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Meals


To calculate your meal expenses, you can use either the simplified or detailed method, or in certain situations, the batching method.

The most you can deduct for meal expenses is 50% of your claim (unless you are a long-haul truck driver claiming meals for an eligible trip). For example, if you use the simplified method, which is based on a daily meal rate of $17 per meal, the most you can deduct is $8.50 ($17 x 50%) for each meal.

Under either the simplified or detailed method, you can claim one meal after every four hours from the departure time, to a maximum of three meals per day. For the purposes of calculating the maximum number of meals allowed, a day is considered to be a 24-hour period that begins at the departure time.

The simplified method – This is the easiest way to calculate your meal expenses since you do not have to keep receipts for your meals, although you do have to keep a detailed list of the trips you take in record or log book. The simplified method is based on a meal rate of $17 for each meal. Multiply the actual number of meals you ate by $17 (to a maximum of three meals per day) and report that amount on Form TL2, Claim for Meals and Lodging Expenses, under the “Meals bought” column of Part 2 – Trip and expense summary.

The detailed method – If you choose to use the detailed method to calculate your meal expenses, you have to keep a log or record book itemizing each expense. You also have to keep receipts to support the amount you deduct. Report the actual amount you spent on meals on Form TL2 under the “Meals bought” column of Part 2 –Trip and expense summary.

The batching method – When you are part of a work crew, such as on a train, your employer may provide you with cooking facilities. If you buy groceries and cook meals either by yourself or as a group, each person can claim up to $34 for each day. As long as you do not claim more than this amount, you do not have to keep receipts. Report this amount on Form TL2 under the “Meals bought” column of Part 2 – Trip and expense summary.

Lodging and showers


You can deduct your lodging expenses. The costs of showers are also considered to be deductible as part of lodging expenses for transportation employees who may have slept in the cab of their trucks rather than at hotels. You need to keep your receipts to support the amount you deduct.

Trips to the United States


You can claim the meal and lodging expenses you incur while performing your duties as a transport employee in the United States. If you are using the simplified method of reporting meal expenses, you are entitled to US$17 per meal while in the United States. The most you can deduct for meal expenses is 50% of your claim, just as it is for trips within Canada (unless you are a long-haul truck driver, as described in Meal expenses of long-haul truck drivers).

Calculate the total U.S. dollar amount of both the meal and lodging expenses incurred in the United States and convert these two totals to Canadian dollars by multiplying them by the Bank of Canada average annual U.S. conversion rate. You can contact CRA to get this conversion rate.

Provide a summary of your trips to the United States in Part 2 – Trip and expense summary of Form TL2, Claim for Meals and Lodging Expenses. Attach a more detailed list of these trips to this form.

Meal expenses of long-haul truck drivers


Meal and beverage expenses of long-haul truck drivers are deductible at a higher rate than the 50% permitted for other transportation employees. During eligible travel periods in 2010, meal and beverage expenses are deductible at 75%. This rate will increase by 5% each year until the maximum rate of 80% is reached in 2011.

You are a long-haul truck driver if you are an employee whose main duty of employment is transporting goods by way of driving a long-haul truck, whether or not your employer’s main business is transporting goods, passengers, or both.

A long-haul truck is a truck or tractor that is designed for hauling freight, and has a gross vehicle weight rating of more than 11,788kg.

An eligible travel period is a period during which you are away from your municipality or metropolitan area for at least 24 hours for the purpose of driving a long-haul truck that transports goods at least 160 kilometers from the employer’s establishment to which you regularly report to work

For more information on how to deduct your meals and lodging expenses, see Meals and lodging (including showers).

If you travel to the United States for your work as a transport employee, see Trips to the United States.

Note: You must reduce your claim for meal and lodging expenses; by any non-taxable allowance or reimbursement you received or are entitled to receive from your employer.

Your employer has to sign Form TL2. You do not have to send this form with your return, but you should keep it in case CRA ask to see it later.

Railway employees


You can claim the cost of meals and lodging when you meet one of the following conditions:

  • You work away from home for a railway company as a telegrapher or station agent in a relief capacity, or carrying out maintenance and repair work for the railway company.
  • You are a railway employee who works away from the municipality and the metropolitan area (if there is one) where your employer’s relevant establishment (home terminal) is located. You also work at such a distant location that it is unreasonable for you to return daily to your home, where you support a spouse or common-law partner, or a dependant related to you.

If you meet one of these conditions, see Meals and lodging (including showers) for more details.

Note: You must reduce your claim for meal and lodging expenses; by any non-taxable allowance or reimbursement you received or are entitled to receive from your employer.

