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

EMPLOYEE EXPENSE REIMBURSEMENTS – PRACTICAL STRATEGIES FOR COMPLIANCEBy: Jeffrey Shaw & Jim Day

Contents

Introduction

Meals & Entertainment

ITC Recapture

Input Tax Refund Restrictions

Reimbursements & Allowances

Administrative Issues

Audit Activity

Employee Expense Reimbursements – Practical Strategies for Compliance

INTRODUCTION



INTRODUCTION

Areas of potential tax exposure

incorrect calculation of ITC/ITRs on allowances

incorrect calculation of ITC/ITRs on expense reimbursements

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


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


MEALS & ENTERTAINMENT



100% restriction

50% restriction

no restriction

Special rules govern ITCs/ITRs relating to meals & entertainment



club membership fees

100% restricted

home office expenses

GST

QST

unreasonable expenses

Personal use restriction



exclusive personal use

100% restriction

exceptions

GST/HST

QST

Personal use 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

Most expenses subject to 50% restriction



long-haul truck driver meals

Exception

Most expenses subject to 50% restriction



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



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


ITC RECAPTURE


ITC RECAPTURE

temporary ITC recapture for “large businesses”

public service bodies

similar to Quebec ITR restrictions

Overview


ITC RECAPTURE

telecommunications

meals and entertainment

energy not used to manufacture goods

licenced road vehicles

fuel for licenced road vehicles

Temporary ITC recapture


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


ITC RECAPTURE

expenses subject to the 50% income tax limitation

exceptions to the 50% income tax limitation

not restricted

Restricted meals and entertainment

ITC RECAPTURE

purchase, lease or rental of vehicles less than 3,000 kg

“curb” weight at registration

repairs and maintenance

fuel

Licenced road vehicles


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


INPUT TAX REFUND

RESTRICTIONS


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


REIMBURSEMENTS & ALLOWANCES



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)

Recovery of tax on reimbursements made to employees, partners or volunteers



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

Prescribed simplified factor – GST/HST



available for expenses incurred in Quebec

4.5% – LB simplified method

8/108 – SMB simplified method

Simplified methods - QST



allowance must be reasonable under the Income Tax Act

subject to 50% meals & entertainment expense restriction

Allowances paid to employees, partners or volunteers



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

Automobile allowances



QST

LB simplified method

Allowances paid to employees, partners or volunteers



potential exposure areas

re-supply of “exempt” costs

Reimbursements to non-employees


ADMINISTRATIVE ISSUES



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

Calculation of recapture on meals and entertainment expenses



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

Calculation of recapture on a meals and entertainment 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

Calculation of recapture on an employee vehicle allowance


SIMPLIFIED EXPENSE REPORTEMPLOYEE NAME: S. Harper EMPL ID #: 001

PERIOD COVERED: February, 2011 DATE SUBMITTED: 03-Mar-11

Total ON Expense Recapture

Expense Expense Method HST Net Calc RITC

Incurred of HST

Travel - Airline 850.00 actual 97.79 752.21 N/A 0.00

Rental Car Fuel &

Other Tspt Chgs 155.25 12/112 16.63 138.62 HST*8/13 10.24

Mobile Phone/Pagers 80.00 12/112 8.57 71.43 HST*8/13 5.27

Accommodations 284.01 12/112 30.43 253.58 N/A 0.00

Meals & Entertainment 123.00 12/112*50% 6.59 116.41 HST*8/13 4.05

Accounting Dues 1,130.00 actual 130.00 1,000.00 N/A 0.00

Green Fees 535.00 12/112*50% 28.66 506.34 HST*8/13 17.64

Fitness Membership 2,000.00 restricted 2,000.00 N/A 0.00

Mileage (300 km@ .46/km) 138.00 13/113 15.88 122.12 HST*8/13 9.77

Totals 5,295.26 334.55 4,960.71 46.97

EMPLOYEE SIGNATURE: APPROVAL:


SIMPLIFIED EXPENSE REPORTEMPLOYEE NAME: J. Charest EMPL ID #: 002

PERIOD COVERED: February, 2011 DATE SUBMITTED: 03-Mar-11

Total Expense

Expense Expense Method GST Method QST Net

Incurred of QST / GST

Travel - Airline 850.00 actual 37.65 4.5% 38.25 774.10

Rental Car Fuel &

Other Tspt Chgs 155.25 4/104 5.97 4.5% 6.99 142.29

Mobile Phone/Pagers 80.00 4/104 3.08 4.5% 3.60 73.32

Accommodations 284.01 4/104 10.92 4.5% 12.78 260.31

Meals & Entertainment 367.41 4/104*50% 7.07 4.5% 16.53 343.81

Accounting Dues 1,128.75 actual 50.00 4.5% 50.79 1,027.96

Green Fees 535.00 4/104*50% 10.29 4.5% 24.08 500.63

Fitness Membership 2,000.00 restricted restricted 2,000.00Mileage (100 km@ .45/km) 45.00 5/105 2.14 4.5% 2.03 40.83

Totals 5,445.42 127.12 155.05 5,163.25

EMPLOYEE SIGNATURE: APPROVAL:


AUDIT ACTIVITY


AUDIT ACTIVITY

Routinely scrutinized

errors are typically made

Compliance with new complicated rules and factors

ITC recapture

Rules for factors

GST/HST vs. QST

Audit behavior related to employee reimbursements


Questions?

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

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