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Category: Business

When is a Gift Taxable?

Posted on by david

Recently, the tax rules regarding non-cash gifts and awards given by employers have been updated. To understand the changes, let us take a look at the different types of ways employees maybe be rewarded by employers.

Gifts are given to an employee for a special occasion. Awards is given for a work-related accomplishment, beyond the scope of the employees job description like outstanding services. An award may be given for years of service or given in a manner that is not common, like a draw, nomination process, or an evaluation, and the award is not given to many recipients.

If the gift or award is cash or akin to cash it is taxed like income. If the gift or award is not cash and the fair market value of the item is below $500 it is not taxed. Once the combined total of the gifts and awards exceed $500 at fair market value, then tax will be applied.

There are a few exemptions:

  • If a gift or an award is given after an evaluation process and there are a limited number of recipients, the amount is not taxable.
  • If the gift award was given for years of service, then the fair market value does not get linked with other gifts. However, the years of service must be for five or more years, and the recipient may not have received another award for years of service within the previous five years with the same employer. This is a new update.
  • Trivial items like a cup of coffee, a mug, or t-shirt are not included in combined total of non-cash gifts.

Included in the recent update are specific guidelines about gift cards, along with gift certificates and chip cards. They are considered “non-cash” if the card comes with money on it, it may only be used from a single retailer or a set group of retailers, and their terms and conditions of the card clearly state the amount loaded on the card may not be converted into cash.

For more details, visit the CRA’s website.

Deadline Extended – Canada Emergency Business Account (CEBA)

Posted on by david

The CEBA deadline has changed:

The repayment deadline for CEBA loans to qualify for partial loan forgiveness has been extended to January 18, 2024, for all eligible borrowers in good standing.

If the load remains outstanding past this due date, it will convert to a non-amortizing term loan with the full principal repayment due December 31, 2026.

Outstanding loans would subsequently convert to two-year term loans with interest of 5 per cent per annum commencing on January 1, 2024, with the loans fully due by December 31, 2025.

2024 Canada Pension Plan (CPP) and Employment Insurance (EI) Rates (includes 2023)

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CPP contributions for 2024:

Maximum pensionable earnings $68,500.00
Basic annual exemption -3,500.00
Maximum contributory earnings $65,000.00
Contribution rate 5.95%
Maximum employee contribution
($65,000.00 x 5.95%)		 $ 3,867.50
Maximum employer contribution
($65,000.00 x 5.95%)		 $ 3,867.50
Self-employed maximum $ 7,735.00
Starting in 2024, a higher, second earnings ceiling of $73,200 will be implemented and used to determine second additional CPP contributions (CPP2). As a result, pensionable earnings between $68,500 and $73,200 are subject to CPP2 contributions.
2024 additional maximum pensionable earnings $73,200.00
Additional maximum employee contribution 4.00%
Additional maximum employee contribution
($73,200.00 – $68,500.00) x 4.00%		 $ 188.00
Additional maximum employer contribution
($73,200.00 – $68,500.00) x 4.00%		 $ 188.00
Additional self-employed maximum $ 376.00

EI premiums for 2024:

Maximum annual insurable earnings $63,200.00
Premium rate 1.66%
Maximum employee contribution $ 1,049.12
Maximum employer contribution
($63,200.00 x 2.324%)		 $ 1,468.77

CPP contributions for 2023:

Maximum pensionable earnings $66,600.00
Basic annual exemption -3,500.00
Maximum contributory earnings $63,100.00
Contribution rate 5.95%
Maximum employee contribution
($63,100.00 x 5.95%)		 $ 3,754.45
Maximum employer contribution
($63,100.00 x 5.95%)		 $ 3,754.45
Self-employed maximum $ 7,508.90

EI premiums for 2023:

Maximum annual insurable earnings $61,500.00
Premium rate 1.63%
Maximum employee contribution $ 1,002.45
Maximum employer contribution
($61,500.00 x 2.282%)		 $ 1,403.43

