Acco340Lecture 2-3 - Employment Income

Net employment income summary 1 if amounts are paid

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                                                                                                                                                                    NET EMPLOYMENT INCOME                                             SUMMARY 1) If amounts are paid by an employer directly to the employee, or if paid indirectly to 3 rd  parties for the benefit of the employee; or if a benefit is conferred by a 3 rd  party due to or in  virtue of employment, then as per the ITA, such amounts or adjusted amounts (eg.2/3 of  auto lease), can either be:                      - included or not included in computing net employment income or loss,  depending on the nature of the payment or benefit eg Premiums paid by Employer for Health Care Plan=not included     Premiums paid by Employer for Life Insurance Plan=included       Non-cash wedding gift by Employer worth $350=not included     Gift certificate given by Employer on Birthday=included     Vacation tickets paid by Employer to an Agency=included     Lease payment by Employer to provide auto= 2/3 included     Payment to employee for exceptional performance-included 2) If amounts are withheld from salary by an employer, or if paid directly by an employee,  then as per the ITA, such amounts or adjusted amounts (eg, limits on auto expenses), can   either be :
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                        - deductible or not deductible in computing net employment income or loss,  depending on the nature of the amount withheld or paid eg Union dues withheld= deductible     RPP contributions withheld=deductible    QPP/EI contributions withheld= not deductible but eligible as credits     Life insurance plan contributions withheld=not deductible     Federal income tax withheld=not deductible     Home office expenses incurred =some costs are deductible if conditions met                                                                                                                                         Tax Planning – Interest Free Loans Is it better from an employer's perspective to supply the benefit, or provide sufficient additional salary required for  the employee to purchase the benefit directly? Factors: - Employer’s rate of return on alternative uses for the funds - Employer’s tax rate / employee’s tax rate - Prescribed interest rate - Rate available to employee for a similar arm’s length loan Example  Facts: - Employer: - Investment rate of return – 15% (before tax) -
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