acc742 lecture 3 employment income fall 2010

acc742 lecture 3 employment income fall 2010 - Chapter 3...

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Unformatted text preview: Chapter 3 Chapter 3 Employment Income 1 Division B - Computation of Division B - Computation of Income Income  Divided into: i Subdivision a - income or loss from an office or employment i Subdivision b - income or loss from a business or property i Subdivision c - taxable capital gains and allowable capital losses i Subdivision d - other sources of income i Subdivision e - deductions in computing income 2 Employment Income – subdivision a Employment Income – subdivision a Covers: i sections 5 to 8 of the act i section 5- describes employment income i sections 6 & 7 contain provisions to include certain benefits in employment income i section 8 sets out deductions in computing employment income 3 Employment Income Employment Income Distinction between employee and self-employed individual very important ◦ Self employed not restricted to deductions under s. 8 ◦ Self-employed income equivalent to business income (subdivision b income) ◦ Not subject to withholding at source (employment income is) ◦ Employment income subject to payroll taxes (CPP, EI, provincial health care taxes) No rules in act to distinguish ◦ Must turn to case law 4 Employee or Contractor? Employee or Contractor? ◦ Integration/organization test  Is individual economically dependent on organization ◦ Economic reality/entrepreneur test  ownership of tools  risk/return (i.e. who gets profits or loss)  Control  Degree of responsibility for investment and management held by employee ◦ Specific result test  No reference to specified result (i.e. job completed at end of project); accomplishment of work on ongoing basis 5 Employment Income Employment Income No factor decisive on its own Must look at all three factors Each is focal point for analyzing facts Facts taken as a whole are decisive 6 Employment Income Employment Income Income from office or employment includes: ◦ 5(1) - Salary, wages, gratuities and advances  Report on a cash basis (“received”)  Principle of constructive receipt- cannot voluntarily defer unconditional right to receive remuneration ◦ 6(1) (c) - Director’s fees ◦ 6(3) - Signing bonus and contract completion gratuities 7 Specific Inclusions Specific Inclusions S. 6 specifies most benefits that must be included in income S. 7 limited to benefit from employer stock option Major list of benefits is included in 6(1) S. 6(1.1) to (23) are amplifications, exceptions, limits, etc. 8 Benefits S.6(1)(a) Benefits S.6(1)(a) ◦ Employment income includes benefits ◦ P. 6(1)(a) - Value of board & lodging and other benefits of any kind whatever received or enjoyed  Term “benefit” is not defined in the Act  The broad wording in the preamble of the paragraph catches almost all benefits  CRA’s administrative position clarified in IT-470R 9 P. 6(1)(a)P....
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acc742 lecture 3 employment income fall 2010 - Chapter 3...

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