From deferring a bonus to working from home in 2018, workers should consider these ideas to help start the new year off on the right footGunnar Pippel/Getty Images/iStockphoto
You've probably heard the story about the young student just graduating from an engineering program. He was in a job interview and the human-resources person asked, "What starting salary are you looking for?" The young man replied, "About $130,000 a year, depending on the benefits package."
The interviewer then asked, "What would you say to five weeks vacation, full medical and dental benefits, a company retirement fund matching 50 per cent of your salary, stock option benefits and a company car?"
The engineer sat up and replied, "Wow! Are you kidding?"
"Yeah," the interviewer responded. "But you started it."
Few employees will ever know benefits like that. To make matters worse, the pages of the Income Tax Act that deal with allowable deductions for employees amount to just eight pages, out of more than 2,300 in total. So, what's an employee to do? Consider these tax tips before year-end to put more money in your pocket.
Defer a bonus
Are you expecting a bonus in 2017? If so, speak to your employer about delaying payment of that bonus until January. In fact, the bonus could be deferred for as long as three years from the end of this year. This will defer the tax to 2018, which can make sense if you expect to be in a lower tax bracket or will have deductions or losses to use next year.
Consider employee loans
If you've received a loan from your employer, make sure that any interest owing for 2017 is paid by Jan. 30, 2018. This will reduce any taxable interest benefit you may otherwise face for 2017. If you haven't borrowed from your employer, this can be a great tax-free benefit. As long as your interest cost is at or above CRA's prescribed rate (currently just 1 per cent), you won't face a taxable interest benefit. Negotiate a loan with your boss in 2018 if you can.
Reduce the stand-by charge
Do you drive a company car? You could face a taxable benefit called the "stand-by charge." Reduce this taxable benefit by reducing the number of days between now and year-end that the car is available to you. You should also think about buying the car from your employer at its depreciated value to avoid the taxable benefit next year.
Reduce the operating cost benefit
Your company car can also result in an "operating cost benefit." Reduce this taxable benefit by reimbursing your employer for some, or all, of the operating costs by Feb. 14, 2018, and by minimizing your personal-use driving between now and year-end.
Work from home in 2018
Before year-end, negotiate with your employer the requirement to work from home more than half the time so that you'll be able to deduct certain home office costs next year. Your employer will have to sign Form T2200 as evidence of this requirement.
Hire a family member
If your employer requires you to hire your own assistant, then you can deduct his or her salary from your employment income. This can work well if you can hire your spouse or a child to fill that position; it will allow for a splitting of income with that family member. Have your employer put in writing that you're required to hire an assistant for this idea to work. And make sure your spouse or child is actually doing the work of an assistant. Again, your employer will have to sign Form T2200 as proof that you were required to hire someone.
Increase your take-home pay
Are you expecting a tax refund next April? If so, and this typically happens each year, you may be able to apply to reduce the tax deducted from your pay each payday. This would give you more take-home pay throughout the year and less of a refund in April. Use Form T1213 to apply for reduced tax withholdings (get the form online at cra.gc.ca). If the taxman approves your application, a letter will be sent to you that you can provide to your employer authorizing reduced tax withholdings. Apply now so that you may be able to start the new year with more take-home pay.
Ask for non-taxable benefits
Most compensation you receive from your employer will be fully taxable. There are some benefits, however, that your employer can provide that won't face tax in your hands. Speak to your employer about building some of these benefits into your total compensation. These benefits can include personal counselling, discounts on merchandise (yes, the government has kept this benefit), club membership dues and education costs.
Tim Cestnick