 |
Andy Wong
Monday, March 31, 2008
You snooze you lose and when it comes to the Northern Resident's Travel Deduction, there are a few ways this claim gets away from you.
You lose because you don't realize you could be eligible for this deduction or not claiming everything you are entitled to. You can avoid these costly errors by knowing how this deduction works.
You have to meet three conditions to qualify to claim the travel deduction.
First, you have to qualify for the Northern Residency Deduction (see TaxBreak March 10, 2008 for details). The travel and residency deductions make up the Northern Residents Deduction claimed on Form T2222.
Next, you have to be an employee and receive a travel benefit. If your employer doesn't pay you a travel benefit, you cannot claim the travel deduction. For this reason, retirees or self-employed individuals do not qualify because they are not employed.
Finally, you have to be at arm's length with your employer. That means you cannot control the company that employs you, i.e., own more than 50 per cent of the shares of the company. Let's say Mr. Smith owns 100 per cent of Smith Inc. and the company paid all employees, including Mr. Smith, a travel benefit. All of Smith Inc.'s employees qualify for the travel deduction except Mr. Smith because he controls the company.
How do you know if you received a travel benefit? Check your 2007 T4. The travel benefit, if any, is reported in Box 32. If you have a Box 32 amount, you're good to go (and hopefully you did travel and have receipts to show for it). Some of you may not know you have a travel benefit because your employer calls it a Northern Allowance or Northern Benefit. Regardless, you qualify for the travel deduction if you have a Box 32 amount.
A note about the Box 32 benefit - it is mighty confusing because this benefit varies greatly. Federal employees get an annually-adjusted amount equal to the full economy return airfare from the community of employment to the closest large southern city. That's about $1,500 for Yellowknife federal employees, multiplied by the number of family members.
Therefore a Yellowknife federal employee, with a family of four, receives about $6,000. If Mom and Dad work for the federal government, only one receives this benefit. GNWT and GN employees receive a fixed travel benefit ranging from about $2,000 to almost $20,000 depending on the community of employment, regardless of family size. If both work for the GNWT, or GN, both receive this benefit. A large Yellowknife mining employer pays a fixed benefit of about $14,000 to northern employees, no matter where they live.
If you have a Box 32 benefit, what can you claim? This is where it gets a bit confusing. You claim the lower of three amounts - your Box 32 benefit, your trip expenses or the non-discounted economy return airfare (full fare) from your community to the nearest designated city, i.e., Edmonton, Winnipeg, Montreal or Ottawa, depending on where you live. For 2007, the full fare is $1,526 for Yellowknife to Edmonton or $2,566 for Iqaluit to Montreal. These full fares were provided by a northern travel agency. The CRA does not provide this full fare information.
In a nutshell, if your Box 32 benefit is $1,500, your trip expenses totals $1,200 and the full fare is $1,526 (you live in Yellowknife) you deduct $1,200, the lower of the three amounts.
Next week: Part 2 of 3: What are trip expenses and how many trips can you or your family take?
Andy Wong is a tax consultant at MacKay LLP, Chartered Accountants in Yellowknife. He can be reached at andrew-wong@yel.mackayllp.ca.
