Income tax allowances in Canada help you minimize your taxable income. These tax breaks apply to both federal and provincial taxes. If you are a resident of Canada, you can also take advantage of the BPA (Base Period Allowance). This allowance is a partial reduction of your taxable income. The Canadian government has hinted that this threshold will increase until at least 2023.
Employer-provided parking
Employer-provided parking is an allowance for the employees to park their automobile. It is not considered taxable if the employee uses the automobile exclusively for the purpose of business travel. This means that the employee must drive the automobile only during the course of employment duties, and it must be returned to the employer’s premises at the end of the day. There are two ways of calculating the standby charge for an employee’s automobile.
The CRA has extended and clarified the existing rules on taxable benefits for employers. As of March 15, 2020, the CRA has issued new guidance on calculating specific employer-provided benefits. Among other things, this guidance covers commuting costs, parking costs, and home office equipment.
Non-cash benefits
Canadian tax law allows individuals to claim a deduction for foreign income tax paid. As long as the foreign income is included in the Canadian taxable income, the deduction can be claimed. Canada also has a number of international tax treaties that limit double taxation. These treaties help Canadians avoid double taxation on foreign income.
A deductible stock option is one example of non-cash income tax benefits in Canada. The amount of the deduction depends on the percentage of the employee’s qualifying stock option benefit. A deduction of up to 25 percent of this amount is allowed. Employers can also factor in a 50 percent deduction when calculating Canadian withholding taxes.
There are also foreign tax credits for foreign income. However, these can’t exceed the Canadian income tax payable on the income from a foreign investment. This is because these credits must be pro-rated for the year in which you first arrive and leave Canada. In order to calculate the applicable credits, divide the total days of residence by the number of days in a calendar year.
A long-serving employee can receive a non-cash gift of up to $500 per year after 5 years of service. This gift is tax-free and does not count toward the $500 annual limit. In addition, a reasonable automobile allowance can be provided to employees. However, the mileage rate must be reasonable based on business use mileage. Employers should use CRA’s online calculator to determine the appropriate rate. Otherwise, the mileage rate will be deemed unreasonable and included in the employee’s income.
Non-cash income tax benefits in Canada include gifts and investments. The transfer of capital property will not trigger an income tax if the gift is made to a spouse. Gifts to minor children and low-interest loans to spouses are exempt.
Transfer pricing
The government is considering new rules on transfer pricing income tax allowances in Canada. The proposed changes are aimed at protecting the integrity of the tax system and facilitating intergenerational business transfers. The Department of Finance is seeking input from all stakeholders, including companies in key sectors. The consultation will end on June 17, 2022.
Canada follows the OECD guidelines for transfer pricing, which governs the tax treatment of cross-border transactions between related parties. In Canada, section 247 of the Income Tax Act provides a statutory framework for transfer pricing law. This legislation applies to companies operating in Canada, irrespective of whether they are domestic or foreign.
Transfer pricing allows companies to set prices for goods and services that are sold to other companies. Transfer prices are usually reflective of the market value of goods and services. Multinational corporations can use this strategy to reduce their tax burden by shifting their tax liabilities to lower tax jurisdictions. However, companies should be careful to follow the rules to avoid incurring penalties or fines. As the transfer pricing income tax allowances in Canada are calculated from the transfer prices of goods and services, a company must ensure that the pricing of its services and goods is consistent with its overall cost of sales.
The government is now inviting public comments on the proposed rules. Respondents can submit written comments to the Department of Finance Canada’s Tax Policy Branch by July 7, 2022. They can also comment on the specific ways in which the Model Rules should be altered.
Refundable tax credits
In Canada, there are refundable tax credits that can reduce your income tax liability. These credits can be claimed when you make donations to registered charities. However, some types of contributions, such as paying for lottery tickets or events, are not eligible for the credits. The amount you can claim will depend on your income, but you can generally claim up to 75% of your net income for this credit.
There are two types of refundable tax credits in Canada: those that are refundable and those that are non-refundable. The first type of refundable tax credits cancels out your taxable income. A refundable tax credit is a great way to reduce your income tax bill without having to pay any additional money.
For first-time home buyers, the federal government offers a significant tax credit. This credit can cut your federal taxes by up to $700. However, there are strict eligibility requirements that must be met. Alternatively, a first-time home buyer may qualify for a property transfer tax grant from their province.
A non-refundable tax credit recognizes the impact of above-average medical expenses on one’s ability to pay taxes. To qualify, the person must be over 65 years of age or be a disability. The value of the credit is determined by applying the lowest personal income tax rate, which will be 15 percent in 2022.
The government is encouraging comments on the Model Rules. It has identified specific questions for public consultation. These questions are grouped by chapter and are preceded by an overview of the relevant article in the Model Rules. You can find the full text of the Model Rules on the OECD website.
Business vehicles
If you run a business in Canada, you should know the business tax allowances that you can claim. Generally, these benefits are deductible. However, you may want to be aware of some exceptions. For example, you cannot claim the expenses for a company vehicle used for personal use if the amount exceeds CAD 3,000.