Your employer has to sign Form TL2. You do not have to send this form with your return, but you should keep it in case CRA ask to see it later.

Transportation employees


You may be able to claim the cost of meals and lodging (including showers) if you are an employee of a transport business, a railway employee, or other transport employee. This cost includes any GST and provincial sales tax or HST, you paid on these expenses. You may be able to get a rebate of the GST/HST you paid.

Salaried employees


You may be eligible to claim a deduction for employment expenses if you incurred any of the following expenses.

Use Form T777, Statement of Employment Expenses to calculate your total employment expenses. The following are the types of deductible expenses that appear on Form T777

  • Accounting and Legal Fees
  • Traveling expenses
  • Supplies
  • Office Rent
  • Allowable motor vehicle expenses
  • Parking
  • Salary expenses
  • Work-space-in-the-home expenses

Your employment expenses include any GST and provincial sales tax, or HST, you paid on these expenses. You may be able to get a rebate of the GST/HST you paid. For more information go to CRA web site.

Forestry operations


You can deduct expenses for buying and using a power saw (including a chain saw or tree trimmer) if you meet all of the following conditions:

  • You work in forestry operations
  • You use the power saw to earn your employment income.
  • You had to pay for them under your contract of employment and your employer will not be reimbursing you.

You can deduct the cost of a power saw in the year you buy it. However, you have to subtract from the purchase price of the new power saw the value of any trade-in or any amount you received from the sale of any power saw during the year.

When you file your return, attach a statement that breaks down the cost of running the power saw. Also, keep with your records a copy of Form T2200, Declaration of Conditions of Employment that has been completed and signed by your employer.

Expenses to operate a power saw include any GST and provincial sales tax, or HST, you paid. You may be able to get a rebate of the GST/HST you paid.

You cannot deduct expenses for traveling from your home to a place where you are required to report to work on a regular basis. These expenses are personal. For example, you cannot deduct expenses for traveling from your home to a forest camp or to a cutting site if you go to that place on a regular basis. However, the motor vehicle expenses for traveling from a forest camp set up by your employer to the cutting site are incurred in the course of employment. These expenses are therefore deductible if you meet the conditions described under Allowable motor vehicle expenses.

You cannot deduct the cost of horses and harnesses, snowmobiles, or all-terrain vehicles because these are capital expenditures. Also, you cannot deduct capital cost allowance or interest you paid on money borrowed to buy them.

There are groups and individuals in Canada who claim that people can lawfully refuse to pay taxes or file a tax return. Others try to cash in on misunderstandings about tax laws.

In an open and free democracy like Canada, citizens have every right to freely express their opinions on the constitution, taxes, or any other issue. The Canada Revenue Agency (CRA) is concerned, however, that individuals who mistakenly confuse opinions with facts may expose themselves to serious financial and legal problems if this results in their failure to comply with the Income Tax Act and other tax laws.

Remember also that many groups and individuals stand to profit considerably from the perpetuation of certain tax myths. Don’t let them profit at your expense!

To help you understand the truth about taxes, the CRA wishes to address some misleading statements and myths about Canada’s tax laws and the way they are administered. The CRA also strongly encourages you to always consult with a knowledgeable and trusted advisor before making any significant tax decision.

Myth # 1
Federal income tax is unconstitutional and you can therefore refuse to pay income tax to the federal government, as confirmed by the Supreme Court of Canada in a decision in 1950.

The Facts
This myth is based on the faulty argument that the Canadian Constitution gives the power of direct taxation exclusively to the provinces. Section 91 of the Constitution says the federal government can raise money “by any mode or system of taxation.” Section 92 says the provinces can impose “direct taxes within a province” to raise revenue for provincial purposes. As a result, while federal and provincial taxing powers overlap, the federal government can levy
both indirect and direct taxes, including income tax.

The courts have confirmed the power of the federal government to levy direct taxes including income tax. No court in Canada has ever agreed with the idea that the federal government cannot levy income taxes. The often-cited 1950 Supreme Court decision concerning the Lord Nelson Hotel in Nova Scotia dealt with the issue of whether the federal government and a provincial government could delegate authority to each other on specific issues of labour and taxation. The Court did not address the issue of imposing direct taxes or their constitutionality.

In Canada, if citizens feel a law is unconstitutional, they may ask the courts to declare it so. Until that happens, the law applies.

A number of individuals and groups are actively promoting claims that there are lawful ways to declare oneself exempt from tax. Relying on such “advice” could result in action from late-filing penalties and interest imposed by the CRA to fines and imprisonment imposed by the courts — in addition to having to pay your taxes.

