Canadian Taxation

Employee tax breaks broke

Published On December 5, 2013 | By Joseph (Ken) | Business, Personal tax
 employees

A little bit of false advertising with the title Tax breaks for employees: Eight strategies that can save you money.

1. Reduce your tax deductions at source

Reducing your tax deductions at source does not save you money. We all know that whenever you get a tax refund you’re just get your money back, so taking tax deductions at source just gets your money back faster. There’s no “savings” here.  Some people purposely pay extra tax at source to ensure a larger tax refund as a savings technique. 

2. Negotiate a reimbursement for courses taken”

This common practice in apprenticeships and student employment positions. In most cases, an employer offsets their costs through an agreed contract for work upon completion of training so the negotiation occurs BEFORE the course was taken. The article’s strategy seems to revolve around the idea that you are getting your employer to pay for the course AFTER taking it – possibly instead of paying you a cash bonus. It would work though always sort of awkward involving your boss in attempts to save yourself tax.

3. Ask your employer for a loan”

I disagree. Never borrow money from an employer and never lend money to an employee. Money complicates relationships. What happens if either of you is suddenly struggling financially? I have worked for some difficult employers and I can’t imagine owing them money. Bad advice.

4. Request non-cash gifts and awards.”

This is only good advice if you are already in negotiations for a raise or bonus.  This idea reminds me of Learning obscure tax laws is not a holiday bonus where she told the reader “you may want to ask your employer about the cost of the shindig.” Don’t, it can come across as rude. You are receiving a gift from your employer, be appreciative, don’t start worrying about the tax effect and trying to involve your employer in saving you tax on the GIFT.

5. Arrange to work from home.”

This strategy is disingenuous because how can you ARRANGE to work from home if you are REQUIRED to work from home?!?! ANY TIME your employer REQUIRES you to incur costs out of your pocket, as part of your employment contract, you should request a T2200 and deduct that cost from your tax return.  Unlike a non-cash gift or award, providing you a T2200 costs your employer nothing other than the 5 minutes it takes to fill out the form.

6. Manage your stock option benefits”

No comment.

7. Hire an assistant to help you.”

How is spending money saving you money?!?  Although later he quantifies the statement by stating that if you are required to hire an assistant, hire a family member. This assumes that your family member isn’t going to consider working for you a real job and doesn’t care if you keep the money.  How does it matter if they’re in a lower tax bracket – you aren’t seeing that money – it’s gone no matter who you’re giving it to.  Course, if you pay your wife or kids, maybe you can convince them to spend it on something you usually pay for… good luck with that.

“8. Defer a bonus until next year. “

This piece of advice is useful on VERY FEW occasions. For this piece of advice to be useful you’d have to be on the cusp of entering the next tax bracket AND your income next year will be lower. To save money you have to report that bonus in the tax year where you will be in a lower tax bracket.  Now that said, if you delay the bonus and no tax is being deducted at source, you can delay paying the tax for a year, that never hurts but it doesn’t SAVE you money.

So not to sound just like a critic with no ideas, I came up with a few. I didn’t come up with eight, but, realistically, neither did he. 

1. Offer to run office errands.  If your employer is willing to reimburse you for km’s driven in addition to your rate of pay, it’s a great way to earn some additional non-taxable income.  As per the CRA, “the automobile allowance rates for 2013 are: 54¢ per kilometre for the first 5,000 kilometres driven; and 48¢ per kilometre driven after that.”  Those rates reflect what your employer can pay you per km (tax free) to reimburse you for costs related to gas, insurance and wear and tear on your vehicle.  Your employer receives a deduction but you don’t have to report it as income.  Not only that, who doesn’t want to escape the office once and awhile.

2. Do not buy RRSP’s to save money.  Unless you are buying the RRSP in a high tax bracket and plan to withdraw them in the future in a low tax bracket, all you are doing is deferring tax.  In fact, if you make less than $40,000 a year, buying RRSP’s might even cost you money based on the loss of the GIS supplement.  Not only that, all the income you earn in your RRSP is taxed when you withdraw it – not so with TFSA’s.  Is that RRSP really saving you money?

3. Don’t hire an accounting firm with more than four partners to prepare your tax return.  When there are four partners, there are two secretaries and half a dozen students housed in a large building with an open floor plan and thousands of dollars worth of fixed costs.  Having worked in large firms, I can tell you your tax return can be touched by four different people before you finally see it.  Sure, the chance of them incorrectly entering a box on one of your tax slips is minimized but you are definitely paying for it. Save money, take your tax return to a smaller firm.

 

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About The Author

Joseph (Ken)
(Ken) is a Registered Public Accountant with over 25 years of public practice experience in the accounting profession. Ken specializes in accounting information systems, taxation and financial reporting.

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