Thrifty Canuck

I am in the RCMP/Canadian Forces, can I deduct haircuts on my tax return?

noreply@blogger.com (Author) — Sat, 07 Jan 2012 04:04:00 +0000

From time to time, police officers, and soldiers ask the question, can I deduct the cost of haircuts that are required in the performance of duty?

Not surprisingly, this question has been brought before the Tax Court of Canada.

In 1998, Thomas Cuddie and 10 other RCMP constables deducted the cost of their haircuts in addition to other materials, pagers and basic telephone service on their income tax returns. Cuddie went on the basis that these expenditures were supplies and therefore deductible under the Income Tax Act. Judge Bell, known in the tax community to have ruled in favour of the taxpayer more often than not, presided on this case. He found that the items these police officers tried to deduct, including the haircuts, did not result in supplies being consumed. Accordingly, he dismissed the appeals by all 11 police officers.

A year later, in 1999, Roger Rouillard, a member of the Canadian Forces deducted $182 of haircuts on his tax return in addition to cost for cleaning and repairing his military uniform. Rouillard cited the Queen's Regulations and Orders for the Canadian Forces (specifically the Canadian Forces Dress Manual) relating to Personal Appearances. He even indicated that

My superiors required me to have my hair cut every two weeks and failure to do so might lead to disciplinary measures against me for conduct detrimental to good order and discipline.

However, Judge Lamarre Proulx of the Tax Court of Canada, found that in line with the findings of the Cuddie case a year before - haircuts could not be considered supplies and therefore could not be deducted.

In summary, haircuts that are required in the performance of duty are not deductible under the Income Tax Act.

For your reading pleasure, I've included copies of the Cuddie and Rouillard cases. Of interest in the Cuddie case for Police Officers is the fact that the cost of a phoneline, hand cuffs, pagers, flashlights and gloves are not deductible as well.

1998/04/03 - (TCC) Cuddie et al v The Queen

98 DTC 1822; [1998] 3 CTC 2232

REFERENCES: ITA: 8(1)(p), 8(1)(q), 8(1)(i)(iii), 8(2), 8(1)(a), 8(1)(b), 8(1)(c), 8(1)(d), 8(1)(e), 8(1)(f), 8(1)(g), 8(1)(h), 8(1)(i), 8(1)(j), 8(1)(k), 8(1)(l), 8(1)(m), 8(1)(n), 8(1)(o)

HEADNOTE:

At issue in these appeals commenced by members of the RCMP was whether various expenses claimed were deductible as employment expenses pursuant to paragraph 8(1)(i) of the ITA. The expenses related to charges for haircuts, pagers, basic telephone service, gloves, flashlights, and handcuff keys. Appeals dismissed.

Date: 19980402

Docket: 97-1898(IT)I

BETWEEN:

THOMAS CUDDIE, Appellant,

and

HER MAJESTY THE QUEEN, Respondent

AND:

97-1903(IT)I

CHARLES J. McDONALD, Appellant,

and

HER MAJESTY THE QUEEN, Respondent

AND:

97-1886(IT)I

RANDALL WONG, Appellant,

and

HER MAJESTY THE QUEEN, Respondent

AND:

97-1887(IT)I

JEFFREY WEST, Appellant,

and

HER MAJESTY THE QUEEN, Respondent

AND:

97-1888(IT)I

YAN G. THERRIEN, Appellant,

and

HER MAJESTY THE QUEEN, Respondent

AND:

97-1889(IT)I

ELIZABETH SHAW, Appellant,

and

HER MAJESTY THE QUEEN, Respondent

AND:

97-1890IT)I

DONALD MERKEL, Appellant,

and

HER MAJESTY THE QUEEN, Respondent

AND:

97-1891(IT)I

SHELLEY BRITTON, Appellant,

and

HER MAJESTY THE QUEEN, Respondent

AND:

97-1892(IT)I

MAUREEN MARCOUX, Appellant,

and

HER MAJESTY THE QUEEN, Respondent

AND:

97-1899(IT)I

M. PAUL CUFFLEY, Appellant,

and

HER MAJESTY THE QUEEN, Respondent

AND:

97-1901(IT)I

STEPHANE LAPOINTE, Appellant,

and

HER MAJESTY THE QUEEN, Respondent.

COURT/JUDGE/DATE:

Tax Court of Canada, Bell, J., April 3, 1998. [Docket: 97-1898(IT)I; 97-1903(IT)I; 97-1886(IT)I; 97-1887(IT)I; 97-1888(IT)I ; 97-1889(IT)I; 97-1890IT)I; 97-1891(IT)I; 97-1892(IT)I; 97-1899(IT)I; 97-1901(IT)I

COUNSEL:

Lynn Caskey, CGA, Lainie Goddard and The Appellant himself, For the Appellant.
Elizabeth Junkin, Counsel for the Respondent.

REASONS FOR JUDGMENT

Bell, J.T.C.C.

[1] This is one of eleven appeals commenced by members of the Royal Canadian Mounted Police force ("RCMP") respecting employment expense deductions. As the issue is the same in each case, the only difference being the type of expenses that were claimed, these Reasons for Judgment will apply to all eleven appeals.

ISSUE:

[2] The issue is whether the expenses claimed by the Appellant are deductible pursuant to the provisions of paragraph 8(1)(i ) of the Income Tax Act ("Act ").