E. & O.E.

2024 Combined Federal and Ontario Personal and Corporate Income Tax Rates (includes 2023 rates)

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2024 Combined Federal and Ontario Personal Income Tax Rates(I)

Taxable
Income		Salary/
Interest (%)		Eligible
Dividends (%)		Ineligible
Dividends(II) (%)		Capital
Gains (%)
First $51,44620.05(6.86)9.2410.03
$51,447–$55,86724.15(1.20)13.9512.08
$55,868–$90,59929.656.3920.2814.83
$90,600–$102,89431.488.9222.3815.74
$102,895–$106,73233.8912.2425.1616.95
$106,733–$111,73337.9117.7929.7818.95
$111,734–$150,00043.4125.3836.1021.70
$150,001–$173,20544.9727.5337.9022.48
$173,206–$220,00048.2932.1141.7224.14
$220,001–$246,75249.8534.2643.5124.92
Over $246,75253.5339.3447.7426.76

(I) These rates do not include the Ontario Health Premium. (II) These rates apply to the actual amount of taxable dividends received from taxable Canadian corporations. Eligible dividends are those paid by public corporations and private companies out of earnings that have been taxed at the general corporate tax rate. E. & O.E.

2024 Combined Federal and Ontario Corporate Income Tax Rates

2024
General Rate26.50%
Small Business (to $500,000)12.20%
Investment50.17%

Based on corporations with fiscal years commencing January 1, 2024, and ending December 31, 2024.

E. & O.E.

2023 Combined Federal and Ontario Personal Income Tax Rates(I)

Taxable
Income		Salary/
Interest (%)		Eligible
Dividends (%)		Ineligible
Dividends(II) (%)		Capital
Gains (%)
First $49,23120.05(6.86)9.2410.03
$49,232–$53,35924.15(1.20)13.9512.08
$53,360–$86,69829.656.3920.2814.83
$86,699–$98,46331.488.9222.3815.74
$98,464–$102,13533.8912.2425.1616.95
$102,136–$106,71737.9117.7929.7818.95
$106,718–$150,00043.4125.3836.1021.70
$150,001–$165,43044.9727.5337.9022.48
$165,431–$220,00048.2932.1141.7224.14
$220,001–$235,67549.8534.2643.5124.92
Over $235,67553.5339.3447.7426.76

(I) These rates do not include the Ontario Health Premium. (II) These rates apply to the actual amount of taxable dividends received from taxable Canadian corporations. Eligible dividends are those paid by public corporations and private companies out of earnings that have been taxed at the general corporate tax rate. E. & O.E.

2023 Combined Federal and Ontario Corporate Income Tax Rates:

2023
General Rate26.50%
Small Business (to $500,000)12.20%
Investment50.17%

Based on corporations with fiscal years commencing January 1, 2023, and ending December 31, 2023.

E. & O.E.

2024 Automobile Deduction Limits

Posted on by david

Capital Cost of Passenger Vehicles

The ceiling for CCA for passenger vehicles will be increased from $36,000 to $37,000, before tax, in respect of vehicles (new and used) acquired on or after January 1, 2024.

The ceiling for capital cost allowances (CCA) for zero-emission passenger vehicles will remain at $61,000, before tax, in respect of vehicles (new and used) acquired on or after January 1, 2024.

Leasing Costs

Deductible leasing costs will be increased from $950 to $1,050 per month, before tax, for new leases entered into on or after January 1, 2024. 

Tax-Exempt Allowance Limit

The limit on the deduction of tax-exempt allowances paid by employers to employees who use their personal vehicle for business purposes will increase by two cents to 70 cents per km for the first 5,000 km’s driven, and 64 cents for each additional km.

Maximum Allowable Interest Deduction

The maximum allowable interest deduction for amounts borrowed to purchase an automobile will be increased from $300.00 to $350.00 per month for loans related to vehicles acquired after 2023.

The general prescribed rate used to determine the taxable benefit of employees relating to the personal portion of automobile expenses paid by their employers will remain at 33 cents per km for 2024.

