Income Tax Severed Letters - 2006-06-09

Principal Issues: In a situation in which an employer proposes to establish an employee savings plan wherein the employee can decide whether the employer contribution will be made to an EPSP or to an RRSP, does the minimum employer contribution requirement apply when the employee chooses to direct the employer contribution to the RRSP?

Position: Although we would question whether a valid EPSP has been established, the minimum employer contribution requirement always applies.

Reasons: By definition, an EPSP is an arrangement under which payments are required to be made by the employer to a trustee under the arrangement. As such, where the employee can require the employer to remit the payment to a different arrangement (here, an RRSP), the foregoing requirement will not have been met.

Principal Issues: Whether a deduction is available for the expense incurred for tools used to earn employment income as an industrial electrician.

Position: No

Reasons: Currently, the Income Tax Act does not provide an employee such as yourself a deduction for the cost of tools incurred and used to earn income from employment. However, the 2006 Budget proposes to recognize a deduction for the cost of eligible new tools acquired by an employed tradesperson after May 1, 2006. The deduction will be limited to the lesser of $500 and the amount by which the total cost of new tools acquired in the year exceeds $1,000.

Principal Issues: Where due to an administrative error of the employer, an employee's union dues were in arrears and the employer subsequently paid the union dues and included the amount in the employee's income as a taxable benefit, whether the employee in entitled to a deduction for the amount included in employment income.

Position: Yes, if the union dues would have been otherwise deductible in computing the employee's income had they been paid by the employee himself or deducted from the employee's salary and paid by the employer, the employee is entitled to a deduction for the amount paid directly by the employer and included in income as a taxable benefit.

Reasons: Reasonable interpretation of the law. Further, there is currently a legislative proposal to amend paragraph 8(1)(i) of the Act to clarify that an expense described in that paragraph that is paid on an employee's behalf is deductible by the employee if the amount paid is required to be included in computing the employee's income

Principal Issues: What is the filing deadline of an individual who is a limited partner of a partnership that does not include a rental or farming operation and is not a tax shelter investment?

Position: The filing deadline is June 15 of the following year.

Reasons: In accordance with subparagraph 150(1)(d)(ii) of the ITA, the filing due date for individuals who carried on a business in the year, other than through tax shelter investments, is June 15 of the following year. In the court cases Robinson 98 DTC 6232 (FCA) and Grocott 96 DTC 1025 (TCC), the courts held that limited partners and non-active partners of an active partnerships are still considered to have carried on a business in the year regardless of the particular partners' risk or involvement.