Month: August 2019

REIMBURSEMENT FOR WORK CLOTHING: Taxable

 

In an April 17, 2019 Technical Interpretation, CRA was asked whether clothing reimbursements paid to maintenance employees were taxable benefits. Employees were not required to wear specific uniforms and were reimbursed based on receipts, to an annual maximum.

 

CRA referred to Guide T4130 Taxable Benefits and Allowances, which states that clothing is generally a personal expense, except where either of the following applies:

• the employee is required to wear a distinctive uniform while carrying out their employment duties; or
• by law, the employee has to wear protective clothing on the work site.

 

In the situation reviewed, CRA indicated that reimbursements for safety footwear would not be taxable; however, other reimbursements to compensate for increased wear and tear on clothing would be taxable.

 

Similar to clothing reimbursements, an employer’s direct provision of work clothing, that does not meet the criteria above, would be taxable.

 

According to CRA’s current guidance, a discount on merchandise provided to employees would not generally result in a taxable benefit unless the price is reduced to below the employer’s cost. In 2017, CRA had announced a change in its position such that discounts would be taxable as a result of a number of court decisions. However, due to public outcry, the Prime Minister subsequently announced that such discounts would not be taxable. CRA is currently reviewing their specific policy and has committed to provide guidance in light of the Prime Minister’s comments in the future.

 

ACTION ITEM: If providing work clothing, consider including distinctive visual markings such that it would be considered a uniform and therefore not subject to tax for the employee.

 

 

The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a newsletter such as this, a further review should be done by a qualified professional.

No individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

TAX TICKLERS… some quick points to consider…

• CRA’s limited review of corporate tax return projects have a reassessment rate of approximately 40%. In the past few years, these projects have focused on areas such as automobile expenses, professional fees, travel, and eligibility for the small business deduction.
• Many states in the U.S. have recently enacted laws requiring foreign sellers making sales to customers within the state to collect and remit sales tax, regardless of whether the seller has a physical presence. To view a chart summarizing legislation of this type and their effective dates, go to: https://www.salestaxinstitute.com/resources/remote-seller-nexus-chart
• In May and June of 2019, the provincial courts of appeal in Ontario and Saskatchewan ruled that the Greenhouse Gas Pollution Pricing Act (the Carbon Tax) was constitutional. Ontario has indicated that leave to appeal to the Supreme Court of Canada will be sought. Alberta is currently challenging it in the Provincial Court of Appeal.

 

The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a newsletter such as this, a further review should be done by a qualified professional.

No individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

SHARED CUSTODY OF A CHILD: The “Equal or Near Equal” Issue

Certain tax benefits, such as the Canada child benefit, the GST/HST rebate, and the recently implemented federal carbon tax incentive (where applicable) are normally paid entirely to the parent with whom the child primarily resides. Where the child resides with the parents on an equal or near equal basis, each parent is entitled to half of the credits/benefits which would be available if the child resided primarily with them.

A March 27, 2019 Federal Court of Appeal case addressed the proportion of time each parent is required to reside with the child in order to meet the “equal or near equal” condition. The Court noted that various lower court decisions consistently used “time” as a basis for determination. It also noted that, while the proportion of time residing with the child considered to be “equal or near equal” varied, it was never accepted below 40%.

While it noted that 40% is the legislated threshold for determining shared-custody status for Federal Child Support Guidelines (FCSG), the Court found that a determination of “equal or near equal” status for purposes of these benefits should be made without reference to the FCSG. The Court determined that the income tax definition required that the percentage of time with the child must be able to be rounded off to no less than 50%. Percentages should be rounded to the nearest whole number that is a multiple of 10. In other words, 44% would be rounded to 40% while 48% would be rounded to 50%. As a result, a minimum of 45% would be required to meet the income tax definition.

This is the highest Court to make a determination on this issue thus far, which means it is a binding precedent. While previous decisions commonly accepted a threshold of approximately 40%, this case clearly states that the minimum is 45%. As such, there is a 5% spread between the shared-custody definition for tax law (residing with the child on a near-equal basis) and the definition of a shared custody arrangement under the FCSG (which explicitly requires physical custody of the child at least 40% of the time). This means that, for example, a child who spends 42% of their time with one parent, and 58% with the other, would be shared custody for FCSG purposes, but the parent with whom the child spends 58% of their time could be entitled to 100% of benefits determined under the Income Tax Act.

 

ACTION ITEM: Be aware that eligibility for the Canada child benefit may change where the child is residing with one parent between 40% and 45% of the time. This change should also be considered in future separation agreements.

 

The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a newsletter such as this, a further review should be done by a qualified professional.

No individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

SAUNA AND HYDROTHERAPY POOL: Medical Expense Tax Credit

 

In a December 4, 2018 Technical Interpretation, CRA was asked whether the costs of installing a steam shower (sauna) and hydrotherapy pool could be eligible for the medical expense tax credit (METC). The use of these devices was recommended as treatment to maintain strength and mobility.

CRA noted that, for renovations to be eligible, they must:

1. enable the patient to gain access to the dwelling or be mobile and functional within it;
2. not typically be expected to increase the value of the dwelling; and
3. not normally be undertaken by individuals with normal physical development or who do not have a severe and prolonged mobility impairment.

While the expenses contemplated may meet criteria (a), CRA opined they would likely fail criteria (b) and (c) and, therefore, not be eligible for the METC. However, eligibility remains a question of fact, with the onus on the taxpayer to demonstrate that all requirements were met.

Also, CRA noted that a renovation cost incurred for the main purpose of enabling a qualifying individual to gain access to the dwelling or be mobile and functional within it (the same as criteria (a) for the METC) could be eligible for the home accessibility tax credit (HATC). The HATC is a non-refundable credit that provides tax relief on up to $10,000 annually of renovations to a home to enhance mobility or reduce risk of harm for a qualifying individual (those 65 years of age or older at the end of the taxation year or eligible for the disability tax credit). The HATC requirements do not exclude costs failing criteria (b) or (c) above. 

 

ACTION ITEM: There are several renovations that can be eligible for one or both of these credits. Receipts, invoices and/or other supporting documents should clearly identify the health benefits and purpose.

 

The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a newsletter such as this, a further review should be done by a qualified professional.

No individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.