Before paying for such information or participating in such groups, seek advice from a trusted and knowledgeable tax professional or the CRA.

Myth # 2
The income tax system is based on voluntary compliance because the government knows tax laws are unconstitutional and cannot be enforced.

The Facts
There is no question that voluntary compliance is the cornerstone of Canada’s self-assessment taxation system. This simply means that the government expects you to respect the law and comply fully with your tax obligations.

This approach does not imply that the law cannot be enforced if necessary. The Income Tax Act and other laws provide a range of penalties for offences such as tax evasion, failure to pay taxes, failure to disclose income, or refusing to file a tax return. These penalties can include fines, third-party claims, seizures, and criminal prosecution.

On the other hand, the Voluntary Disclosures Program provides taxpayers and registrants who are not under investigation with an opportunity to come forward and correct inaccurate or incomplete information, or to disclose previously unreported information without penalty or prosecution.

Myth # 3
Some individuals claim that they have not filed a tax return in years and that the government has not been capable of forcing them to file a tax return because the
Income Tax Act is unconstitutional and unenforceable.

The Facts
The CRA cannot respond directly to such claims because the confidentiality provisions of the
Income Tax Act prevent government officials from revealing information about individual taxpayers. We can only encourage the public to be wary of such claims. Individuals may have in fact filed in past years, or been fined for failing to file. In other cases, the CRA may not yet have acted against an individual who did not comply with their obligation to file.

In some cases, an individual may not be required to file a tax return because they have no taxes owing due to source deductions or because they have no taxable income. However, failing to file a tax return also means an individual may be forfeiting some benefits such the Canada Child Tax Benefit.

Under the law, individuals who fail to file a return as required, or who fail to comply with a court order to file, are liable to a fine of $1,000 to $25,000 and up to 12 months imprisonment, as well as having to pay their unpaid taxes with interest.

The CRA devotes significant resources to providing the information and assistance required by the majority of Canadians who accept their tax obligations and comply with the law. Audit, prosecution, and other enforcement activities are carefully targeted on the small minority of taxpayers who attempt to evade their obligations.

In the 2008-2009 fiscal year, the CRA prosecuted 1,124 individuals for failing to file a tax return and successfully prosecuted 323 cases involving income tax evasion or fraud.

The CRA receives leads from more than 24,000 taxpayers each year, some of which result in enforcement actions. If you know someone who is not meeting his or her tax obligations, you can contact the CRA’s Informant Leads Program. More information on this program is available on our Web site at www.cra.gc.ca/leads.

For more information about the CRA’s enforcement activities, visit www.cra.gc.ca/alert/

Myth # 4
You can force the CRA to lower or even eliminate taxes by refusing to co-operate with its employees.

The Facts
The CRA administers and enforces tax laws as passed by Parliament and provincial legislative assemblies. The CRA has no power to impose new taxes, remove existing taxes, raise or lower taxes, or decide how tax money will be spent once it is collected. These powers belong to the elected representatives of the Canadian people in Parliament and in provincial legislative assemblies.

Under our parliamentary system, federal tax policy is developed by the Department of Finance under the direction of the Minister of Finance. Tax measures are put before Parliament in the form of legislation. Any changes in taxation must be passed by the House of Commons and by the Senate in order to become law. The CRA also collects some taxes imposed by the provinces under laws passed by provincial legislative assemblies.

The CRA and its employees are subject to the law. If you feel the CRA has failed to respect your rights or has acted without authority, you have a right to redress through the courts.

Myth # 5
The Income Tax Act applies only to corporate entities and not to “natural” persons or human beings. The Common Law rights dating back to the Magna Carta make all taxes on individuals voluntary.

The Facts
These myths have been rejected by Canada’s courts. For example, on August 31, 2000, the Ontario Superior Court of Justice issued a
ruling rejecting arguments that the Income Tax Act applies only to corporate entities and that all taxes are voluntary.

The judge said, “I find that a ‘person’ as defined in s. 248(l) of the Income Tax Act includes both a natural person and an artificial person. It follows that the applicant is a ‘person’ and a ‘taxpayer.’ … His obligations include the filing of annual income tax returns and the payment of any income tax owing under his returns.”

The judge said, “In my view, there is no support in ‘the common law, (also known as) the rule of law’ for the extremely broad proposition that all taxes are voluntary.”

A number of individuals and groups are actively promoting claims that there are lawful ways to declare oneself exempt from tax. Relying on such “advice” could result in anything from late-filing penalties and interest imposed by the CRA to fines and imprisonment imposed by the courts — in addition to having to pay your taxes.

