May 09, 2018
The CRA Updates Tax Policy to Reflect How Quickly Technology Has Changed
New Tax Rules recognize the same smartphone gets used for both personal and business tasks.
TORONTO, May 9, 2018 /CNW/ - No one likes to pay taxes. Besides the obvious hit to the wallet, it can be confusing and intimidating to fill out the CRA tax forms. All the exceptions and special clauses are often beyond the ability of the average Canadian to comprehend. In recognition of this, and to account for technologies that didn't exist when the Income Tax Act was written, the Canadian Revenue Agency has recently clarified rules around smartphones and other technology services. When the Tax Act was written, there were no cellphones. It is only in the past 5 years that the average Canadian had a phone capable connecting to the Internet. The trends of increased smartphone internet usage is evidenced here http://gs.statcounter.com/press/mobile- and-tablet-internet-usage-exceeds-desktop-for-first-time-worldwide where in 2016, global internet usage on smartphones surpassed PCs for the first time.
So how does the poor Tax Man keep on top of all these technology innovations? Well, there is some good news for businesses AND employees. The CRA has struggled with how to account for personal usage of company-owned phones. Previously, the prevailing opinion at the CRA was that personal use of company phones was a taxable benefit. In an update to Canada.ca in December, the CRA now deems personal usage to be excluded from tax calculations if:
- The plan's cost is reasonable
- The plan is a basic plan with a fixed cost
- Your employee's personal use of the service does not result in charges that are more than the basic plan cost
Employers must also effectively keep a mileage book of sorts for each employee to demonstrate to the CRA how they have come to their determination & calculations. Further it's not clear what the definition of "reasonable" is and whether the average Canadian thinks their phone plan is reasonable. Here in Canada, we don't have unlimited data therefore no plan has a fixed cost due to overages that the operators charge! https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/benefits-allowances/provided/cellular-phone-internet-services.html
The news is not quite as good if you pay for your own monthly plan and get a fixed stipend (i.e. $30) from your company to cover business usage. The CRA considers this a taxable benefit (EI Premiums apply as well). Regardless, the CRA expects companies to be able to track Business versus Personal usage of Company phones - not just phone calls but also data.
There is an added new step for Finance Departments when it comes to employees" T4 form; personal usage, where appropriate, must be reported as a taxable benefit. The Government of Canada website, known as Canada.ca instructs the following: "Report the taxable benefit in box 14 "Employment income" and in the "Other information" area under code 40 at the bottom of the T4 slip."
Why does the CRA care about types of usage and their associated cost? Ericsson predicts smartphone data traffic will grow by 900% by 2022. Enterprises especially, are exposed to the exponentially growing cost of mobile, driven largely by the explosion in mobile data usage. Smartphones will soon have high definition video, augmented reality apps and virtual reality entertainment. https://www.ericsson.com/en/mobility-report/reports/november-2017
But the majority of that usage growth is on the personal side. "Most people are initially surprised to discover that close to 80% of their data usage is for personal reasons," reports Thom Damstra, CEO of Canadian mobile data start-up mobilityView. "In global trials with a number of telecom operators, mobilityView has been able track data usage down to the byte. Business apps like email and LinkedIn are quite efficient in terms of the bandwidth they use. However personal apps like YouTube, Netflix, and Facebook can eat up quite a bit of data. The CRA risks leaving a lot of spending untaxed if personal usage continues to grow. We believe this is why they are expecting Canadians to track their usage – so they can change the rules quickly if necessary."
Damstra gives companies and individuals some timely advice if they want to manage their tax exposure on their smartphones. "First, think of your smartphone like your car; you're expected to keep a log of business usage on your phone just like you would on your car. Second, try to connect your phone to free Wi-Fi coverage wherever possible. This offloads usage and renders it untaxable. Third, consider purchasing some tracking software for your phone(s). There are new tools, such as our Mobile Cost Management Platform that can track usage & cost to the penny – all calls, text messages and data - be you a company or an individual."
Like companies, employees, contractors and gig economy workers; and the self-employed are expected to track all usage and can only deduct business usage. "That means if you are on vacation in Florida and need to take a call from the boss, you can deduct it; if you are jumping on your laptop and tethering to your smartphone to do a GoToMeeting or Skype session you can deduct that as well. Those expensive roaming SMS's when in Cuba to your customers; that also is deductible. The CRA requires a log book for all personal and business usage whether for local or roaming purposes; if you have a tool like our Mobile Cost Management Platform you can deduct all business usage."
Unlike previous years, employees can no longer deduct the cost of the hardware. It is unclear why companies can deduct the costs of hardware and yet the CRA has pulled this opportunity from everyone else. At this time no clarification of this ruling has been provided. https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-229-other-employment-expenses/salaried-employees/supplies.html
What are the CRA Rules Regarding Smartphone Usage?
- A Corporate-provided cellphone is considered a taxable capital cost. (CCA Class 8 or arguably 50)
Personal usage on a corporately provided phone is non-taxable as long as:
- The cost of the fixed plan is not exceeded.
- The cost is "reasonable."
- A stipend (where an employee is charged a fixed amount to cover variable personal usage on a corporate phone) is a taxable benefit on the employee pay stub. (Paragraph 6 1(b) (i) to (ix))
- Companies may not deduct 100% of the HST associated with their cellphone costs due to the personal taxable benefit.
- Companies may not deduct 100% of their cellphone costs without demonstrating at the individual employee level the business and personal splits for usage and cost.
- Individuals or self-employed:
- Cannot deduct the cost of a smartphone
- Can only deduct minutes and data consumed in the performance of their work
Any employer or individual is responsible for substantiating the amount of Business Usage and be able to produce it for the CRA. https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/benefits-allowances/provided/cellular-phone-internet-services.html
About the Mobile Cost Management Platform
The MCM Platform by mobilityView is a cloud service that allows employees and employers to properly account for the business and personal usage and cost of a smart device. The technology has been patented in the US; and patents are pending in over 83 other countries. The tool is great for employees to automate their cellphone expense claim process for economic reimbursement that will account for voice, SMS, data and roaming scenarios. The solution is highly applicable for businesses of any size, to only pay for business usage of mobile assets. It provides a complete view of all mobile costs, previously not thought possible, across the entire business. Employers can sleep at night knowing that their costs are contained; and employees can experience mobile democracy – they are freed up to do whatever they want on their mobile device: Play video games, watch movies; engage in social media with utter privacy. "The MCM Platform provides clear unequivocal and immediate return on investment for businesses of any size", said Thom Damstra, CEO of mobilityView. "The flexibility of the platform opens up the tantalizing possibilities to simultaneously reduce cost; provide new flexi benefits; and increase the usage of mobility within an organization. Until now these three simultaneous benefits have been impossible to deliver."
MOBILITYVIEW Inc. mobilityView is a global pioneer of mobile cost management (MCM) solutions for all business sectors and government to pay only for business use of mobile assets. Headquartered in Toronto, Canada, mobilityView was incorporated in 2014 by seasoned industry professionals from the wireless and IT sectors, with a wealth of experience in building enterprise-grade systems. With presence in the Europe (UK), Caribbean, South America, and Asia Pacific, mobilityView has assembled an impressive Board of Directors, very knowledgeable of enterprise mobility and focused on growth and good governance.
The core ethos of the founders, at mobilityView Inc., is to challenge yourself to believe that things can be different and the impossible is possible. This ethos has propelled mobilityView Inc. onto the global stage and attracted praise from business customers of all sizes, for uniquely addressing their most pressing problem of rising mobile costs, and investment from leading figures in the wireless and banking sectors. Visit us at www.mobilityview.com