Question

Paul Fenson is employed as a shipping supervisor. In the evenings and on weekends, he holds a second job as a real estate salesman for a national real estate firm. His financial information for 2020 is as follows: 1. His salary from his day job is $60.000 per annum. However, the employer deducts a number of items from his salary, and so his net take-home pay is only $40.846. The following amounts were deducted in 2020: Income tax Union dues Canada Pension Plan Employment Insurance premiums Registered pension plan contribution Reimbursement for personal use of employer's cer Charitable donations remitted to United Way $ 11,000 600 2.898 856 3,000 600 800 $19.754 The employer paid the following amounts on behalf of Poul: Canada Pension Plan Employment Insurance premiums Registered pension plan Premiums for a mandatory provincial health insurance plan Group term life insurance premiums ($50,000 coverage) $2.898 1,198 3,000 600 1.200 $8.896 Poul used the employer's summer camp for one-month holiday and paid the employer $200 rent. When not being used by employees. the summer camp is rented for the normal amount of $600 per month. Although Poul owned his own cer, he was provided with a company car. The car cost the company $35.000. During the year, he drove a total of 24.000 km, of which 15,800 was for personal use. The employer also paid all of the operating costs, which amounted to $3.000. During the year, he attended a shipping conference in Toronto. His spouse travelled with him at the company's expense ($1.000). The employer permitted staff to purchase merchandise from its retail outlet at the company's cost. During the year, Poul purchased for $300 merchandise with a retail value of $1.200. 2 As a real estate salesman, Poul earned a base salary of $3,000 and received commissions of $7.000. In relation to his real estate work, he incurred the following expenses: Dues to a local real estate association $400 Fee for three-day seminar on how to be an effective 3,000 salesperson Advertising-calendars and pens 1,700 Car operating costs 4,000 Promotion (meals and drinks for clients) 2,800 Personal mesls (during in-town business) 400 Purchase of e portable telephone 600 Paul used his own car for his real estate activities. The car has an undepreciated capital cost for tax purposes of $10,000. During the year, he drove a total of 30,000 km, of which 27,000 wes related to selling real estate. His employer provided him with a monthly cor allowance of $200 ($2.400 per year).

Answer 1

Fenson's income from employment is as follows:

Items of Income:

• ITA 5(1) Salary - Day job $ 60,000
• ITA 5(1) Salary – Real estate salesman $ 8,000
• ITA 5(1) Commissions - Real estate salesman $ 7,000

Benefits:

• ITA 6(1)(a) Provincial health insurance premium (Note 1)    600
• - ITA 6(1)(a), 6(4) Group term life insurance 1,200
• - ITA 6(1)(a) Summer camp ($600 - $200) 400
• - ITA 6(1)(e), 6(2) Automobile - standby charge    (2% x $35,000 x 12 months )    $8,400 -  ITA 6(1)(k) Automobile operating expense benefit ( 24% x 16,800 personal km) 4,032

Less reimbursement paid to employer (600) 11,832

• - ITA 6(1)(a) Spouse's travel costs 1,000
• - ITA 6(1)(b)(v) Travel Allowance (Note 2) 2,400 92,432

Deductions from Income:

• ITA 8(1)(m) Registered pension plan contributions (RPP) $3,000
• ITA 8(1)(i) Union dues 600
• Sales expenses (Note 3) 9,700 (13,300)
• Employment income $ 79.132

(Note 1) The public medical insurance plan premium was included as a benefit because it was assumed that the employer's contribution was not mandatory. It would not be taxable if the employer was required by law to pay a portion of the premium (such as an employer health tax).

(Note 2) The car allowance of $200 per month received from the real estate employer is deemed not to be a reasonable allowance since it is not based on the number of kilometers for which the car is used for employment purposes [ITA 6(1)(b)(x)]. Therefore, the allowance is taxable [ITA 6(1)(b)(v)]. Because the allowance is taxable, it permitted the taxpayer to deduct the numerous expenses incurred to earn the commissions. If the travel allowance had been reasonable, the $2,400 would be excluded from income but the $9,700 of employment expenses would then not be permitted as a deduction, and fenson's net income would increase accordingly.

(Note 3) Expenses relating to real estate sales:

ITA 8(1)(f) Limited expenses:

• Dues to real estate association $ 400
• Advertising 1,700
• Automobile operating costs (27,000 km/ 30,000 km = 90% x $4,000) 3,600
• Promotion – meals & drinks
• (50% of $2,800) 1,400 $7,100
• Limited to a maximum of commission earned $7,000 Non-limited expenses:
• ITA 8(1)(j) Capital cost allowance     $10,000 x 30% = $3,000 x 27,000 km/30,000 km 2,700 $9,700

(Note 4) The following items were excluded from income:

Company portion of Canada Pension and Employment Insurance premiums. These items are a tax on the employer.

Company RPP contributions are specifically exempted [ITA 6(1)(a)(i)].

Merchandise discounts. Under CRA’s administrative policy discounts offered to all employees (but normally not below the employer’s cost) are considered non-taxable [IT470R].

The following expense items were not deducted:

Canada Pension Plan, Employment Insurance premiums, and charitable donations are not deductible because they are not specifically exempted from the general rule that no deductions are permitted. Each of these items, however, is eligible for a tax credit.

Fees for a three day seminar on becoming an effective salesperson. The permitted salesperson's deductions do not include any expenditure of a capital nature. The seminar will provide a long term benefit to Fenson and, therefore, is a capital item [ITA 8(1)(f)(v)].

Meals (in town). The deduction of personal meals is only permitted when traveling outside of the municipality in which the employer is located and when the taxpayer’s duties require the taxpayer to be away for 12 hours or more [ITA 8(4)].

Portable telephone. This is a capital item because it has a long term benefit and therefore is not deductible [ITA 8(1)(f)(v)].