FACTS:

[3] The Appellant Thomas Cuddie conducted the appeal on behalf of all eleven Appellants. He gave evidence that he had deducted the expenses incurred by him in respect of haircuts, a pager and basic telephone service. He testified that members of the force were obliged to have their hair cut or arranged at a certain length and that each member had to have a basic telephone service which he described as a land telephone. By that he obviously meant a fixed telephone line as opposed to a cellular telephone. He also claimed expenses with respect to pager rentals. He testified that the force supplied a minimal number of pagers and that it was not only inconvenient but inappropriate in some circumstances not to have a pager in continuous possession. He explained that if he was expecting a call, for example, from an informant, the informant might well call that pager number when some other policeman was in possession of the pager. The only way, he testified, that he could have assurance of continuous use of a pager was to make arrangements for acquiring one himself. He testified also that this applied to the other Appellants.

[4] Additional matters in respect of which expenses were made by some Appellants were gloves, flashlights and handcuff keys. Cuddie's evidence was that in certain cases it was necessary for members to purchase special gloves and that the flashlights issued by the RCMP force were of inferior quality and could easily break. He said that it was essential that they have reliable flashlights and hence the necessity to purchase same. He also testified that some members bought an extra set of handcuff keys for convenience. In two of the cases under appeal, amounts which were unexplained and unsubstantiated were claimed.

ANALYSIS AND CONCLUSION:

[5] Section 8 of the Act provides for deductions from a taxpayer's income from an office or employment. The description of deductible amounts is clearly set forth in paragraphs 8(1)(a ) through (q ). Subsection 8(2) provides that except as permitted by section 8 no deductions shall be made in computing income from an office or employment. The other subsections are not material to this appeal.

[6] It is clear that the only paragraph which could possibly afford these Appellants a deduction is 8(1)(i ). The pertinent part of it reads as follows:

(1) In computing a taxpayer's income for a taxation year from an office or employment, there may be deducted such of the following amounts as are wholly applicable to that source or such part of the following amounts as may reasonably be regarded as applicable thereto:

...

(iii) the cost of supplies that were consumed directly in the performance of the duties of the office or employment and that the officer or employee was required by the contract of employment to supply and pay for, ...

to the extent that the taxpayer has not been reimbursed, and it not entitled to be reimbursed in respect thereof;

[7] The question arises, therefore, as to whether pagers, telephones, haircuts, gloves, flashlights and handcuff keys are "supplies" that were consumed. It is not necessary to determine whether they were required by the contract of employment to supply and pay for those items if they were not supplies that were consumed.

[8] In Thibault v. M.N.R ., 86 DTC 1542, this Court determined that clothing could be considered to be "supplies" but could not be "consumed". In Komarniski v. M.N.R ., 80 DTC 1134 this Court determined that tools were not "supplies" but were equipment, the cost of which was not deductible. Judge Tremblay referred to the case of Herman Luks (No. 2) v. M.N.R., 58 DTC 1194 in which Thurlow, J., then a Judge of the former Exchequer Court of Canada, in discussing the distinction between "supplies" and "equipment" said,

"Supplies" is a term the connotation of which may vary rather widely, according to the context in which it is used. In s. 11(10)(c ) it is used in a context which is concerned with things which are consumed in the performance of the duties of employment. Many things may be consumed in the sense that they may be worn out or used up in the performance of duties of employment. The employer's plant or machinery may be worn out. The employee's clothing may be worn out. His tools may be worn out. And materials that go into the work, by whomsoever they may be provided, may be used up. "Supplies" is a word of narrower meaning that "things" and in this context does not embrace all things that may be consumed in performing the duties of employment, either in, the sense of being worn out or used up. The line which separates what is included in it from what is not included may be difficult to define precisely but in general, I think its natural meaning in this context is limited to materials that are used up in the performance of the duties of the employment. It obviously includes such items as gasoline for a blow torch but, in my opinion, it does not include the blow torch itself. The latter, as well as tools in general, falls within the category of equipment.

[9] In Brownlee v. M.N.R ., 78 DTC 1571, this Court determined that the word "supplies" did not include items of individual dress such as a police officer's uniforms. It determined that the uniforms were not "consumed" in the normal comprehension of that term. It went further and said that even if the uniforms were "supplies that were consumed", they were not "consumed" directly in the performance of the duties of the office or employment. The foregoing positions are confirmed in McLeavy v. M.N.R ., 54 DTC 136 and Drobot v. M.N.R., 87 DTC 371.

[10] The submissions made by the Appellant Cuddie were logical, and in the circumstances described by him, well based. I have no doubt, from my appraisal of him, about his sincerity and about his credibility. However, the statutory test that must be met is strict. The legislature, in using the words "supplies that were consumed" posed a firm requirement for deduction. The New Shorter Oxford English Dictionary defines "consume" as,

That has been consumed.

and defines consumed, inter alia , as

Destroyed by or like fire or (formerly) disease; cause to vanish (away), as by evaporation. ... Use, so as to destroy; take up and exhaust; use up. ... Eat up, drink down; devour.

[11] The expenses incurred by the Appellants simply did not result in supplies being consumed. Accordingly, the appeals are dismissed.

Signed at Ottawa, Canada this 3 rd day of April, 1998.

