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EMPLOYEE EXPENSE REIMBURSEMENTS – PRACTICAL STRATEGIES FOR COMPLIANCE

EMPLOYEE EXPENSE REIMBURSEMENTS – PRACTICAL STRATEGIES FOR COMPLIANCE. By: Jeffrey Shaw & Jim Day. Contents . Introduction Meals & Entertainment ITC Recapture Input Tax Refund Restrictions Reimbursements & Allowances Administrative Issues Audit Activity.

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EMPLOYEE EXPENSE REIMBURSEMENTS – PRACTICAL STRATEGIES FOR COMPLIANCE

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  1. EMPLOYEE EXPENSE REIMBURSEMENTS – PRACTICAL STRATEGIES FOR COMPLIANCE By: Jeffrey Shaw & Jim Day

  2. Contents • Introduction • Meals & Entertainment • ITC Recapture • Input Tax Refund Restrictions • Reimbursements & Allowances • Administrative Issues • Audit Activity Employee Expense Reimbursements – Practical Strategies for Compliance

  3. INTRODUCTION Employee Expense Reimbursements – Practical Strategies for Compliance

  4. INTRODUCTION • Areas of potential tax exposure • incorrect calculation of ITC/ITRs on allowances • incorrect calculation of ITC/ITRs on expense reimbursements Employee Expense Reimbursements – Practical Strategies for Compliance

  5. INTRODUCTION • Potential tax exposures • employee reimbursements • employer/employee relationship needed • application of the new simplified factors • ITC/ITRs on non-taxable expenses • factor based on residence of employees • ITC recapture Employee Expense Reimbursements – Practical Strategies for Compliance

  6. INTRODUCTION • Potential tax exposures • employee allowances • employer deemed to be recipient • recovery of tax on reasonable allowances • application of new simplified factors for allowances • ITC recapture Employee Expense Reimbursements – Practical Strategies for Compliance

  7. MEALS & ENTERTAINMENT Employee Expense Reimbursements – Practical Strategies for Compliance

  8. MEALS & ENTERTAINMENT Special rules govern ITCs/ITRs relating to meals & entertainment • 100% restriction • 50% restriction • no restriction Employee Expense Reimbursements – Practical Strategies for Compliance

  9. MEALS & ENTERTAINMENT • club membership fees • 100% restricted • home office expenses • GST • QST • unreasonable expenses Personal use restriction Employee Expense Reimbursements – Practical Strategies for Compliance

  10. MEALS & ENTERTAINMENT • exclusive personal use • 100% restriction • exceptions • GST/HST • QST Personal use restriction Employee Expense Reimbursements – Practical Strategies for Compliance

  11. MEALS & ENTERTAINMENT Most expenses subject to 50% restriction • follows the Income Tax Act restrictions • QST implications • small and medium-sized businesses • large businesses • HST implications • large businesses in British Columbia and Ontario Employee Expense Reimbursements – Practical Strategies for Compliance

  12. MEALS & ENTERTAINMENT Most expenses subject to 50% restriction • long-haul truck driver meals • Exception Employee Expense Reimbursements – Practical Strategies for Compliance

  13. MEALS & ENTERTAINMENT • full ITCs/ITRs generally available to • public institutions • Charities • does not extend to • municipalities • large business public institutions • restriction does not apply to rebates Exceptions to the 50% restriction Employee Expense Reimbursements – Practical Strategies for Compliance

  14. MEALS & ENTERTAINMENT • full ITCs/ITRs are available where the expense is • generally available to all employees • specifically rebilled to another party • related to a remote or special work site Exceptions to the 50% restriction Employee Expense Reimbursements – Practical Strategies for Compliance

  15. ITC RECAPTURE Employee Expense Reimbursements – Practical Strategies for Compliance

  16. ITC RECAPTURE • temporary ITC recapture for “large businesses” • public service bodies • similar to Quebec ITR restrictions Overview Employee Expense Reimbursements – Practical Strategies for Compliance

  17. ITC RECAPTURE • telecommunications • meals and entertainment • energy not used to manufacture goods • licenced road vehicles • fuel for licenced road vehicles Temporary ITC recapture Employee Expense Reimbursements – Practical Strategies for Compliance

  18. ITC RECAPTURE • items not subject to recapture • internet access and web site hosting • 1-800 and other toll-free services • telecommunications equipment • equipment repairs and maintenance • non-telecommunication services Telecommunication services Employee Expense Reimbursements – Practical Strategies for Compliance

  19. ITC RECAPTURE • expenses subject to the 50% income tax limitation • exceptions to the 50% income tax limitation • not restricted Restricted meals and entertainment

  20. ITC RECAPTURE • purchase, lease or rental of vehicles less than 3,000 kg • “curb” weight at registration • repairs and maintenance • fuel Licenced road vehicles Employee Expense Reimbursements – Practical Strategies for Compliance

