Age tax credit base                                                                                 6537

Less: Base reduction of lesser of:

–          Credit base                                                                    6537

–          Taxable income minus threshold 15%(45,000 – 32,961)     1806

Lesser amount                                                                                        1806

Net tax credit base                                                                                  4731

Tax credit (15%)                                                                                                  710

 

Note that the age credit is transferrable to a spouse or partner.

Caregiver credit for in-home care of relative

Individuals are entitled to credit of up to $4,282 for residing with an providing in-home care for an adult relative. For this purpose, the relatives include the individual’s child or grandchild or the spouse’s parents, grandparent, brother, sister, aunt, uncle, nephew or niece. A parent or grandparent must either have attained the age of 65 years or be dependent because of physical or mental infirmity. All other dependent relatives must have attained the age of 18 and be dependent because of mental or physical infirmity.

This credit amount is reduced by the dependent’s net income in excess of $14,624. This means that this tax credit is not available once the dependent’s net income reaches more than $18,906. (14,624+4,282)

 

Equivalent-to-married (ETM) status for wholly dependent person credit:

A tax credit base equal to the tax credit base for married status is provided for a wholly dependent person where the taxpayer is not entitled to a married credit. This credit might apply to an individual who, at any time in the year, was single, divorced, separated, widowed and who supported a dependent who is:

–          Related to the individual by blood, marriage, adoption or common-law relationship

–          Under 18 at any time during the year, or the individual’s parent or grandparent, or mentally or physically infirm;

–          Living with the individual in a home that the individual maintains and

–          Residing in Canada

Note that only 1 ETM credit may be claimed in one year.

Married Status Credit

How to compute?

 

Basic personal tax credit base in 2011                                                       10527

Spouse’s tax credit base in 2011                                       10527

Less spouse’s net income                                                 XXX

Net amount                                                                    XXX                 XXX

Tax credit (15%)                                                                                                XXX

 

If a taxpayer has multiple spouse or common law partners, he can only claim one spousal credit.

Infirm Credit (Disability Credit)

The disability tax credit is available to taxpayers who have a severe and prolonged impairment in physical or mental function that has been certified by a medical doctor.

An additional supplement amount can be claimed for each disabled child under 18 years of age at the end of the year. However, this amount may be reduced by particular child expense and attendant care expense.

Transferring disability credit

All or part of the credit may be transferred to a spouse or a supporting person who claimed the disabled individual as a dependent under the eligible dependent provision or as a disabled dependent over 17.

Available transferees include:

  • Parents
  • Grandparents
  • Children
  • Grandchildren
  • Brothers
  • Sisters
  • Aunts
  • Uncles
  • Nieces
  • Nephews

Textbook Credit

Students are eligible for textbook credit for each month in which the student is entitled to claim the education credit.

–          65 dollar credit base for full time student

–          20 dollar credit base for part time student

 

Carryforward and Transfer of Tuition Credit

The tuition credits may be transferred to a spouse, parent or grandparent of the student. The student must specify in writing the amount that will be transferred.

 

The amount that can be transferred is computed as follows:

The lesser of:

a)       The amount determined by A-B

  • Where A is the lesser of
    • Student’s tuition credit and education credit for the year
    • Current year’s tax rate multiply by 5000
  • Where B is the amount of the student’s Part I tax payable after deducting credits for personal, age, pension, mental or physical impairment, EI, CPP, unused tuition and education

b)      The amount specify for transfer by the student

Note that unused credits are carryforward indefinitely

Education Credit

Students are eligible for a tuition credit if the student is enrolled as a full time student in a qualifying educational program at a designated educational institution. An alternative credit may be available to students if they attend a specified educational program.

st1:country-region w:st=”on”>Canada provides 15% tax credit for tuition fees paid in the year to a Canadian college, university or other educational institution that provides courses at a post secondary level or a non-credit course in a certified educational institution inCanada which provides students with occupational skills training. Note that student union or association fees are not included. Also note that the above applies to Canadian universities. For University outside ofCanada, please consult a tax professional.

 

Tuition Credit

Canada provides 15% tax credit for tuition fees paid in the year to a Canadian college, university or other educational institution that provides courses at a post secondary level or a non-credit course in a certified educational institution in Canada which provides students with occupational skills training. Note that student union or association fees are not included. Also note that the above applies to Canadian universities. For University outside of Canada, please consult a tax professional.

Charitable donation tax credit:

What qualifies as a charitable gift?

Charitable gifts include:

  • Canadian registered charities
  • Registered Canadian amateur athletic associations
  • Prescribed universities outside of Canada
  • Certain tax –free housing organization in Canada
  • Canadian municipalities
  • The United Nations or its agencies
  • Charities outside of Canada to which the Government of Canada has made a donation in the year or preceding year
  • Crown gifts
  • Cultural gifts
  • Ecological gifts

 

How to compute?

(AxB) + C(D-B)

A = 15% (Current federal tax credit rate for the year)

B = First 200 dollars of the total gift

C = 29% (Highest federal tax bracket for the year)

D = Individuals total gift

 

Limitations and carry forwards

This credit is only limit to 75% of the taxpayer’s net income. If the eligible donation in one year exceeds the taxpayer’s 75% of net income, then the excess amount is carried forward to the next 5 years. The carried forward amount is then claimed first before any additional amounts can be claimed.

 

Dependent credit.

What are the conditions that must be met in order to claim this credit?

A dependant is classified as a child, grandchild, parent, grandparent, brother, sister, uncle, aunt, niece, nephew or spouse. In order for the taxpayer to claim this credit, the dependant of the taxpayer must have attained the age of 18 before the end of the year and be dependent on the taxpayer because of mental or physical infirmity.

 

How to compute?

Dependant’s tax credit base                                                                                              4282

Less dependant’s Division B income                                                         XXX

Minus: Threshold income (2011)                                                              6076                 XXX

Tax credit base                                                                                                               XXX

Tax credit (15%)                                                                                                                        XXX

 

Note that if the dependant’s net income is greater than $10358, then this credit is not available to the taxpayer

 

How long will it take to process your claim?

It may take up to 365 calendar days to process the claim. Some claims may take shorter amount of time and others make take longer depending on the type of claim.

Refundable claims – up to 120 calendar days to process
Non refundable claims – up to 365 calendar days to process.
Claimant-requested to refundable claim – up to 240 calendar days to process.
Claimant-requested to non-refundable claim – up to 365 calendar days to process.

Who Qualifies?

A CCPC has the chance of getting an investment tax credit of 35% for the first 3 million dollars of expenditure in research and development in Canada. The CCPC can then earn 20% of the subsequent expenditure. Other types of companies such as corporations, proprietorship, partnerships and trusts are eligible for a tax credit of 20% for all the qualified expenditure they spent on research and development in Canada.

If a CCPC’ s taxable income does not exceed the qualifying income limit then they may receive a portion of the credit as tax refund after using the credits to reduce their taxable income. Proprietorship and certain trusts may also receive a partial refund for their credits after using the credits to reduce their taxable income. However, corporations other than CCPC may not receive a refund for the tax credit earned for research and development expenditure. They can only use the credits to reduce their taxable income.

What is the SR&ED Program?

SR&ED Program is the Scientific Research and Experimental Development program. This program is designed for Canadian businesses to encourage them to participate in research and development which in hope that it will lead to advanced products and improved technologies. The federal government has made many contributions to this program and it is one of the largest supports for the industrial research and development.

Wages, materials, machinery, equipment, some overhead and SR&ED contracts can be used as tax credits.

Note: CRA is responsible for running the program and the Department of Finance is responsible for the legislation regarding the program