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“Soft” Loans for Your Children

Parents quite often make loans to their adult children to help them purchase a car, a home, or for other reasons. A loan is different from a gift. The parent can charge interest so that the loan will earn some investment income. The loan can be set up for blended payments of principal and interest or to pay interest only. There is no requirement for the parent to charge interest.

For a long term loan used to purchase a house, for example, it is quite possible that the loan will not be repaid during the parent’s lifetime. The parent could provide in her or his will that any remaining balance of the loan will be forgiven or instead become part of the child’s inheritance. Such an arrangement does not cause any adverse tax consequences because the “debt forgiveness” rules in the Income Tax Act do not apply to the settlement of loans by inheritance or bequest.

Giving your child this type of “soft” loan is similar to giving them a part of their inheritance early, during your lifetime.

Per Diem Meal Allowance

In a recent Technical Interpretation, CRA noted that an employer-provided meal allowance will not be taxable where the following conditions are met:

→ It must be a reasonable amount;

→ The allowance is received to cover expenses while travelling away from the metropolitan area or the municipality where the employer’s establishment is located, at which the employee normally worked or to which the employee normally reported;

→ The travelling is done to perform the duties of an office or employment.

As a general rule, CRA allows an employer to use $17 (including the GST/HST, and PST) per meal as a reasonable over-time meal allowance. The rate is stated in the CRA Guide T4130.

CRA usually considers an allowance to be reasonable if it covers the out-of-pocket expenses incurred by an employee who is travelling for employment purposes.

What to do if the Canada Revenue Agency reviews your tax return

If the Canada Revenue Agency (CRA) tells you it’s reviewing one or more of your tax returns, don’t panic! In most cases, it’s simply a routine check.

The first thing you should know is a review is not an audit.  If the CRA tells you that your tax return is being reviewed, it is simply to ensure that the amounts you have claimed are reported accurately. It might also be because some documents are required to support your claim. It’s important to respond promptly to the information request or to call the number shown on the letter as soon as possible since there is a time limit involved.

Why is the CRA reviewing your tax return?

The Canadian tax system is based on self-assessment. You don’t usually need to include your documents when you file your tax return. However, from time to time, the CRA will contact individuals under one of its review programs. This is part of the CRA’s efforts to ensure the integrity of the tax system. Make sure you give the CRA the requested documents as soon as possible so it can do its review quickly and easily.

How long do you have to keep your records?

Keep all your tax documents for at least six years from the date you file your tax return. If you claimed expenses, deductions, or tax credits, make sure you keep all your receipts and related documents in case the CRA asks to see them.

What will happen after your review?

The CRA will let you know the result of your review in writing, either in a letter or on a notice of assessment or reassessment.

 

 

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