1999/10/01 - (TCC) Rouillard v The Queen

[2000] 4 CTC 2065

REFERENCES: ITA: 8(1)(i)

HEADNOTE:

At issue was whether certain expenses, incurred by the appellant to meet the requirements of his employment (e.g., haircuts), were deductible in calculating his income for the 1996 taxation year. Appeal dismissed.

[OFFICIAL ENGLISH TRANSLATION]

Date: 19991001

Docket: 98-1048(IT)I

BETWEEN:

ROGER ROUILLARD, Appellant,

and

HER MAJESTY THE QUEEN, Respondent.

COURT/JUDGE/DATE:

Tax Court of Canada, Lamarre Proulx, J., October 1, 1999. (Docket: 98-1048(IT)I)

COUNSEL:

The Appellant himself, For the Appellant.
Mounes Ayadi, Counsel for the respondent.

REASONS FOR JUDGMENT

Lamarre Proulx, J.T.C.C. —

[1] This appeal under the informal procedure concerns the 1996 taxation year. The point at issue is whether certain expenses that the appellant must incur in order to meet the requirements of his employment are deductible under section 8 of the Income Tax Act (the "Act").

[2] The facts on which the Minister of National Revenue (the "Minister") relied in making his assessment are set out in paragraph 7 of the Reply to the Notice of Appeal (the "Reply") as follows:

[TRANSLATION]

(a) the appellant is a serviceman;

(b) the appellant claimed he incurred the following expenses in the course of his employment during the year in issue:

(i) haircuts

$182.00

(ii) cleaning and repairing of military uniforms

$140.00

$322.00

(c) the appellant claimed the sum of $322.00 as "other deductions" for the 1996 taxation year;

(d) the Minister disallowed the deduction of $322.00 because it was not deductible under section 8 of the Income Tax Act.

[3] The facts set out in the Notice of Appeal are as follows:

[TRANSLATION]

. . . Because of our status and the fact that we represent our country, we are required to be well turned out at all times. The Queen's Regulations and Orders for the Canadian Forces. Ref.: Canadian Forces Dress Manual, Chapter 2, Section 2, page 2-2-1, hair, beards, jewellery.

Personal Appearance

The deportment and appearance of all ranks, in uniform or when wearing civilian attire, shall on all occasions reflect credit on the CF and the individual. It is the responsibility and duty of all officers, warrant officers and non-commissioned officers to ensure that, by their vigilance, actions and example, the policies, regulations and instructions contained in the QR&Os are adhered to by all ranks.

My superiors required me to have my hair cut every two weeks and failure to do so might lead to disciplinary measures against me for conduct detrimental to good order and discipline.

[4] The appellant testified that he had to have his hair cut every two weeks in order to comply with the army's haircut requirement. As for clothing maintenance, the appellant received a non-taxable allowance of $17.05 a year, but said this allowance was not sufficient.

Analysis

[5] In Symes v. Canada, [1993] 4 S.C.R. 695, Iacobucci J. conducted a lengthy analysis of both personal and business expenses. While we are not concerned here with business income, it is nevertheless interesting to see whether the expense in question would be allowed as a business expense. It would appear that it would not, based on Iacobucci J.'s finding at page 739, and I quote:

. . . Traditionally, expenses that simply make the taxpayer available to the business are not considered business expenses since the taxpayer is expected to be available to the business as a quid pro quo for business income received. . . .

[6] I believe it would nevertheless be useful to cite lengthy excerpts from this decision to show that the distinction between a personal and a business expense is not always easy to determine and to establish the criteria that should be considered in ascertaining whether an expense is one of a personal or business nature.

(pages 726-27)

In Bowers v. Harding, the Hardings (a married couple) were employed in the operation of a school, and they received a joint salary for this employment. Mr. Harding engaged a household servant, according to the admitted facts of the case, in order "to enable his wife to have time to perform her duties as schoolmistress" (p. 23). Since the relevant tax legislation treated the couple's joint salary as Mr. Harding's alone, he sought to deduct the expense of the housekeeper upon the basis that it was incurred "wholly, exclusively, and necessarily in the performance of the duties of his . . . employment": Income Tax Act (U.K.), 16 & 17 Vict., c. 34, s. 51.

The attempted deduction was disallowed. In the eyes of the court, the Hardings were proposing a "but for" test for deductibility. In other words, they were arguing that "but for the housekeeper", the income could not have been earned. Baron Pollock rejected this test in the following terms (at p. 26):

When a man and his wife accept an office there are certain detriments as well as profits, but is in no sense an expenditure which enables them to earn the income in the sense of its being money expended upon goods, or in the payment of clerks, whereby a tradesman or a merchant is enabled to earn an income. . . . If we were to go into these questions with great nicety we must consider the district in which the person lives, the altitude at which he lives, the price of meat, and the character of the clothing that he would require, in many places indeed the character of the services and the wages paid to particular servants, and the style in which each person lives, before we could come to any conclusion.

I am aware that many people might question the applicability of the language and circumstances of Bowers v. Harding, supra. Indeed, there are many ways that it might be distinguished. First, it deals with income from employment, rather than with income from business. Second, the expense in question related to "housekeeping", rather than to child care (or, at least, if child care was involved, the case report fails to disclose so). Third, the expense was compared against the very strict requirement that it be made "wholly, exclusively and necessarily" for the purpose of earning the income, and no identical requirement arises on the facts of this case. Finally, perhaps, like the trial judge below, one could merely focus upon the fact that the case came from "another age" and from "another system" (p. 72).

