This article clarifies the differences in tax treatment between employment and business expenses. The deductibility of expenses and the conditions required to deduct home work space varies among the following types of taxpayers:

1. self-employed;
2. employed with commission income;
3. employed with salary income (salaried employee).

Generally, the deductibility of employment expenses for income tax purpose is more restricted than that of business expenses. Readers should first determine what their employment status is. For taxpayers earning employment income, they have to further differentiate whether they earn salary or commission.

Finally, home work space expense reimbursement to owner/manager of corporations who are required to use part of their homes to earn corporate income will be discussed. There are two appendices covering the issues of employment expenses for a salaried employee and a commissioned salesman's office case implications.

To combat tax evasion, the federal government has obliged taxpayers to report foreign asset holdings over $100,000 in Form T1135 (the Foreign Income Verification Statement) and return it with their income tax return.

The intent of this controversial legislation is to allow CRA access to information related to taxpayers’ foreign asset holdings. Once the assets are declared, income generated by these assets and their subsequent dispositions have to be accounted for and taxed. At the point of writing (February 18, 2003), there is no immediate Canadian tax consequence if the foreign assets are not generating any taxable income. However, there is always a possibility that tax laws can be changed in the future to tax holdings of foreign assets.

This article summarized who must report foreign assets, what assets must be reported or exempted, how to determine the value of assets, the filing deadline, penalty of failure to report and a FAQ section.

Housing is a life-long necessity and is probably the largest expense in an average family. Making the appropriate decision in housing option will have a far-reaching impact to one’s financial well being. This article discusses an analytical framework incorporating factors such as costs, opportunity costs of capital tied up, equity build-up and cash outflow requirement. This model supports decision to rent or to buy based on some inputs of parameters such as real property appreciate rate (inflation), mortgage rate and investment rate of return, ... etc. The reliability of this model highly depends on the accuracy of the aforesaid parameters used. Since there are uncertainties in these parameters, some degree of error is inevitable.

The gain or loss (hereinafter known as “earning” in this article) in the disposition of securities or a debt obligation such as a bond, debenture, bill, note or hypothec may be taxed at different income inclusion rates in different scenarios. Taxpayers should evaluate the surrounding circumstances and elect their position wisely. For example, if one incurs a loss from sales of securities and facts suggest that the investment can be treated as a business, he would benefit to treat the loss as a business loss so that the full amount of the loss can be applied against all other sources of income. Conversely, if there is an earning, a taxpayer would pay less tax by treating it as a capital gain and be taxed at the current inclusion rate (50% at the point of writing). CRA has rules to prohibit taxpayers who do not qualify to treat earning as capital gain and curb this type of situational positioning that results in a lower tax liability. This article summarizes the general decision rule and factors that determine the tax treatment of earning. The tax treatment of call and put options is not discussed.

This article discusses the tax saving opportunities in splitting income with spouse and minor children (under the age of 18), the relatively new “income splitting tax” introduced in 1999 and the tools in CRA’s arsenals to curb tax savings schemes associated with the aforesaid income splitting technique and what CRA may ask in the event of an inquiry or audit. If you are using this technique or are planning to use it, you should seek professional advice immediately.

For tax reasons, some individual taxpayers incorporate limited companies and ask their employers to pay their companies for remunerations. These individuals are known as incorporated employees in the Income Tax Act (hereinafter known as the Act). This article discusses the definition of incorporated employee, the limitation of corporate expense deductibility, determining tests used by CRA and the tax implications.

Many of our clients have investment properties. In addition to tax issues surrounding rental income and capital gain, other practical issues in renting are equally important to ensure a good return from these investments. Real property investments can be lucrative and are good hedges against inflation. Renting to the right tenants is vital to secure a continuous stream of income and to protect the rental property. This article focuses on renting to residential tenants and discusses some practical guidelines in tenant screening, what should be included in a residential tenancy agreement, analysis of tenant’s strategic strengths and some facts that landlords should be aware of. Landlord and tenant rights, standard terms in residential tenancy agreement, procedures in arbitration hearings are in the RTO website and will not be reiterated.

Many businessmen accept corporate directorship assuming that there is no personal liability and hence their personal assets are not at risk. Unfortunately, this assumption is not precisely correct. According to some publications from Price Waterhouse, there are over 200 provincial and federal statutes that may affect the personal liability of directors in 1995. This article summarizes some common director's liabilities arising from statutory and common law duties. It also discusses some measures that one may take to reduce the risks. Your corporate lawyer should be in the best position to address these issues.

