July 2016 Newsletter

If you carry on a business, you can deduct car expenses incurred in the course of earning your business income.

In some cases, if you are an employee and are required under the terms of your employment contract to use your car for employment purposes, you can deduct your car expenses in computing your employment income. You must obtain Form T2200 from your employer, indicating that you meet the Income Tax Act's requirements. You do not get a deduction if your employer reimburses you for the costs. Similarly, you do not get a deduction if your employer provides you with a tax-free car allowance.

The term “earned income” can mean different things for income tax purposes. For individuals, the definition is important for at least two different issues, as noted below.

First, it is relevant for the purposes of determining your deduction room for a taxation year for contributions to your registered retirement savings plan (RRSP). Second, a different definition of “earned income” is relevant for the purpose of determining your deductible child care expenses.

As a general rule, dispositions of capital property give rise to a capital gain or a capital loss. One-half of a capital gain is included in income as a taxable capital gain. One-half of a capital loss is an allowable capital loss, which serves to offset taxable capital gains but normally does not offset other sources of income.

The rules are somewhat different for dispositions of personal-use property (PUP), at least with respect to losses. In general terms, PUP is defined as property that is used by you primarily for personal purposes rather than income-earning purposes. It can include property such as your home, furniture and appliances, your car, and so on.

A TFSA is a type of deferred income plan. Any income earned in the TFSA is completely exempt from tax. Withdrawals from the TFSA are completely exempt from tax. However, unlike RRSPs, you do not get a tax deduction for contributions into the plan.

The TFSA funds can be withdrawn at any time and for any purpose. They are not specifically targeted towards funding retirement or any other life event. Simply put, they allow you to earn taxfree investment income for any purpose.

Like other deferred income plans, there are monetary limits for contributions.

Foreign property reporting required even if no tax return

A Canadian resident is required to file the Form T1135 for each taxation year in which the person owns foreign investment property with a total cost of over $100,000 at any time during the year. The requirement does not extend to personal property such as a foreign home that is not used for income-earning purposes.