Can You Deduct Your Own Labour and is Your RRSP Creditor Proofed?

Today you will read about a couple interesting topics. They are:

• Can you deduct the value of your own labour and materials?

• Is your RRSP creditor protected?

Deducting Your Own Labour

I am often asked whether you can deduct the value of your own labour and/or add your notional labour cost to the adjusted cost base of a property. Typically this question arises in the context of real estate (be it building a deck on a cottage or renovating the bathroom of a rental property) or in relation to services provided to a self-employed business (such as providing professional skills or bookkeeping, etc.).

My answer is always the same. No, you cannot deduct the value of your own labour. I have some do-it-yourselfers clients who have been flabbergasted when I tell them their own labour is not a deductible expense.

Last week, I watched a Video Tax News segment that referenced a June, 2015 Technical Interpretation 2015-0580791M4 by the CRA. The issue was whether a taxpayer could (1) deduct the value of his own labour in computing his income from a farming business; and (2) if they could include the value of their lumber in calculating the cost base of a farm structure that was built with the lumber.

The CRA said that the answer to both questions is no. They reference a couple sections of the Income Tax Act and Guide T4002. For more detail, hit the link above for the Technical Interpretation.

It should be noted that the above relates to income reported on your personal income tax return. If you are a shareholder in a corporation, you can pay yourself a wage for your time and deduct the expense, as long as you issue a T4 to yourself.

Are RRSPs Creditor Proof?

Recently, I was reviewing a proposal for a Personal Pension Plan (“PPP”) with one of my clients. During the conversation it was noted that one advantage of a PPP is that it offers creditor protection whereas a Registered Retirement Savings Plan (“RRSP”) may not. I was surprised by this, as I had understood, that RRSPs had become creditor proofed several years ago.

It was explained to me that RRSPs/RRIFs (Registered Retirement Income Fund) are creditor protected under Canada’s Bankruptcy and Insolvency Act in all provinces. However, in some provinces, such as Ontario, RRSPs are not protected from creditors in situations outside of the bankruptcy context, such as lawsuits, or possibly a claim by an estranged spouse.

For example, if you have a professional corporation or are self-employed in Ontario and your creditors sue you, it is my understanding that your RRSP would be at risk if you do not wish to declare bankruptcy and enter formal bankruptcy proceedings. You should confirm my understanding with your lawyer.

I also understand that the provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Prince Edward Island, and Newfoundland and Labrador have specific legislation that protects your RRSP and RRIF from creditors. Again, as I am not a lawyer, you should confirm such if you live in those provinces.

If you live in a province in which there is no specific protection, you are at risk to creditors attacking your RRSP. Many legal commentators suggest the best way to protect yourself from creditors, is to purchase a segregated fund insurance contract (the management fees may be high and the investment options limited) or if your situation merits it and your advisor feels it appropriate, consider the benefits of setting-up a PPP.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation. Please note the blog post is time sensitive and subject to changes in legislation or law.