. . .

(pages 732-33)

. . . Professor Brooks adopts this view, and suggests that the only true question under s. 18(1)(a) is: "was the expense incurred for a personal or business purpose?" (supra, at p. 253). Other commentators propose other tests which vary in the extent to which they borrow directly from the language of s. 18(1)(a). Examples include a "predominant purpose" test (C. F. L. Young, "Case Comment on Symes v. The Queen", [1991] Brit. Tax Rev. 105, at p. 105), or, more basically, a test which requires simply an income earning purpose: Krishna, The Fundamentals of Canadian Income Tax, supra, at pp. 365-66; E. C. Harris, Canadian Income Taxation (4 th ed. 1986), at pp. 191-92.

. . .

(pages 737-39)

It may also be relevant to consider whether a particular expense would have been incurred if the taxpayer was not engaged in the pursuit of business income. Professor Brooks comments upon this consideration in the following terms (at p. 258):

If a person would have incurred a particular expense even if he or she had not been working, there is a strong inference that the expense has a personal purpose. For example, it is necessary in order to earn income from a business that a business person be fed, clothed and sheltered. However, since these are expenses that a person would incur even if not working, it can be assumed they are incurred for a personal purpose — to stay alive, covered, and out of the rain. These expenses do not increase significantly when one undertakes to earn income.

I recognize that in discussing food, clothing and shelter, I am adverting to a "but for" test opposite to the one discussed earlier. Here, the test suggests that "but for the gaining or producing of income, these expenses would still need to be incurred". I must acknowledge that because it is a "but for" test, it can be manipulated. One can argue, for example, that "but for work, the taxpayer would not still require expensive dress clothes". However, in most cases, the manipulation can be easily rejected. Continuing with the same example, one can conclude that the expense of clothing does "not increase significantly" (Brooks, supra, at p. 258) in tax terms when one upgrades a wardrobe. Alternatively, one can focus upon the change in clothing as a personal choice. Or, finally, considering that all psychic satisfactions represent a form of consumption within the ideal of a comprehensive tax base, one can focus upon the increased personal satisfaction associated with possessing a fine wardrobe.

Taking up this last point, I note that in a tax system which is at least partly geared toward the preservation of vertical and horizontal equities ("[h]orizontal equity merely requires that 'equals' be treated equally, with the term 'equals' referring to equality of ability to pay" and "vertical equity merely requires that the incidence of the tax burden should be more heavily borne by the rich than the poor": V. Krishna, "Perspectives on Tax Policy" in Essays on Canadian Taxation, supra, at pp. 5 and 6-7), one seeks to prevent deductions which represent personal consumption. To the extent that a taxpayer can make a lifestyle choice while maintaining the same capacity to gain or produce income, such choices tend to be seen as personal consumption decisions, and the resultant expenses as personal expenses. Professor Brooks gives the example of commuting expenses, which necessarily vary according to where one chooses to live (assuming, of course, that the taxpayer has some choice in this regard). In some cases, it may be helpful to analyze expenses in these terms.

Since I have commented upon the underlying concept of the "business need" above, it may also be helpful to discuss the factors relevant to expense classification in need-based terms. In particular, it may be helpful to resort to a "but for" test applied not to the expense but to the need which the expense meets. Would the need exist apart from the business? If a need exists even in the absence of business activity, and irrespective of whether the need was or might have been satisfied by an expenditure to a third party or by the opportunity cost of personal labour, then an expense to meet the need would traditionally be viewed as a personal expense. Expenses which can be identified in this way are expenses which are incurred by a taxpayer in order to relieve the taxpayer from personal duties and to make the taxpayer available to the business. Traditionally, expenses that simply make the taxpayer available to the business are not considered business expenses since the taxpayer is expected to be available to the business as a quid pro quo for business income received. . . .

[7] It may be seen from this analysis that the test—any expense that would not be incurred but for the business constitutes a business, not a personal expense—is a test that may be useful but is virtually impossible to apply in view of the variety of choices that individuals may make. I believe that what is stated to be the traditional test is the test which should be adopted because it applies equally to everyone. According to this test, if I interpret it correctly, any expense that must be made by a person in order to report for work will be considered a personal expense. Certain positions require that one be well dressed but each person determines the amount of money that person wishes to invest in clothing. Some positions require a neat personal appearance. Some individuals may be able to provide the kind of care needed to achieve this on their own, while others need the help of persons specializing in the field. Some live far from their place of work, while others live closer but their housing may be more expensive. As Baron Pollock wrote in Bowers v. Harding, (1891) 3 Tax Cas. 22 (Q.B.), in a passage cited in paragraph 6 of these reasons:

When a man and his wife accept an office there are certain detriments as well as profits, but is in no sense an expenditure which enables them to earn the income in the sense of its being money expended upon goods, or in the payment of clerks, whereby a tradesman or a merchant is enabled to earn an income. . . . If we were to go into these questions with great nicety we must consider the district in which the person lives, the altitude at which he lives, the price of meat, and the character of the clothing that he would require, in many places indeed the character of the services and the wages paid to particular servants, and the style in which each person lives, before we could come to any conclusion.

