Not Exactly Chump Change

Once an employer–employee agreement has been finalized (I recommend having the agreement placed in the minute book of the corporation) the new employee (driver) takes the keys and starts driving.

After a month he/she receives their first salary check. They also calculate the days gone multiplying it with the current treasury board figures (both Canada and US, adding exchange of course). The total is calculated and submitted to the corporation for payment. Let’s work through an example:

12 days in Canada
81.55 x 12 = $978.60

11 days in the US
81.55 x 125% = $1,121.31

Total nontaxable benefit to driver $2,099.91
GST ITC for company $46.60 ($978.60 x .047619 equals $46.60)

Total expense for the corporation $2099.91 – $46.60 equals $2,053.31

Remember this estimated re-imbursement for job related costs are not subject to and reduction (such as the 50% rule or the soon to be 80% rule). They do not fall under the meals and entertainment category as does expense accounts for salesmen (who entertain). It is a write off identical in principle and format to the treasury board of Canada’s travel directive Appendix B module 1,2, and 3.

So lets re-cap! A driver who drives 23 days gets 2099.91 tax free (tax savings of $735.xx, not including CPP) and the corporation receives a check of $46.60 in ITC’s). If a driver (who also owns the company) does this eleven months of the corporate year the combination of corporate and personal tax savings will be $8,597.60 (not including CPP savings). Not exactly chump change.

So, why aren’t accountants jumping all over this? Because its not how they’ve always done it. If they start changing how they do it, CRA may ask questions. Questions they are shy to answer. It’s not that the questions don’t have answers (and good ones) its just most accountants don’t want to talk to CRA unless they absolutely HAVE TO!