3%20Employment%20Income

3%20Employment%20Income - Employment Income Employment...

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Employment Income
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Employment Income • Section 5 defines employment income: ITA 5(1) – Subject to this Part, 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 during the year. An employment loss is contemplated in 5(2) but is extremely unlikely.
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Employment Income Office – a position that entitles a person to a fixed or ascertainable sum of money. Employment – position of an individual in the service of another Salary and wages – monetary amounts provided in return for employment services Other remuneration – any type of reward or benefit associated with employment services, including payments from an employer or anyone else, if it’s related to employment Gratuities - tips Received – amounts of employment income are reported on a cash basis for tax purposes, not an accrual basis.
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Employment Income • Because employees are taxed on a cash basis, and employers on an accrual basis, there is a tax planning opportunity • Bonuses – Taxed to employee when received – Tax deductible to employer when they commit to the eventual payment of the amount – How could this be arranged to benefit both taxpayers? • A business with a December 31 year end can deduct the bonus in 2010, but not pay it to the employee until 2011, which defers the taxation by 1 full year. – The tax laws require the bonus to be paid within 179 days of accrual.
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Bonus Arrangements • Depending on when a bonus will be paid, the tax consequences are different, as summarized below: Bonus Arrangement Tax Consequences Standard bonus – payable within 180 days of employer year end Employer – deduct when paid Employee – include in income when received Other bonus – paid more than 180 days after employer year end, but prior to 3 years after the end of the year that the bonus was earned Employer – deduct when paid Employee – include in income when received Salary deferral arrangement – Paid more than 3 years after end of year in which it was earned Employer – deduct when earned by employee (accrual basis). Employee – include in income when earned Complete Exercise Three-1 on page 73
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Employee Self Employed Type of income earned Employment income Business income Deductions allowed Very limited Significant Work schedule, methods, standards Employer sets Sets own Tools for job Employer supplies (some professions/trades are exceptions here) Supplies own Risk/reward Employer Individual EI, CPP Employee must pay EI and CPP, Employer is responsible for employer contributions (EI 1.4x, CPP 1x) Does not pay EI (but also can’t benefit. Pays double CPP contributions). See RC 4110 on WebCT for further information.
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This note was uploaded on 01/31/2011 for the course MOS 4462 taught by Professor Ann during the Fall '10 term at UWO.

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3%20Employment%20Income - Employment Income Employment...

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