[8] I believe it must be concluded that all expenses incurred in order to report to one's normal place of work for one's usual duties are personal expenses incurred as a quid pro quo for remuneration. In the case of servicemen, their employment agreement requires them to be available for their work activities with regulation haircuts and well-maintained clothing. The salaries they receive are the quid pro quo for this availability to comply with the regulations. Thus, if the income in question were business income, it would appear to be certain that the appellant would not be entitled to the deduction because the expense would be of a personal nature.

[9] What we are dealing with here is employment income. In the case of employment income, deductions are provided for in section 8 of the Act. In Les principes de l'imposition au Canada, 1999, 12 th ed., Wilson & Lafleur, Lord, Sasseville and Bruneau write, at page 108: [TRANSLATION] "Section 5 defines the basic rules for computing employment income. Sections 6 and 7 list the amounts that are to be included in computing income. Section 8 enumerates the deductions permitted in computing employment income." (My emphasis.)

[10] The authors state the following at page 135 of the same work, in the chapter entitled [TRANSLATION] "Deductions permitted in computing income from an office or employment": "The tax treatment of deductions from income from an office or employment is subject to very strict rules. Subsection 8(2) provides that no deduction is possible with the exception of those expressly permitted by the Act." (My emphasis.) Subsection 8(2) of the Act reads as follows:

Except as permitted by this section, no deductions shall be made in computing a taxpayer's income for a taxation year from an office or employment.

[11] The deductions permitted are enumerated in subsection 8(1) of the Act. The only provision that might possibly apply to the situation raised by the taxpayer in the instant appeal is that in subparagraph 8(1)(i)(iii) of the Act. Paragraph 8(1)(i) reads as follows:

(1) In computing a taxpayer's income for a taxation year from an office or employment, there may be deducted such of the following amounts as are wholly applicable to that source or such part of the following amounts as may reasonably be regarded as applicable thereto:

. . .

(i) amounts paid by the taxpayer in the year as

(i) annual professional membership dues the payment of which was necessary to maintain a professional status recognized by statute,

(ii) office rent, or salary to an assistant or substitute, the payment of which by the officer or employee was required by the contract of employment,

(iii) the cost of supplies that were consumed directly in the performance of the duties of the office or employment and that the officer or employee was required by the contract of employment to supply and pay for,

(iv) annual dues to maintain membership in a trade union as defined

(A) by section 3 of the Canada Labour Code, or

(B) in any provincial statute providing for the investigation, conciliation or settlement of industrial disputes,

or to maintain membership in an association of public servants the primary object of which is to promote the improvement of the members' conditions of employment or work,

(v) annual dues that were, pursuant to the provisions of a collective agreement, retained by the taxpayer's employer from the taxpayer's remuneration and paid to a trade union or association designated in subparagraph (iv) of which the taxpayer was not a member,

(vi) dues to a parity or advisory committee or similar body, the payment of which was required under the laws of a province in respect of the employment for the year, and

(vii) dues to a professions board, the payment of which was required under the laws of a province,

to the extent that the taxpayer has not been reimbursed, and is not entitled to be reimbursed in respect thereof.

(My emphasis.)

[12] The leading case concerning this paragraph is Luks [No. 2] v. M.N.R., 58 DTC 1194. I refer to Thurlow J.'s comments at page 1198:

"Supplies" is a term the connotation of which may vary rather widely, according to the context in which it is used. In s. 11(10)(c) it is used in a context which is concerned with things which are consumed in the performance of the duties of employment. Many things may be consumed in the sense that they may be worn out or used up in the performance of duties of employment. The employer's plant or machinery may be worn out. The employee's clothing may be worn out. His tools may be worn out. And materials that go into the work, by whomsoever they may be provided, may be used up. "Supplies" is a word of narrower meaning than "things", and in this context does not embrace all things that may be consumed in performing the duties of employment, either in the sense of being worn out or used up. The line which separates what is included in it from what is not included may be difficult to define precisely but, in general, I think its natural meaning in this context is limited to materials that are used up in the performance of the duties of the employment. It obviously includes such items as gasoline for a blow torch but, in my opinion, it does not include the blow torch itself. The latter, as well as tools in general, falls within the category of equipment.

[13] Paragraphs 9 and 10 of Interpretation Bulletin IT-352R2 describe, based on various judicial decisions, the supplies that may be considered as being consumed directly in the performance of the duties of employment.

9. The word "supplies" as used in subparagraph 8(1)(i)(iii) is limited to materials that are used up directly in the performance of the duties of the employment. In addition to certain expenses related to a work space in a home, as explained in 5 above, supplies will usually include such items as

(a) the cost of gasoline and oil used in the operation of power saws owned by employees in woods operations;

(b) dynamite used by miners;

(c) bandages and medicines used by salaried doctors;

(d) telegrams, long-distance telephone calls and cellular telephone airtime that reasonably relate to the earning of employment income; and

(e) various stationery items (other than books) used by teachers, such as pens, pencils, paper clips and charts.

. . .

10. Supplies, as used in subparagraph 8(1)(i)(iii), will not include:

(a) the monthly basic service charge for a telephone line;

(b) amounts paid to connect or licence a cellular telephone;

(c) special clothing customarily worn or required to be worn by employees in the performance of their duties; and

(d) any types of tools which generally fall into the category of equipment.