2024 Automobile Allowance

The automobile allowance rates for 2024 are:

  • 70¢ per kilometre for the first 5,000 kilometres driven
  • 64¢ per kilometre driven after that

December 18, 2023 – Ottawa, Ontario – Department of Finance Canada

Contact SSL Group for more information.

Vehicle Expense Deduction

Posted on by david

Many of our clients are confused with how the vehicle expense deduction works.  Please note that we usually refer to it as a ‘mileage deduction’, even though we use kilometres… we’re weird like that. 

How Does Mileage Deduction / Vehicle Expense Deduction Work?

Any corporation can reimburse you, as an employee, on a per-km basis. 

This reimbursement is tax-free to you, to a maximum of $0.70/km for the first 5,000km’s and $0.64/km thereafter (in 2024). 

Note that the rates usually change annually.

Tracking & Submitting Mileage Deductions

All you need to do here is track your mileage and submit it to your employer. 

All of your vehicle costs are paid out of your own pocket and unless the per km reimbursement is unreasonable (say $0.10/km), you are not allowed to deduct any vehicle costs that you paid personally, because you got a tax-free reimbursement from your employer to offset the costs.

This is often the most advantageous and efficient way for an owner of their own corporation to reimburse themselves for their vehicle usage.

Monthly Allowance For Mileage

On the other hand, if you are an employee, and your employer requires you to drive your own vehicle for work purposes (gives you a T2200), but doesn’t reimburse you on a per km basis like above, (say they give you a monthly allowance of $500/month instead), then things work differently. 

This monthly allowance is included on your T4 slip and therefore added to your total taxable income.

However, to offset this, you can deduct your actual vehicle expenses from your taxable income.

How Much Do I Deduct For Vehicle Expenses?

The amount to deduct is based on your total vehicle expenses, multiplied by the number of business km’s / total km’s.

This is referred to as an employment expense deduction. You still have to track your mileage, but it works a bit differently. You have to now track your total mileage for the year AND your business-use mileage for the year. 

You can use our template to help calculate this

Self-employed people would also have to track their mileage and all vehicle expenses the same way as above. They take all of their vehicle costs and prorate by the business use mileage over their total mileage.

What is Considered Business Use?

Well, this is not an easy question to answer, but basically, it is NOT to and from your work, or what is referred to as your regular place of employment – CRA considers that personal-use. 

However, if you go to your office, and then out to a client, or vice-versa, that is business-use.

If you drive directly to a client’s place of business and back home, that is business-use.

If you drive throughout the day from customer to customer, that is business-use.

If you pick up a coffee on your way to the office, that’s personal.

Things get a bit tricky when you have multiple places of regular employment or long-term job sites.

Medical mileage

This is really rare, and I’ve only seen it maybe half a dozen times, but if you require medical treatments that are not available in your vicinity and you need to travel more than 40km’s to a hospital or a specialist, and there is no reasonable public transit option, then you can claim vehicle expenses as medical expenses. You’d only be tracking your actual medical-rated mileage here.

The rules here are complicated, so call us if this applies to you.

Contact SSL Group in Barrie or Newmarket today.

HST Quick Method

Posted on by david

Correctly calculating and remitting HST to the CRA can become a time-consuming task for small to medium-sized businesses even when they have a dedicated accounting department.

If done incorrectly, it can lead to audits and other issues. To simplify the process, the CRA has introduced a “Quick Method” of accounting for HST.

What is the benefit of the Quick Method?

Not only is this method simpler but it can save you money, especially if you have limited taxable expenses or most of your expenses are salaries.

Normally, you collect HST on your sales of goods and services. From this amount, you deduct the HST that you pay on purchases of goods and services, called Input Tax Credits, or ITC’s. 

The difference gets remitted to the CRA. 

Under the Quick method, you still charge the standard HST rate (13% in Ontario) on any taxable supplies of goods or services. 

