benefits, employers, employee, private health services, parking, training, meals

Tax-free gifts for the holidays
What’s new for 2008
New edition of How to reduce the tax you pay
Did you know...

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Tax-free gifts for the holidays

Given the labour shortage in various sectors of the economy, employers seeking to keep their employees and attract new people may want to offer benefits in addition to competitive wages. The holidays provide an especially opportune time to do so and, if the benefits are not taxable, employees are all the happier.

As a general rule, benefits (e.g., a company car) provided by an employer are taxable. However, there are still some benefits that do not have to be included in the employee’s income.

Non-monetary gifts
Employers can offer their employees up to two non-monetary gifts each year for special occasions - Christmas, a wedding, an anniversary or another similar event – without engendering tax consequences for the employee, provided that the two gifts do not total more than $500 per year (including taxes) per employee.

An employee may also receive, tax free, a maximum of two non-monetary rewards per year as recognition for certain job-related accomplishments, such as reaching a certain number of years of service, meeting or exceeding safety requirements, provided that the total value of the two rewards does not exceed $500 per year (including taxes) per employee.

Thus an employer may give a total value of $1,000 to each of its employees per year without tax consequences for the latter, while being able to deduct the cost of the gifts and rewards in calculating its own income.

These rules do not apply to gifts or rewards in the form of cash or cash equivalents, such as gift certificates or other items that are easily converted into cash. Moreover, for federal purposes where the value of the gifts or rewards discussed above exceeds $500, the full amount must be included in the employee’s income.

Although it follows the federal model, Québec is more generous: in fact, the employer may give more than two gifts or rewards, and gift certificates, including smart cards, are not considered gifts or rewards that are easily converted into cash. Moreover, although the monetary limits are the same, only amounts in excess of $500 must be included in the employee’s income when the value of the gifts or rewards exceeds this limit.

Social activities
Where an employer offers an evening event or another social activity to employees free of charge (e.g., an office Christmas party), the tax authorities do not consider this to be a taxable benefit provided that the cost does not exceed $100 per person. Incidental costs, such as transportation home, taxi fares, and accommodations, increase this limit by $100 per person.

If the cost of the activity exceeds $100 per person (including the portion attributable to the employee’s spouse), the total amount is a taxable benefit.

Private health services plan premiums
Premiums paid by an employer to a private health services plan (e.g., drug insurance and dental coverage premiums) are not considered to be a taxable benefit for federal purposes.

However, this amount should be included in the employee’s income for Québec purposes.

Parking
As a general rule, when an employer provides parking to an employee, this constitutes a taxable benefit. However, there is no taxable benefit where the fair market value of the parking is not determinable, such as in the following situations:

The establishment is situated in a shopping centre or an industrial park and the parking facility is open to the public;
The employer provides parking but no guaranteed spot (i.e., employees who need parking have access to a limited number of spaces, on a first-come, first-served basis).

In addition, there is no taxable benefit for employees where they must regularly use their automobile (or an automobile provided by the employer) to carry out their employment duties and when the employer provides parking to enable them to do so.

Training paid for by the employer
Where the training is taken mainly for the employer’s benefit, there is no taxable benefit for the employee, regardless whether the training leads to a diploma, licence or certificate. However, there is a taxable benefit if the training is taken mainly for the employee’s benefit.

Meals and overtime expenses
As a general rule, if an employee works overtime, the meal allowance that is paid or the meal that is provided is not taxable provided that the following conditions are met:

The overtime is worked at the employer’s request for at least three consecutive hours;
Overtime is infrequent or occasional;
The meal allowance, if any, takes the form of a total or partial reimbursement, upon presentation of supporting documents, of meal expenses incurred by the individual due to the overtime worked;
The meal expenses that are reimbursed, or the value of the meal that is provided, are reasonable.

This is not a complete list. Each situation is unique and should be examined with your tax advisor. Do not hesitate to contact a professional. Who knows? A happy employee is worth a bit of effort.

François Bédard, Québec
Catherine Lavigne, Québec

What’s new for 2008

As 2008 quickly approaches, the following is a reminder of some of the tax measures that have already been announced by the federal and Quebec governments and that take effect on January 1, 2008 unless indicated otherwise.

Federal

Quebec

Tax instalments

Individuals are not required to pay tax instalments if the amount of income tax payable, after making source deductions, is less than $3,000 ($2,000 in 2007). For Quebec residents, the threshold is $1,800 ($1,200 in 2007) as Quebec levies its own income taxes.

Corporations are not required to pay tax instalments when the amount of income tax paid in the preceding year or the estimated amount of tax payable for the current year does not exceed $3,000 ($1,000 in 2007). Moreover, Canadian-controlled private corporations (CCPCs) that satisfy certain criteria (eligible for the small business deduction (SBD), taxable capital of $10,000,000 and less, etc.) may pay quarterly (as compared to monthly) instalments.

Same rules as federal purposes for Quebec residents and for corporations.

Source deductions

An employer can make quarterly (as compared to monthly) remittances for the various payroll deductions where the average monthly instalments for the second to last calendar year do not exceed $3,000 ($1,000 in 2007).

Same rule as for federal purposes.

