Two weeks ago it was "Take Your Kids To Work Day." My son Win, who is now in Grade 9, spent a day at my office. When he came home that night my youngest son, Michael, asked Win, "What does Dad do all day?"
"He watches a few people who watch a lot of other people who watch people doing things," Win replied. Michael thought about it for a few seconds.
"Wow, that would be boring," Michael said.
"What if those people aren't doing anything exciting? What if they're just sitting there, reading or something?"
Hence, employment gets a bad rap. Unless you're a firefighter, your kids are destined to view employment as less than exciting.
And our tax law doesn't help much; employees don't get a lot of tax breaks. Still, there are a few things employees should think about before year-end.
1. Time your employment income.
If your marginal tax rate is expected to be lower in 2013, consider deferring the receipt of certain income, such as bonuses, until January. On the flip side, if your marginal tax rate will be less in 2012, you may ask to accelerate those payments to save tax.
2. Negotiate non-cash gifts or awards.
You're entitled to receive up to $500 annually in non-cash gifts and/or awards from your employer with no tax owing on that value. Speak to your employer about receiving gifts or awards to reduce your tax burden. The rules are stringent as to what will and won't qualify, so speak to a tax pro.
3. Ask your employer to set up a scholarship program.
It's possible for your employer to contribute funds to an internal scholarship program to provide funding to the children of employees for post-secondary education, without tax to employees (the student would receive the amount as scholarship income, likely eligible for tax exemption). Your employer could, for example, allocate some discretionary bonus money to a scholarship program.
4. Borrow from your employer.
If you are looking to borrow money for any reason, negotiate a loan from your employer if you can. As long as the interest charged is at or above the prescribed rate (currently just 1 per cent) there will be no taxable benefit to you. You should pay your interest by Jan. 30 for the prior year.
5. Negotiate for an office at home.
Structure your employment agreement so that you're required to provide your own office at home. This can allow deductions for a number of home-related costs that you're paying for anyway (see my article from April 9, 2009, at waterstreet.ca). Now, your home office must either be your principal place of work (more than half your working time must be spent there), or it must be a space designated solely for your work and used on a regular and continuous basis for meeting customers or clients; set this up today for 2013 and save tax dollars next year.
6. Hire an assistant to help you.
If your employer requires you to hire and pay for your own assistant you'll be entitled to deduct reasonable compensation paid to that assistant. You can even hire a family member as your assistant. This will allow you to directly transfer income from you to your family member who may be in a lower tax bracket. It's important to have your employer put it in writing that you are required to hire an assistant. Set this up for 2013 and start saving tax in the new year.
7. Apply to reduce tax deductions at source.
If you know that you'll be claiming certain tax deductions or non-refundable tax credits that will give rise to a refund when you file your tax return, consider applying today for a reduction in the taxes withheld from your pay. Now is the best time to make that application for 2013. Use federal form T1213 (form TP-1016-V in Quebec) to make this application.
8. Reduce your taxable benefit on a company car.
If you've been provided with a company car you may be familiar with the nasty taxable benefit that applies for your personal use of the car. Take steps to reduce the tax hit by reducing your personal driving to under 50 per cent for the year, if possible. Also, consider reducing the number of days the car is available to you by leaving it parked at work if you can. You might also consider buying the vehicle from your employer at the depreciated cost, or you might choose a less expensive vehicle (which will reduce your taxable benefit).