Except repayments of loans previously lent from the shareholders to the corporation, shareholders are generally taxed, one way or another, on all monies received from their own corporation. Subsection 15(2) of the Income Tax Act (hereinafter known as the Act) includes monies received from a corporation in the guise of loans or other indebtedness (such as trade debts and revolving debts), with specific exceptions allowed in the Act, in a shareholder's income. For the sake of simplicity, many conditions required to qualify legitimate exceptions are omitted or not discussed in length. Readers are cautioned not to solely rely on the general information contained herein.

This article discusses the tax implications to a shareholder/owner manager of a corporation of indebtedness from that corporation. It comments on the factors that determine whether or not the loans will be included in the income of the debtor. Astute planning based on the knowledge of this topic will result in tax savings and will enable qualified businessmen to purchase a residence and/or vehicle using corporate funds without the risk that the loan will be treated as personal income in the event of an audit.

This article discusses what meals and entertainment expenses are income tax deductible and in what situations, the record keep requirement, what CRA tax auditors are after and answer many questions surrounding the tax treatment of this expense.

This article discusses medical expense tax implications (primarily medical expenses amount and refundable medical expense supplement) in an individual tax setting. It will also address what qualified medical expenses are and tax impact of premiums paid to private health care plans after 1997.

Generally, an individual taxpayer pays medical expenses in the following ways:

1. out of his own pocket (which will entitles the individual taxpayer to claim medical expenses and/or refundable medical expense supplement, if he qualifies);
2. by a “fringe benefit” insurance (premium paid by the business is deductible and the medical benefits received are not taxable in the hands of the recipient);
3. by the taxpayer’s business via a third party administrator.

These options have their own costs, merits, feasibility and tax implications. A cost and benefit analysis will help deciding which option is the most cost-effective in the surrounding circumstances.

This article discusses what moving expenses are deductible and non-deductible against a person’s taxable income in different scenarios.

Capital gain has a more favorable tax treatment. This article discusses the tax implications of a special type of capital gain exemption arising from selling qualified small business corporation shares, alternative minium tax (AMT) and how to use these qualified assets as tax-efficient tools to build wealth.

RESP is a tax-sheltered investment for the education of a beneficiary. The new Canada Education Savings Grant (CESG) introduced in the 1998 Federal Budget provides an incentive to contribute to RESP. This article summarizes what RESP is, who can become an RESP subscriber and beneficiary, and explains how RESP works (contribution limit, content restrictions, early RESP withdrawal).

This article summarizes various options available to generate retirement income, how they work, who may participate. It also addresses some frequently asked questions and some retirement, tax and career planning implications. It briefly covers retirement pension plan (RPP), individual pension plans, deferred profit-sharing plans, Canada Pension Plan, Old Age Security (including Guaranteed Income Supplement and Spouse's Allowance) and the possibility of using a reverse mortgage of one’s real property to finance retirement. Registered Retirement Savings Plan (RRSP) is another important retirement planning tool to taxpayers with earned income and will be discussed in a separate article. It also covers some non-tax related issues such as medical services plan, housing, recreation and transportation assistance programs in British Columbia. These issues are incorporated for retirement budget purposes.

To start a business, one has to decide what business structure is the most suitable. This article discusses the factors in determining the propriety of federal or provincial incorporation, the pros and cons of federal incorporation and some frequently asked questions surrounding the notion of incorporation.

Various types of taxes have been instituted to generate revenue for governments in many industrialized countries. To name a few in Canada, GST, capital gain tax, personal and corporate income tax from worldwide incomes have increased the scope of taxation to encompass many events of daily life and business activities. More and more individual and corporate taxpayers use offshore tax havens to legally avoid paying confiscatory taxes. This article addresses what tax haven is, some common objectives when using a tax haven and some important elements one should look for when selecting a tax haven.

Since individual situation may vary substantially, no exact tax plan will be discussed. Moreover, individual taxpayers earning employment income alone have very little room to use tax haven to reduce personal income tax they have to pay for their employment income. However, it is worthwhile for this type of readers to read this article if they have substantial investment income from their assets.

This article discusses "fringe benefits" commonly offered to employees and indicates whether or not their values will be treated as income in the recipient’s hand. These benefits are classified into taxable and non-taxable categories. This provides a convenient summary to small business owners/managers in structuring a fringe benefits package with minimal tax consequence and to payroll administrators to ensure that income tax law is complied with.

Like many scenarios in tax law, there are exceptions and special circumstances. To keep the contents concise, this article will not discuss these exceptions and special circumstances at all or in length.