[14] Subparagraph 8(1)(i)(iii) requires that supplies be consumed directly in the performance of the duties of the office or employment. Can haircuts be considered as supplies within the meaning of this subparagraph? As stated in the two previous paragraphs, it would appear that the term "supply" has always been interpreted, in the context of the said subparagraph, as meaning a physical object, not the provision of a service, a meaning which it may have in the Excise Tax Act (goods and services tax). I do not have to decide this matter, however, because there is another essential condition that must be met: the supplies must have been consumed directly in the performance of the duties of the office or employment. This requirement refers to the notion of personal expense by excluding it. A haircut is an expense incurred for the purpose of reporting to work, not performing one's work. It is not incurred directly in the performance of one's employment. It would be excluded as a personal expense in computing business income, and it is excluded from employment income because it is doubtful that haircuts and the maintenance of uniforms are supplies within the meaning of subparagraph 8(1)(i)(iii) of the Act and especially because, as in the case of a personal expense, they were not consumed directly in the performance of the duties of the appellant's employment.

[15] In Cuddie et al. v. The Queen, 98 DTC 1822, Judge Bell of this Court made the same finding with respect to haircuts.

[16] The deduction sought is not allowed under section 8 of the Act and the appeal is accordingly dismissed.

Signed at Ottawa, Canada, this 1 st day of October 1999.

Should I claim my charitable donations this year?

noreply@blogger.com (Author) — Thu, 13 Oct 2011 16:30:00 +0000

Donations made to registered charities don't necessarily have to be claimed in the year it was made. In fact, you can include the following on your current year tax return.

donations made by December 31 of the applicable tax year;
any unclaimed donations made in the previous five years; and
any unclaimed donations made by your spouse or common law partner in the year or in the previous five years.
Up to a limit of 75% or 100% of your net income as the case may be.

Before determining if it makes sense to deduct your donation, lets examine how the tax credit is calculated (using Saskatchewan as an example)

First $200 donation claimed - 15% Federal plus 11% Provincial tax credit.

Beyond $200 - 29% Federal plus 15% Provincial

As you can see, you will get a greater bang for your buck for donations claimed in excess of $200.

Now lies the question, should you claim your donation.

If your annual donations are generally small, it may make sense to defer claiming the donation on your current year tax return. Instead, you should accumulate it over the next 4 years and claim it all at once. Thus allowing you to cross the $200 threshold.

However, if your annual donations exceed the $200 threshold by a long shot, the impact of the lower tax credit would be insignificant as compared to the time value of holding off the claim to to a future year. In this instance, you should go ahead and claim the donation on your current year tax return.

Can I Deduct My Home Office Expenses

noreply@blogger.com (Author) — Thu, 26 May 2011 02:28:00 +0000

This is perhaps one of the most frequent questions people who have a home office have.

The answer isn't quite simple but I'll try my best to answer it.

The first criteria in determining whether you can deduct your home office expense is if you are:

an employee with a workspace in your home, or
if you are run a business and have a workspace in your home.

Employee

I'll first discuss the first situation where you are an employee and have a home office. In order to deduct your home office expenses you must meet one of the following criteria:

The work space is where you mainly (more than 50% of the time) do your work.
You use the workspace only to earn your employment income. You also have to use it on a regular and continuous basis for meeting clients or customers.

Do note that you will need to get a T2200 that has been signed by your employer.

What can I deduct?

You can deduct a reasonable proportion of your home expenses that relate to your work space (i.e. square footage of space used for work over total square footage). Home expenses that can be deducted include electricity, heating, maintenance, property taxes, and home insurance. However, you cannot deduct mortgage interest or capital cost allowance (depreciation on your home). If you rent, simply deduct the portion of your rent.

How much can you deduct?

The amount you can deduct is limited to the amount of employment income remaining after all other employment expenses have been deducted. This means that you cannot use work space expenses to create or increase a loss from employment.

Run a Home Business

I'll now discuss the second situation where you run a business and have a home office. You will need to meet the following criteria if to deduct home business expenses

the principal place of the business of the individual, or
used exclusively to earn business income and on a regular and continuous basis for meeting clients, customers or patients of the individual in respect of the business.

What can you deduct?

You can deduct the same expenses discussed above for an employee with one exception. You can also deduct your Mortgage Interest and Capital Cost Allowance. A word of caution. If you deduct CCA, you may be subject to recapture (income inclusion) when you sell your house in the future.

How much can you deduct?

Similar to the situation if you are an employee, you cannot create a loss as a result of your home office expenses.

What is a TFSA and How You Can Make the Most of it

noreply@blogger.com (Author) — Wed, 12 Jan 2011 16:00:00 +0000

In this article, I will explain the basics of what a Tax Free Savings Account ("TFSA") is. I will also explain some TFSA Strategies as well as some pitfalls that one should avoid.

Basics of a TFSA

A TFSA is essentially a speical type of "Tax Free" account which can be used to earn tax free income (such as interest, dividends, and capital gains). Beginning in 2009, all Canadian Residents aged 18 and over can contribute $5,000 annually into a TFSA. Any income earned on the contributions to the TFSA is tax free.

Contributions and Withdrawals

Contributions into a TFSA are not tax deductible and withdrawals are not subject to tax. Unlike an Registered Savings Plan ("RSP"), where your contributions are tax deductible and withdrawals are subject to tax. Once a withdrawal has been made, the contribution room equivalent to the amount of the withdrawal will be made available in the next year. Contribution room not used in one year will be carried forward to the next year.