Before paying for such information, or participating in such groups, seek advice from a trusted and knowledgeable tax professional or the CRA.

Myth # 6
Some individuals claim to be exempt from GST/HST. Some carry a card to “prove” their claim.

The Facts

GST/HST legislation does not provide tax exemptions for any individuals, and any card claiming such an exemption is a fraud. However, individuals with Indian status under the Indian Act may not be required to pay GST/HST on the purchase of goods and services under certain conditions. (For details, see Publication B-039 GST/HST administrative policy – Application of the GST/HST to Indians.)

Some consumers think that falsely claiming an “exemption” is an effective protest against taxes or a government. In fact, any resulting discount they receive is at the expense of the vendor. Vendors must remit tax on all taxable transactions, even if they have mistakenly failed to collect the GST/HST from an individual falsely claiming an exemption.

You may sometimes be led to believe that you are not paying GST/HST because a vendor may promote a sale by advertising “Pay no GST” or other similar claims. The vendor in these cases discounts the price so that the final, tax-inclusive cost is the same as the advertised, pre-tax price.

Myth #7
You can make tax-free withdrawals from your self-directed RRSP.

The Facts

If you use your registered retirement savings plan (RRSP) as security for a loan, the value of the RRSP will be added to your taxable income. Similarly, if you use your RRSP to purchase shares of a private corporation, and the shares are not a qualified investment under the rules, then the value of the shares will be added to your taxable income.

Some promoters of financing schemes may promise you that they can make tax-free withdrawals from your RRSPs. Typically, the arrangement involves using your self-directed RRSP to purchase shares of a private company. The funds used to purchase the shares are then loaned back to you at low or no interest.

These schemes are often promoted with claims such as, “Take advantage of your RRSP now — no tax to pay,” or “I will loan you $5,000 to $250,000 over five years if your RRSP is locked in.” If you respond to these kinds of advertisements, you risk losing your retirement savings and the tax benefits of the RRSP.

You should always consult with a trusted and knowledgeable tax advisor before taking part in any scheme that promises a tax-free withdrawal of RRSP funds. Administrators and trustees are asked to advise clients that there may be tax consequences if non-qualified investments or loans are secured with an RRSP.

 

 

Myth #8
The CRA uses email to conduct “e-audits.”

The Facts

The CRA has been made aware of what appears to be an email audit scam currently going on in the United States. Although the CRA is not aware of any confirmed cases of such scams in Canada, we would like to alert Canadians to act prudently should they receive a similar email.

Here’s how a similar scam might work in Canada: A taxpayer would receive an email using “Canada Revenue Agency e-audit” as the subject line, giving the appearance that it was sent by the CRA. The recipient/taxpayer would be instructed to fill out a questionnaire and return it within 48 hours to avoid penalties and interest. The fraudulent questionnaire would require the taxpayer to provide his or her social insurance number, bank account numbers, and other confidential information. Once the scam artist has this confidential information, the taxpayer is a potential victim of fraudulent activities.

The CRA does not notify taxpayers about pending audits by email, nor does it conduct “e-audits.” Taxpayers should never respond to a request for confidential information without first confirming the identity of the requestor and assuring themselves that the requestor is legally permitted to request such information.

The CRA is committed to safeguarding the confidentiality of all taxpayer information. Because the Internet is not a secure medium of communication, the CRA does not use it to communicate with clients unless the taxpayer has first provided permission.

If you receive such an email, please contact your tax services office.

Myth #9
Winners of sweepstakes and lotteries in Canada have to pay fees and taxes to the CRA before claiming their prize.

The Facts

You do not have to pay the CRA any taxes or fees of any kind on lottery and sweepstakes winnings in Canada. Any unsolicited email, letter, or phone call telling you otherwise is a scam. Do not, under any circumstances, send money to someone making such a pitch to you. Instead, immediately contact your local police department or the Royal Canadian Mounted Police.

You should never respond to a request for funds or confidential information without first confirming the identity of the requestor and assuring yourself that the requestor is legally permitted to make such a request.

The CRA is committed to safeguarding the confidentiality of all taxpayer information. Because of certain security concerns, the CRA does not use the Internet to communicate with clients unless you have first provided permission to do so.

Visit the CRA’s Taxpayer Alert pages for more information and tips on how to recognize such scams, or contact your tax services office.

If you spent part of the year in the United States (U.S.) for health reasons, on vacation, or for other reasons, and you still maintained residential ties in Canada.