Moreover, where all of an employer’s various source deductions do not exceed $2,400 ($1,200 in 2007) during the preceding calendar year, the employer may make only one instalment per year, but no later than January 15 of the following year.

Personal credits

The amount of the basic personal credit, the spousal credit and the credit for eligible dependents is $9,600 (this amount also applies for 2007).

The basic personal credit and the spousal credit represent a single amount of $10,215 (basic amount of $6,650 and supplemental amount of $3,095 in 2007).

Personal income taxes

The lower personal income tax rate is 15% (this rate also applies to 2007). The other rates remain unchanged.

Personal income tax rates are as follows: $0 to $37,500 – 16%; $37,501 to $75,000 – 20%; $75,001 and more – 24%.

Corporate income taxes

The 4% surtax (4% X 28% = 1.12%) that has been in effect for several years has been abolished for all corporations.

The general corporate tax rate has been reduced to 19.5% (21% in 2007).

The tax rate for CCPCs eligible for the SBD has been reduced to 11% (12% in 2007).

The general corporate income tax rate is 11.4% (9.9% in 2007). The rate for small businesses remains 8%.

The capital tax rate for most corporations (except for financial institutions) is 0.36% (0.49% in 2007).

Registered Disability Savings Plan

The new registered disability savings plan (RDSP) comes into effect in 2008. This plan is intended to ensure the long-term financial security of certain individuals who qualify for the disability tax credit due to a physical or mental impairment (this plan is based on the registered education savings plan that has already been in effect for several years).

Quebec legislation has been harmonized with the federal measures regarding the creation of an RDSP. However, there is no “Disability Savings Grant” or “Disability Savings Bonds” program.

Indirect tax

The goods and services tax (GST) rate will decrease from 6% to 5%.

The Quebec sales tax (QST) rate remains at 7.5%. However, as QST applies on the price including GST, the two taxes total 12.875% (13.950% in 2007).

Other measures coming into effect on different dates in Québec
Effective November 10, 2007, individuals who acquire shares of Capital régional et coopératif Desjardins are eligible to receive a 50% non-refundable tax credit on the first $5,000 in shares acquired (35% on the first $2,500 prior to this date).

Effective November 24, 2007, manufacturing enterprises that meet certain criteria may obtain:

A new 30% refundable tax credit on certain training expenses for employees;
A capital tax credit equal to 15% of the amount of eligible investments (previously 10%);
Relief from paying tax instalments: no instalments required in 2008.

New edition of How to reduce the tax you pay

Does the nightmare of preparing your tax returns ruin the first birdsong for you each spring? Is it frustrating to hear about ways you could have reduced your taxes – after you have filed your returns? This year, get ahead of the game: consult our 20th edition of How to reduce the tax you pay, the invaluable guide prepared for you by members of our firm.

Whatever your situation – single, separated with dependent children, salaried employee, entrepreneur, etc. – you will find answers to your questions about RRSPs, tax credits, investments, tax shelters, deductions, income splitting, donations and others. How to reduce the tax you pay offers you professional advice, accompanied by updated tax tables, that is tailored to your needs. If you prepare your returns yourself it will help you develop an intelligent tax plan and avoid costly errors; if you have your returns prepared for you, it will allow you to work more efficiently, with better understanding, with your tax professional.

In How to reduce the tax you pay you have an essential tool that can help you reduce your tax burden and make the best of the upcoming fiscal year.

Published by Key Porter, this new edition will appear in bookstores starting in January 2008 for $19.95.

Did you know...

EI premium rates to be reduced
The Canada Employment Insurance Commission has announced that employment insurance (EI) premium rates will be reduced beginning January 1, 2008. For employees, the rate will fall to $1.73 from $1.80 per $100 of insurable earnings. The rate for employers will fall to $2.42 from $2.52. In Quebec, where premiums are lower because the province finances its own parental benefits, the rates for 2008 will be $1.39 for employees and $1.95 for employers.

CPP pensionable earnings ceiling rises
The maximum pensionable earnings under the Canada Pension Plan (CPP) for 2008 will be $44,900, and increase from the 2007 ceiling of $43,700. For 2008, the employee and employer contribution rate remains at 4.95%, and the maximum contribution will be $2,049.30. The self-employed contribution rate remains at 9.9%, and the maximum contribution will be $4,098.60 in 2008.

QPP premium rates raised
For 2008, the maximum pensionable earnings under the Quebec Pension Plan (QPP) will increase from $43,700 to $44,900. The contribution rate remains at 9.9% and the basic exemption is fixed at $3,500, bringing the maximum contribution for 2008 to $2,049.30 for employees and to $4,098.60 for the self-employed.

You could lose your retirement savings
The Canada Revenue Agency (CRA) has issued an alert about schemes for tax-free withdrawals from registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs). Investing in these schemes could result in you losing your retirement savings and a reassessment of your tax returns. Because such schemes can appear legitimate, it is important to get independent professional advice.

Pre-completed tax returns from Revenu Québec
To simplify the task of certain taxpayers who complete their tax returns by hand, Revenu Québec is offering a target group of 100,000 people, primarily (80%) aged 65 or older, a tax form that is pre-completed with information previously given. The target group will receive their pre-completed tax forms in March 2008. This is the first step in a pilot project aimed at simplifying exchanges between the public and Revenu Québec.

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