  21. ITC RECAPTURE • may not simply forego claiming ITCs • amount must be “recaptured” • GST/HST returns filed using NETFILE • Ontario and British Columbia recapture tracked separately • request for adjustment • significant penalties may apply Reporting requirements Employee Expense Reimbursements – Practical Strategies for Compliance

  22. INPUT TAX REFUND RESTRICTIONS Employee Expense Reimbursements – Practical Strategies for Compliance

  23. INPUT TAX REFUND RESTRICTIONS • licensed road vehicles • fuel for licensed road vehicles • telecommunication services • meals and entertainment • electricity and gas not used in manufacturing Restricted expenses Employee Expense Reimbursements – Practical Strategies for Compliance

  24. REIMBURSEMENTS & ALLOWANCES Employee Expense Reimbursements – Practical Strategies for Compliance

  25. REIMBURSEMENTS & ALLOWANCES Recovery of tax on reimbursements made to employees, partners or volunteers • subject to general documentary requirements • subject to 50% meals and entertainment expense restriction • subject to ITC recapture for provincial component of HST (British Columbia & Ontario) Employee Expense Reimbursements – Practical Strategies for Compliance

  26. REIMBURSEMENTS & ALLOWANCES Prescribed simplified factor – GST/HST • available for expenses incurred in Canada • generally 4/104 • 11/111, 12/112 or 14/114 where all or substantially all the expenses were subject to HST Employee Expense Reimbursements – Practical Strategies for Compliance

  27. REIMBURSEMENTS & ALLOWANCES Simplified methods - QST • available for expenses incurred in Quebec • 4.5% – LB simplified method • 8/108 – SMB simplified method Employee Expense Reimbursements – Practical Strategies for Compliance

  28. REIMBURSEMENTS & ALLOWANCES Allowances paid to employees, partners or volunteers • allowance must be reasonable under the Income Tax Act • subject to 50% meals & entertainment expense restriction Employee Expense Reimbursements – Practical Strategies for Compliance

  29. REIMBURSEMENTS & ALLOWANCES Automobile allowances • based only on business kms • rate per km is reasonable • 52 cents per km for the first 5,000 kms • 46 cents per additional km • no additional automobile reimbursements Employee Expense Reimbursements – Practical Strategies for Compliance

  30. REIMBURSEMENTS & ALLOWANCES Allowances paid to employees, partners or volunteers • QST • LB simplified method Employee Expense Reimbursements – Practical Strategies for Compliance

  31. REIMBURSEMENTS & ALLOWANCES Reimbursements to non-employees • potential exposure areas • re-supply of “exempt” costs Employee Expense Reimbursements – Practical Strategies for Compliance

  32. ADMINISTRATIVE ISSUES Employee Expense Reimbursements – Practical Strategies for Compliance

  33. ADMINISTRATIVE ISSUES Calculation of recapture on meals and entertainment expenses • actual method • $100 + $13 HST + $10 gratuity = $123 • RITC: $13.00 x 50% x 8/13 = $4.00 • ITC: $13.00 x 50% x 5/13 = $2.50 • simplified factor method • RITC: $123.00 x 12/112 x 50% x 8/13 = $4.05 • ITC: $123.00 x 12/112 x 50% x 5/13 = $2.54 Employee Expense Reimbursements – Practical Strategies for Compliance

  34. ADMINISTRATIVE ISSUES Calculation of recapture on a meals and entertainment allowance • Recaptured ITC • $100.00 x 13/113 x 50% x 8/13 = $3.54 • ITC • $100.00 x 13/113 x 50% x 5/13 = $2.21 Employee Expense Reimbursements – Practical Strategies for Compliance

  35. ADMINISTRATIVE ISSUES Calculation of recapture on an employee vehicle allowance • recaptured ITC • 300 kms at $0.46 = $138 • RITC: $138.00 x 13/113 x 8/13 = $9.77 • Net ITC: $138.00 x 13/113 x 5/13 = $6.11 Employee Expense Reimbursements – Practical Strategies for Compliance

  36. SIMPLIFIED EXPENSE REPORT Employee Expense Reimbursements – Practical Strategies for Compliance

  37. SIMPLIFIED EXPENSE REPORT Employee Expense Reimbursements – Practical Strategies for Compliance

  38. AUDIT ACTIVITY Employee Expense Reimbursements – Practical Strategies for Compliance

  39. AUDIT ACTIVITY Audit behavior related to employee reimbursements • Routinely scrutinized • errors are typically made • Compliance with new complicated rules and factors • ITC recapture • Rules for factors • GST/HST vs. QST Employee Expense Reimbursements – Practical Strategies for Compliance

  40. Questions? This webinar is brought to you by CCH Canadian and in partnership with Ryan. Please visit www.cch.ca/ExpertEdgefor a complete list of ourtax and accounting webinars. For more information please contact customer service at 1-800-268-4522. Employee Expense Reimbursements – Practical Strategies for Compliance

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