How Canadian income Tax Laws Apply…

    If you spend part of the year in the U.S. for health reasons, on vacation, or for other reasons, and you maintain residential ties in Canada, we usually consider you to be a factual resident of Canada.

As a factual resident, we tax your income as if you never left Canada. You will continue to:

      • report all income you receive from sources inside and outside Canada for the year, and claim all deductions that apply to you;

      • claim federal and provincial or territorial non-refundable tax credits that apply to you;

      • pay federal tax and provincial or territorial tax where you keep residential ties in Canada;

      • claim federal and provincial or territorial refundable tax credits that apply to you; and
      • be eligible to apply for the goods and services tax/harmonized sales tax (GST/HST) credit.

Did you receive U.S. lottery or gambling winnings?

This income is not taxable in Canada, so you do not have to report it on your Canadian return. Additionally, you cannot claim a credit for the taxes withheld on your winnings.

Can you claim medical expenses paid in the U.S.?

You can claim eligible expenses that were paid for yourself, your spouse or common-law partner, and certain other individuals who were dependent on you for support. You can claim medical expenses that were paid in any 12-month period ending in the year, if they were not claimed in the previous year.

Did you pay premiums to private health-services plans?

If so, you can claim most of them as a medical expense on your return.

Did you donate to U.S. charities?

If you are including U.S. income on your return, you can claim a credit for donations to U.S. charities that would be allowed on a U.S. return. The total donations to U.S. charities you can claim cannot be more than 75% of the net U.S. income you report on your Canadian return.

How U.S. Tax Laws Apply…

As a Canadian resident who spends part of the year in the U.S., you are considered either a resident alien or a non-resident alien of the U.S. for tax purposes.

Resident aliens are generally taxed in the U.S. on income from all sources worldwide, and non-resident aliens are generally taxed in the U.S. only on income from U.S. sources. Therefore, it is important for you to determine if you are a resident alien or a non-resident alien.

Are you a resident alien?

You are considered a resident alien if you meet the substantial presence test.

  • If you were in the U.S. for 183 days or more in 2010, you meet the substantial presence test. If this is your situation, you are considered a resident alien of the U.S.;
  • If you were in the U.S. for less than 31 days in 2010, you do not meet the substantial presence test. If this is your situation, you are considered a non-resident alien of the U.S. If you were in the U.S. for 31 to 182 days in 2010, you may meet the substantial presence test.

 


What is the substantial presence test?

This test uses the number of days you were in the U.S. during a three-year period (the current and the two previous years) to determine if you are a resident alien or a non-resident alien.

To determine whether you meet the substantial presence test for 2010, calculate the number of days you were present in the U.S. during 2010, 2009, and 2008. The days do not have to be consecutive, and you are treated as being present in the U.S. on any day you were there for part or all of the day. Each day:

      • in 2010 counts as a full day;
      • in 2009 counts as one-third of a day; and
      • in 2008 counts as one-sixth of a day.
      • If your total is at least 183 days, you have met the substantial presence test and you are considered a resident alien for 2010.
      • If your total is less than 183 days, you are considered a non-resident alien for 2010.

Example
Florence and Henry are residents of Canada and own a trailer home in Florida, where they spend each winter. Although they have no U.S. source income, they need to determine their U.S. residency status. To do this, they have to determine how many days they were in the U.S. during 2010, 2009, and 2008.

During 2010, they were in the U.S. from January 1 to April 11, and from November 13 to December 31 (150 days).

During 2009, they were in the U.S. from January 1 to March 30, and from November 14 to December 31 (138 days).

During 2008, they were in the U.S. from January 1 to April 5, and from November 1 to December 31 (156 days).

Each day they were in the U.S. during 2010 counts as a full day (150).  Each day they  were in the U.S. during 2009 counts as one-third of a day (138 × 1 ÷ 3 = 46).  Each day they were in the U.S. during 2008 counts as one-sixth of a day (156 × 1 ÷ 6 = 26).

They add the subtotals:(150 + 46 + 26 = 222). Since this total is at least 183 days during the three-year period, they meet the substantial presence test, and they are considered resident aliens by the U.S. for 2010.

For more information go to: http://www.cra-arc.gc.ca/E/pub/tg/p151/p151-e.html

You may be able to deduct the cost of eligible tools you bought to earn employment income as a tradesperson and as an eligible apprentice mechanic. This cost includes any GST, and provincial sales tax, or HST you paid.

Note: As an eligible apprentice mechanic, you must first calculate the tradesperson’s tools deduction, if any, that you qualify for.

You may be able to get a rebate of the GST/HST you paid.