As I sat at my desk last week, the latest edition of the Income Tax Act was shipped to my office.
There are 2,430 pages this time around. Just nine of those pages deal with deductions available to employees.
And those deductions include the cost of tools for an apprentice mechanic, musical instrument costs and aircraft costs -- not exactly a list that the average employee is likely to find useful.
It's not surprising that many employees I meet complain about the lack of tax strategies available to them.
The problem, from my perspective, is that employers in Canada simply lack creativity when compensating employees.
It's not that employers are averse to helping employees save tax, but they simply don't give it much thought.
So, next time you consider accepting a new job, negotiate with your prospective employer to receive non-taxable benefits as part of your compensation package.
These are benefits that will not show up on your T4 slip or your tax return. Think of these as tax-free compensation.
Here's a list of what I consider to be the top dozen non-taxable benefits:
Mortgage subsidy plan This plan will allow an employer to arrange mortgage financing for employees and make payments directly to the financial institution for a portion of the employee's interest cost. There will be no taxable benefit as long as the employee's share of the interest cost remains at or above the prescribed rate set by our tax law quarterly (currently just 2 per cent).
Employer-provided daycare The value of daycare services provided to you by your employer is tax-free if the daycare is provided by your employer in-house. It will be a taxable benefit if your employer pays a third-party daycare provider on your behalf, or if the care is also provided to the public at large for a fee in excess of what you pay for the care.
Even if you face tax on the value of a daycare benefit, you'll be entitled to fully or partly offset that benefit by claiming child-care expenses, subject to the usual rules for those expenses.
Discounts on merchandise If you're able to purchase items from your employer at a discount, there will not be a taxable benefit, provided the discount is generally available to all employees, and as long as your employer doesn't sell you the item for less than its cost (except for soiled or damaged items, which can be sold to employees at less than cost).
Commissions on sales If you're a salesperson who receives commissions on items you sell, you may also receive a commission on merchandise you sell to yourself for your own use. In this case, you won't have to pay tax on those commissions.
Likewise, where a life insurance salesperson purchases a life insurance policy, any commission received by that person on that policy is not taxable provided the salesperson owns the policy and is obligated to pay the premiums.Personal counselling If your employer pays the cost of counselling related to the physical or mental health of you or a family member, the benefit is generally tax-free.
Financial counselling related to your re-employment or retirement is also tax-free.
Education costs Where education or training is provided to an employee and is mainly for the employer's benefit, the cost of that education is tax-free to the employee, whether or not it leads to a degree, diploma, or certificate.
The general guideline here is that where the education is employment-related (specifically related to the tasks you perform or even generally related to your job, such as a stress-management course), there will be no taxable benefit.
Where the education is considered personal interest training, it will be taxable to you.
Membership fees Membership fees for social and athletic clubs paid by your employer are tax-free provided the membership was principally for the employer's advantage, not your advantage.
Use of recreational facilities Where you're entitled to use your employer's recreational facilities (exercise rooms, swimming pools, gymnasiums, tennis, squash or racquetball courts, golf courses, shuffle boards, etc.), the value of this benefit is not normally taxable.
Relocation expenses When an employer reimburses you for the cost of moving after requiring you to move or when you've moved to start work with the employer, the reimbursed amount is not a taxable benefit to you.
Reimburse loss on home If your employer requires you to move and you otherwise qualify to claim moving expenses, your employer is able to reimburse you for up to $15,000 of "eligible housing losses" incurred on the sale of your home.
The reimbursement will have to be included in your income to the extent that one-half of the reimbursement exceeds $15,000.
Host or hostess vacation If you or your spouse act as a host or hostess on a trip arranged for employees, suppliers or customers, the trip will be tax-free to you -- as long as your presence or your spouse's is required for business purposes, this function is the main purpose of the trip and the employer's expenditures are reasonable in relation to the business function.
Use of vacation property If you're given the opportunity to use your employer's vacation property, you will not face a taxable benefit to the extent it is used for business activities.
You may have to provide evidence that business activities took place, and any personal element to the trip will be taxable to you.
The name of the game is saving tax. Straight salary is fully taxable but a little creativity in your compensation can mean more dollars in your pocket after taxes.
Tim Cestnick, FCA, CPA, CFP, TEP, is the author of Winning the Tax Game 2004 and The Tax Freedom Zone. He is managing director of tax and estate planning for AIC Ltd.
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