The life of an employee can be tough. I recall the story I read a few years back about an employee – a waiter – who was allegedly assaulted by a customer who happened to be a pro boxer. Later, the boxer was asked about the incident and claimed that he told the employee he wanted the onions on his cheeseburger to be "crisp, tender and succulent, and bursting with flavour," and they were not. The employee "had no compassion for what I was talking about," the boxer said. The boxer was later acquitted of the assault charge. The employee learned he had to just grin and bear it. I guess the customer is always right.
Employees aren't treated much better by the taxman. Our tax law offers little in the way of tax breaks. As we near year-end, however, consider the following eight ideas that can save you tax as an employee.
1. Reduce your 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 2014. Use federal form T1213 (form TP-1016-V in Quebec) to make this application.
2. Negotiate a reimbursement for courses taken. Tuition costs paid by your employer can be a valuable tax-free benefit for you. Employer-paid education costs fall into three categories: (1) specific employer-related training (directly related to your job responsibilities); (2) general employer-related training (things like stress management, language skills, etc.); and (3) personal interest training (which benefits you more than your employer). The first two types of training, if paid for by your employer, won't be considered a taxable benefit by the Canada Revenue Agency.
3. Ask your employer for a loan. If you're 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 2 per cent), the loan will not be considered a taxable benefit. You should pay your interest by Jan. 30 for the prior year. See an earlier article (tgam.ca/cestnick-loan) for more.
4. Request non-cash gifts and awards. Your employer can provide up to $500 annually in non-cash gifts and/or awards with no tax owing on that value. The rules are specific as to what will and won't qualify, so speak to a tax pro.
5. Arrange to work from home. You can benefit if 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). 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 2014 and save tax dollars next year.
6. Manage your stock option benefits. If you plan to exercise stock options this year, you may face a taxable benefit. The rules can allow a deduction for half of this benefit where you exercise your options and take the stock into your hands. If you choose to cash-out your options, however, either you or your employer (but not both) will be entitled to a deduction. In this situation, ask your employer to forgo the deduction so that you can claim it. Also, consider using your stock options to give to charity for a donation credit before year-end (see my recent article on this subject at tgam.ca/cestnick-options).
7. 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 person. You can even hire a family member for this role. 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 2014 and start saving tax in the new year.
8. Defer a bonus until next year. Consider requesting a bonus payment next January rather than in 2013 if you expect your marginal tax rate to be lower next year. On the flip side, if your marginal tax rate will be less this year, you may ask to receive that bonus in 2013 to save tax.