However, you are not entitled to claim any HST you pay on goods or services as you normally would, except for capital asset purchases (such as computers and vehicles).

So, why would you do this?

Well, under the Quick Method, you only have to remit a portion of the 13% you collect from your customers. 

The rates for remittance are: 

  • 4.4% for businesses that purchase goods for resale (antique dealers, convenience stores)
  • 8.8% for businesses that provide services

In addition, CRA allows a 1% credit on sales up to a maximum of $30,000 per fiscal year.

Here’s an example:

Bobby’s corporation Bobby Inc. has consulting revenues of $100,000, and $10,000 of HST-eligible expenses.

  • The regular method would have led to a remittance of: $100,000 x 13% = $13,000
    Less ITCs $10,000 x 13% = ($1,300)
    Amount to be remitted to CRA = $11,700
  • Using the Quick Method, the calculation is: $100,000 x 1.13 = $113,000 x 8.8% = $9,944                                                            
    Less Credit 1% of $30,000 = ($300)
    Amount to be remitted to CRA = $9,644

In this example, Bobby Inc. will save $2,056, which is included in the corporation’s income.

Now, The Quick Method isn’t available for everyone. For example, lawyers, accountants, bookkeepers, and financial consultants are among those not permitted to use it.

Furthermore, since the Quick Method is geared for small businesses if a business has revenues in excess of $400,000, the Quick Method is not permitted. Also, there are complicated rules for when the election can be made.

In conclusion, the Quick Method can save you a lot of time and money should it be implemented properly.

For help determining if this method is useful for your circumstances please contact us so we can analyze your unique situation.

Disclaimer

  1. This post is only applicable to corporations in Ontario
  2. The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. SSL Group will not be held liable for any problems that arise from the usage of the information provided on this page.

For more information on the HST Quick Method, contact SSL Group in Barrie or Newmarket today.

Employee vs. Self-Employed

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Are you an employee or a self-employed contractor?

There is no clear-cut answer in determining whether a person is in a business relationship (self-employed independent contractor) or in an employee-employer relationship. There have been many court cases on this subject. Generally, a government auditor would base their decision on the following criteria:

  • Chance of profit or loss – Self-employed individuals may make or lose money depending on the job. Employees are paid if they work
  • Operation integration – Employees are normally part of an organization’s processes. For example, employees don’t have to find their own replacement to go on holidays
  • Ownership of tools – Self-employed individuals are responsible for providing their own tools. Employees are generally provided with the necessary tools
  • Control over work performance – Self-employed individuals are generally hired to do a job with little direction over how the work is to be performed. Employees are generally under supervision and direction as to how a job is to be performed. Often employees’ hours and work days are dictated whereas self-employed individuals determine their own schedules
  • No one criteria makes the determination

Employee Advantages

  • They qualify for Employment Insurance (EI) benefits
  • Canada Pension Plan premiums paid are matched by the employer
  • They participate in employee benefits; including vacation pay, health benefits, disability insurance, pension plans, worker’s compensation coverage
  • Possible higher rate of pay for overtime
  • They qualify for severance pay if terminated
  • Less record-keeping and administration
  • The employer purchases and maintains necessary equipment
  • The can have their employer sign a T2200 Declaration of Conditions of Employment, which will permit them to deduct expenses necessarily incurred to earn income

Self-employed Advantages

  • More expenses may be deductible
  • More control over working conditions and hours
  • They can work for more than one client
  • Opportunities for increased profits
  • No mandatory Employment Insurance (EI) premiums withheld from pay

For more information click here.

