|
Deducting amounts paid to the APGO in your tax
return
The way in which
expenses are deducted for tax purposes is related to whether a person is an
employee, a self-employed individual or an incorporated business.
Employees are very
limited in the expenses they can deduct when calculating the tax that is owed to
the Canada Revenue Agency (CRA).
Self-employed
individuals as well as incorporated businesses have much more flexibility. They
can deduct any reasonable expenses incurred to earn income from their
businesses.
The different expenses
paid to the APGO and their deductibility has been categorized below.
Employees
Under the Canadian Income
Tax Act (“ITA”), employees can only deduct expenses that are specifically
allowed. Except for expenses such as professional fees, union dues and pension
contributions, a basic test must be met before an employee can deduct expenses.
The employee must be required by the employment contract to pay his/her own
expenses. The employer will therefore have to issue form T2200 - Declaration of
Conditions of Employment, certifying that the employee does indeed pay for
these expenses. Employers are usually willing to provide this form, as it helps
their employees with their tax situation provided the employee can demonstrate
and evidence that he/she have incurred expenses for employment purposes.
Fees and deductibility
·
Annual
membership dues: If the
employer does not pay for these fees, they can be deducted as an employment
expense in the employee’s tax return. Conversely, if employer pays for the fees
or reimburses the employee, then the employee cannot deduct the amount on
his/her tax return. Note that the
employee will not be taxed on this benefit as long as it was deemed necessary
or required that he/she incur the expense to maintain his/her professional
status for their job which is likely. Note that fees paid by the employer on
behalf of the employee may be reported as taxable benefit on an employee’s T4.
A taxable benefit will only arise if it is determined that the amount is not primarily
to the employer’s benefit.
·
Application
Fees and CPD courses: The ITA generally
does not provide for an employee to deduct training expenses. However, if these
expenses are incurred as part of the conditions of employment, and form T2200 is
obtained, these costs can be deducted in the employee’s tax return. Similarly, if the employer pays for the fees
and training courses, then no deduction is allowed by the employee for tax
purposes. However if these courses are strictly for the benefit of the employee
and not the employer, a taxable benefit may result on the employee’s T4. This
will occur if for instance a geoscientist that is not practicing and works for
a completely unrelated field has his/her training courses paid by the
employer. If there is no benefit to the employer
for the employee to keep up with his/her training, then a benefit will have
been created.
Self – Employed Individuals
Under the ITA,
self-employed individuals can deduct any reasonable expenses incurred to earn
income from their businesses. This entails that all fees related to annual
membership dues, application fees and CPD courses can be deducted as reasonable
business expenses. The remaining net income (earnings or billings less all
reasonable expenses) will therefore be used to calculate income taxes for the
year. Self employed individuals are required to keep track of their business
income and expenses and submit their tax returns by June 15th of the
following year in connection with the calendar year and taxation year just
completed.
Incorporated Businesses (Corporations)
Corporations are also
allowed to deduct any reasonable expenses incurred to earn income. A
corporation will therefore be able to deduct all business expenses related to
paying for an employee’s membership dues and training costs.
As discussed above a
corporation will have to issue a T4 and a taxable benefit in such instances in
which the employee benefits from the training and not the employer.
Note that corporations
will issue T4s to its employees. In a
situation in which a person decides to incorporate his/her previous
self-employment business there are various tax planning opportunities in order
to reduce the tax burden and increase income capitalization. Please contact
your financial advisor for additional information.
Corporations are
required to keep track of their taxable income and expenses and file their tax
returns six months after their fiscal year end.
In general, employees
have very limited tax deduction opportunities, but with careful planning, tax
savings can be maximized. Self-employed
individuals and corporations have more flexibility, and sometimes there is an
important decision as to whether to incorporate your self-employed business or
continue on status quo. For additional information on tax planning
opportunities, please contact a Bateman Mackay advisor.
Oscar Torres, CPA, CA, LPA
Bateman MacKay LLP
905.593.3033 |
Copyright 2013, Association of Professional Geoscientists of Ontario (APGO) |