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Acco340Lecture 2-3 - Employment Income

Acco340Lecture 2-3 - Employment Income - WEEKS2&3...

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                                                                                                                                                                  WEEKS 2 & 3       Revised Sept 22, 2010                       INCOME / LOSS FROM EMPLOYMENT- Chapter 3              General rules are covered in Sections 5 to 8, as follows :      Section 5- defines employment income      Section 6- defines what must be included as employment income      Section 7- defines specific rules dealing with stock options offered to employees      Section 8- defines what can be deducted in the determination of employment income               Consequently as per the above,  EMPLOYMENT INCOME  is a net concept of income inclusions less allowable deductions - ITA 5 (1) - A taxpayer’s income for a taxation year from an office or employment is the salary, wages and other  remuneration, including gratuities, received by the taxpayer in the year”. Salary and wages      refer to monetary amounts received for employment services. Remuneration      is broader and includes any type of reward or benefit. Gratuities      means income which includes payments made by  persons other than the employer . Employment income      is  normally reported and  taxed on a “cash” received  while,  business income  is reported and  taxed on an accrual basis not cash basis. ITA 78 (4) - An   incorporated business  can deduct a declared salary bonus if paid within 180 days   after it’s  year-end ;   however,   the   employee   is   taxed   in   year   the   bonus   is   received— (this   provides   a   tax   planning  opportunity for owners/shareholder/managers) If a  bonus  is to be  paid after more than 3 years  after the end of the calendar year in which employee services were  rendered, then the bonus would be a  Salary Deferral Arrangement   (“SDA”)  and taxable to the employee in the year  employment services were rendered and also deductible by the employer in that same year, Ie, as if the bonus was paid ITA 248(1) - a right in a taxation year, to receive an amount after the year, where it is reasonable to assume that one  of the  main purposes was to defer tax.
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