Dividends vs. Salaries

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Some of the advantages of dividends

  • Dividends may slightly reduce the overall tax costs (corporate and personal) as compared with salary
  • If the only source of personal income was from ineligible dividends, it was possible to receive up to $32,784 in 2023 without paying any personal income tax other than the Ontario Health Premium. (Eligible = $55,002)
  • Dividends do not require you to contribute to the Canada Pension Plan (CPP), Employer Health Tax (EHT) or the Workplace Safety and Insurance Board (WSIB)
  • Dividends will provide more opportunities for income splitting with your family
  • Dividends do not require the recipient to perform services for the business, whereas salaries must not exceed a “reasonable” remuneration for the services rendered to the business
  • The payment of dividends does not require an immediate personal income tax payment; salaries require income tax and CPP amounts to be withheld by the employer and remitted within days or weeks
  • If there are insufficient corporate profits to make use of the tax deduction for salaries, dividends may be more tax-efficient

Some of the advantages of salaries

  • Salaries provide opportunities for deferring taxes by maximizing RRSP contribution room
  • Corporate taxes can be deferred by accruing bonuses
  • Salaries are required to qualify for future Canada Pension Plan benefits
  • The distribution of salaries among shareholders may be more flexible than dividends
  • Salaries paid to children are taxable at normal rates, whereas dividends paid to children may be subject to tax at the highest rates
  • Salaries entitle the recipient to the Canada employment credit
  • If the company’s taxable income exceeds $500,000, salaries can reduce that income to eliminate any corporate income tax that would be payable at the higher corporate income tax rates
  • A requirement for quarterly personal income tax instalments in future years may be one result of paying dividends
  • If personal income is so low that the dividend tax credit would be unused, a salary may be more tax efficient

Why Incorporate?

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The most common reasons that businesses incorporate:

Limited Liability

  • The risk of financial loss is restricted to assets owned by corporation
  • Your personal assets such as your home, cottage, investments, etc., are not exposed to lenders or creditors
  • Lenders will often make shareholders personally guarantee corporate loans (which must still be honoured)

Tax Advantages

  • Possibility of a capital gains exemption when the business is sold or the ownership is transferred
  • Income splitting possibilities through the payment of dividends
  • Increased flexibility with respect to remuneration (salary vs. dividend)
  • The business can be passed on to the next generation by way of an estate freeze
  • Non-calendar year-ends and bonus deferral possibilities

Tax Deferral

  • The corporate tax rate on the first $500,000 of business income is approximately 12.20% as compared to individual tax rates, which can be as high as 53.53% (in 2024)
  • This tax deferral only works if the money is not paid out to the shareholders (the cash remains in the company for business use)
  • Although a second level of tax is paid on a subsequent distribution of income, the ability to defer this second level of tax provides for the on-going benefits of incorporation

Required By Customers

  • E.g. – Consulting

When is the correct time to incorporate?

Determine the potential risk of liability

  • From the beginning of business operations if the risk is high
  • Depends on the shareholder’s attitude towards risk
  • Consider the shareholder’s personal assets which may be exposed

Determine business profit potential

  • It is common for losses to occur in early years of operation
  • Corporate losses can only be applied against corporate income while unincorporated losses can be applied against all other personal incomes
  • One may want to operate as proprietorship (partnership) and incorporate when profitable

Determine if the business is likely to generate more cash than the shareholders require personally

  • Remember that the low corporate tax rate (12.20%) is only of benefit if the cash remains in the company (it is not paid out to shareholders)

Difference between incorporated and non-incorporated entities:

Incorporated Entities

  • The company is treated as a separate entity from the owners (shareholder(s))
  • The owners become employees of the corporation and normally receive salary/dividends
  • The company must file an annual corporate tax return, shareholders file personal tax returns as usual
  • The corporation is taxed at approximately 12.20% on first $500,000 of active business income
  • Corporate tax instalments may be required after the first year-end

Non-incorporated Entities

  • Calendar year-end (December 31)
  • No special government filings, business results are included on your personal tax return
  • Proprietors “draw out” money for personal needs, but are taxed on business results (at individuals marginal rate) regardless of drawings
  • Tax instalments may be required after the first year-end

Pitfalls of Incorporating:

  • With respect to investment and capital gain income, incorporating may result in a prepayment of tax
  • Increased administrative costs, including the cost of incorporating, preparation of corporate tax returns and other filings

For more information, and to connect to the Ministry of Government Services website click here.

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