Types of TFSA

The name Tax Free Savings Account can be quite misleading. A TFSA does not solely have to be a traditional savings account. In fact, it could be a Mutual Fund account, Self Directed brokerage account or a regular brokerage account.

How to make full use of your TFSA

Many accountants and financial planners recommend contributing the full $5,000 or as much as you can as early as you can. The reason being, the longer income gets tax sheltered, the greater the benefit to you.

What types of investments should you put into a TFSA

As a first rule, you should put your highest yielding investments into a TFSA. This will allow you to shelter most of your income as possible. However, if its a toss up between say Interest and Dividends from a Canadian Corporation, then one would choose to put the Interest into a TFSA. Reason being, under the Canadian tax legislation, Dividends from a Canadian Corporation get preferential tax treatment with the Dividend Tax Credit. However, no such relief is made available to interest income.

What should you look out for?

Many TFSA users are aware that you can withdraw funds from a TFSA without having to report it as income. However, many are unaware that the contribution room that is made available by the withdrawal will only be effective in the subsequent year.

Take for example, Judy contributes $5,000 into her TFSA on Jan 1 of Year 1. On Feb 28 of the same her she withdraws $2,000 intending to put it back into the TFSA at a later date. Since her TFSA contribution is at its limit, she will have to wait until Year 2 before she can contribute again into a TFSA. If Judy contributes the $2,000 on April 1 of Year 1, the CRA will impose a overcontribution tax equal to 1% of the excess per month.

Use Low Rate Credit Card Cheques Intelligently

noreply@blogger.com (Author) — Wed, 27 Oct 2010 02:13:00 +0000

So have you received a low interest rate credit card cheque from your Credit Card company. Well, for mine - RBC - sends me cheques a couple of times a year, where I can draw funds at various “teaser” rates - at one point being as low as 0.9%. But with these “teaser” rates, comes the truth to the facts behind using these cheques or balance transfer offers.

What are teaser rate cheques? These are cheques that allow you to advance funds at a low rate for a specified period of time. Instead of teaser rate cheques, this article would be applicable to low-rate balance transfer offers too.

The truth is that once you use these cheques, any payment you make towards your credit card gets applied to the low interest items first before it gets applied to the higher interest items. In the event you made a purchase on your card, while the teaser rate advance was on your card, such payment would be applied to the teaser rate first before the high interest rate purchase.

Take for example, you already have a balance on your card of $500 from previous purchases you made and for example’s sake, your credit card’s regular interest rate is 18%. You then write a cheque at a teaser rate 1.9% for $500. When you make a payment to your credit card for say $500, the payment gets applied to the teaser rate cheque you wrote as opposed to the higher rate balance that is accruing interest at 18%.

Knowing exactly what you are getting into, you can intelligently use these balance transfers or teaser rate cheques to maximize the savings! To really get funds from your credit card at the teaser rate for the entire offer period, you just have to remember the following:

Pay off the entire balance of your credit card + any accrued interest, if any.
Write a cheque/use the balance transfer feature. Note: Some credit card companies don’t allow you to use teaser rate cheques to advance cash to yourself and will charge you interest at the regular cash advance rate if. If this is the case, simply write a cheque to a friend and get your friend to write a cheque back to you.
Pay the entire balance off before the teaser rate period ends.

Renting out a spare bedroom

noreply@blogger.com (Author) — Tue, 08 Jun 2010 06:17:00 +0000

One concept that many students are familiar with is to share a house with other unrelated persons. While for many people out of school, this may seem either like an alien concept or something that one would want to avoid. However, renting out your room can be an easy way of getting some extra cash especially if you have a spare room or an unused basement. In addition to supplementing your income, living with a boarder can add a warm body to the house to hang out with.

Who is this for?

If you have a spare room or basement
Don’t mind others sharing your space (i.e. living room, bathroom, kitchen)
Parents who have grown kids and find the house too big

How do you find someone to rent a room?

There are quite a few ways to find a boarder in your house. Here are some ideas:

Word of mouth
Internet classifieds sites such as Craig’s List or Kijiji
Roomate connection sites such as Roomster
Your local newspaper
Your local college or university

What too look out for?
There are a few things that you should do before renting out a room to someone:

Make sure that there are no local ordinances or by-laws that prohibit you from doing so. Some cities prohibit one from renting out their basement as separate dwelling units.
Make sure you are compatible with the prospective boarder. If you don’t share the same living conditions or have opposite interests, that could lead to trouble down the road.
Some insurance companies will not insure your home if you have boarders in your home. Check to make sure this won’t invalidate your insurance coverage.
Do your due diligence on the prospective tenant. Perform a credit check, and ask for references!

Get Free Groceries Legitimately

noreply@blogger.com (Author) — Thu, 04 Mar 2010 00:41:00 +0000

Have you ever been to the grocery store and took something off the shelf only to find the item get scanned at a different price than you first expected? Under a little known commitment taken by most major chains, you can actually get the item for free or get $10 off the item.

What is the Scanning Code of Practice
Back in the olden days, the price on the tag was the price of the item. However, in the modern day where most stores no longer price individual items but instead place an item on the shelf, the scanning code of practice was developed to ensure accuracy at the checkout counter.

What can you get under the Scanning Code of Practice
If an item that you took off the shelf has a different higher price at the checkout counter, you are entitled to have the item free or if it is greater than $10, $10 taken off the price. Statistically, approximately 2% of items are scanned incorrectly and by being vigilant at the checkout, you can get substantial savings in your everyday shopping.

Who are part of the scanning code of practice?
You can generally find out if the store you are at adopts the scanning code of practice, by looking for a sign at the checkout counter. The following companies have voluntarily adopted the scanning code of practice:

Shoppers Drug Mart
The Groupe Jean Coutu (NB and Ont only)
Lawton Drug Stores
London Drugs
Lovell Drugs
Pharma-save (BC and Sask)
Pharma Plus
Canada Safeway Limited
The Great Atlantic and Pacific Tea Company of Canada Limited
Loblaw Companies Limited
Sobeys Inc.
Metro Inc.
Thrifty Foods
Costco Wholesale Canada Ltd.
Co-op Atlantic
Federated Co-operatives Limited
Costco Wholesale Canada Ltd.
The Home Depot Canada
Canadian Tire Corporation Ltd.
Toys r Us
Rona
Wal*Mart Canada Corp.
Giant Tiger Stores Ltd.
The North West Company
Best Buy/Future Shop
2 Home Hardware franchisees
Thrifty Foods
Overwaitea Food Group
The Harry Watson Group
Longos Brothers Fruit Markets
+ 1374 independent locations

How does an RRSP Work?

noreply@blogger.com (Author) — Mon, 01 Mar 2010 01:24:00 +0000

A Registered Retirement Savings Plan (or RRSP) is an tax deferral program that encourages saving for retirement for Residents of Canada.

How does a RRSP work?

Contributions to RRSPs (within limits) may be deducted from income before calculating one’s income tax due.
Income earned within the account (interest, dividends, trust distributions, capital gains) is not taxed.
Withdrawals from an RRSP are taxed as regular income.

Tax Issues

Registered retirement savings plans provide a form of deferred taxation to individuals. For the most part, contributions to RRSPs are deductible from taxable income, reducing income tax liability. The impact of such a deduction will be at one’s marginal tax rate. Increases in the value of the plan assets (whether capital gains, interest income or other) are not subject to income or other taxes in Canada until funds are removed from the RRSP.

Disbursements from a RRSP are taxable as income at the time of withdrawal. For maximum tax benefit, withdrawals should occur when one’s marginal tax rate is lowest; such as during periods of unemployment or retirement.

Withdrawals from a RRSP are taxed as regular income. This means that capital gains will lose their 50% exemption and any losses within the RRSP cannot be used to offset against income earned outside the RRSP.

There are maximum contribution limits that one can contribute to an RRSP. In addition, once a taxpayer reaches a certain age, minimum withdrawals are required.

Spousal RRSP

A Spousal RRSP allows a higher income earner, termed a spousal contributor, to contribute to an RRSP in the lower income spouse’s name and deduct the contribution from the higher income earner.

Contributing to an RRSP

A RRSP contribution limit is the maximum amount of RRSP contributions that can be claimed on a tax return for a given tax year.

A contribution limit is calculated as 18% of a person’s earned income from the previous tax year, minus any “pension adjustment”, up to a specified maximum. This specified maximum is as follows.

Year Contribution Limit

2007 $19,000

2008 $20,000

2009 $21,000

2010 $22,000

After 2010 the RRSP contribution limit will be indexed to the annual increase in the average wage. Any RRSP deductions not taken in a tax year are carried forward indefinitely to future tax years. However, once a withdrawal from an RRSP is made, the contribution room is lost.

If a an annual contribution exceeds $2,000 of the limit, a penalty of 1% of the excess per month will be applied.

RRSP contributions within the first 60 days of the tax year may be deducted on the previous year’s return.

A taxpayer may contribute to an RRSP but not necessarily deduct the contribution to the RRSP. This may happen specifically when a taxpayer expects to earn more income in a future period.

Withdrawals from an RRSP

An account holder is able to cash out an amount from an RRSP at any age. However, any amount withdrawn is taxable as income. Financial institutions are required to impose a withholding tax on any withdrawals.

Before the end of the year the account holder turns 71, the RRSP must either be cashed out or transferred to a Registered Retirement Income Fund (RRIF).

Investments held in an RRIF can continue to grow tax-free indefinitely. However, a minimum RRIF withdrawal amount is required each year.

Special withdrawal programs

Home Buyer’s Plan (HBP)

It is possible to use RRSP funds to help purchase one’s first home under what is known as the Home Buyer’s Plan. Canadian Residents can withdraw, tax-free, up to $25,000 from their RRSP (and another $25,000 from a spousal RRSP) towards buying a home. This withdrawal has to be repaid within 15 years after two years of grace. Contrary to popular belief, this plan can be used more than once per lifetime, as long as the borrower did not own a residence in the previous five years.

Lifelong Learning Plan (LLP)

Similarly to the Home Buyer’s Plan, the Life-Long Learning Plan allows for temporary withdrawal of funds from an RRSP tax free. This program allows individuals to borrow from an RRSP to go or return to post-secondary school. The user may withdraw up to $10,000 per year to a maximum of $20,000. The first repayment under the LLP will be due at the earlier of the following 2 dates:

1. 60 days after the 5th year following the 1st withdrawal

2. The 2nd year after the last year the student was enrolled in full-time studies