Archive for the ‘Knowledge Bureau’ Category

CRA Project – Third-Party Information Request to disclose Canadian Square sellers

CRA requested Square (service that allows you to accept  payments, using a reader that plugs into your iPod touch, iPhone, or iPad) to disclose information about Canadian Square sellers who processed greater than CAD$20,000 on Square during any of the calendar years 2012, 2013, 2014 or 2015; or during the period of January 1, 2016 to April 30, 2016.

Square will share with the CRA the following information associated with the Square account:

 The name(s) and address(es) associated with the seller’s Square account
The associated financial institution(s) name, transit number and account number
The number of Square Readers and Stands linked to the account
The total monthly aggregate of transactional information between the seller and their customers
The number of employee permissions granted through employee / location management functionality
Square encourages affected sellers to verify their tax statements with the amounts indicated on their Square Dashboard to ensure they have accurately reported their commerce activities.

Renting out a room to students? CRA wants to know

As students fan out across the country for another school year, homeowners are finding opportunity in renting out accommodations.

There’s nothing wrong with making a few bucks renting out a room, but the Canada Revenue Agency wants a piece of the action – and how you claim deductions could be costly in the long run.

The name of the game is to preserve your home’s principal residence status. If the CRA considers your home a principal residence, you don’t pay any tax on the amount it appreciates when it is sold. As an example; if you bought your house for $400,000 and sold it for $800,000, you don’t pay any tax on that $400,000 gain.

If your home does not meet the CRA’s principal residence requirement, you must pay tax on half of that $400,000.      

If you are drawing rental income from your home, there are three ways to ensure it remains your principal residence for tax purposes:

  1. The partial use of the residence for income-producing purposes is ancillary to the main use as a residence. In other words, there’s a fine line between renting out a room and renting out a house the owner happens to live in.
  2. There is no structural change to the property. You can put a coat of paint on the walls and make some modifications but you can’t build an addition, for example.
  3. You cannot claim capital cost allowance (CCA), or depreciation on the property.

Of course, the rental income must be claimed (form T776) and filed with your tax return, but there are several deductions available to lower your tax bill. They can include: a portion of mortgage interest, property taxes, insurance, repairs and maintenance, landscaping, utilities, advertising costs, office expenses, professional fees, management fees, salaries or wages, travel costs, and car expenses.

If you’re not sure if you are crossing the line between principal residence and income property, consult your tax professional.

By Dale Jackson 

Dale is Finance Journalist: writer and producer Business News Network, Globe and Mail, Yahoo! Finance.

 

 

Are you aware of the revised T1198 statement?

CRA has just issued a revision to Form T1198 Statement of Qualifying Retroactive Lump-Sum Payments, which is completed by the payer of qualifying amounts.  

 

Taxpayers who are in receipt of a lump sum of $3000 or more that relates to one or more prior years may qualify for this averaging provision, a calculation which CRA does for you when the form is attached to your return. 

Qualifying income amounts include income from office or employment if received as a result of an order or judgment, arbitration, or damages for loss of office or employment received in a lawsuit settlement. 

In addition, lump sum benefits from employment insurance, superannuation or pension plans other than lump-sum withdrawals, lump sums received for spousal or taxable child support payments, or benefits from a wage-loss replacement plan may all qualify. 

Not included, however, are salary reimbursements, top-ups of disability payments, repayments of pension benefits, or negotiated back pay. Tax advisors who are up to date with the latest rules can provide guidance.

This article was written by Evelyn Jacks.  Evelyn Jacks is president of Knowledge Bureau, whose curriculum includes wealth-management and income tax-preparation courses. You can also offer Knowledge Bureau financial education books to your clients or family members. Visit http://www.knowledgebureau.com/ for more information regarding The Knowledge Bureau

Is Canada’s economy improving?

Canada’s gently improving economy

A number of recent numbers from Statistics Canada testify to gently improving economic conditions.

• In November, wholesale sales  rose 0.7% to $49.6 billion, continuing a gradual upward trend begun in early 2009, deep in the recession. Five of the seven subsectors made gains with the computer and communications equipment and supplies industry leading with a 6.3% increase. The motor vehicle and parts subsector, up 1.5%, recorded its second consecutive increase.

Retail sales also edged upward in November to $39.4 billion, adding 0.2%, the fifth consecutive monthly gain. Higher sales at motor vehicle and parts dealers as well as electronics and appliance stores more than offset declines at most store types, says StatsCan.

Manufacturing sales,  likewise, increased in November, up 1.7% to $49.9 billion. As with wholesale sales, manufacturing sales have pursued a gradual upward trajectory since early 2009. Sales rose in 12 of 21 industries, says StatsCan, with the transportation equipment industry — up 3.8% to $8.7 billion in the month — leading the charge and accounting for more than a third of the total increase. Within that industry group, motor vehicle industry sales increased 4.1% and aerospace product and parts industry gained 6.5%.

In the primary metal industry, sales rose 5.9% to $4 billion, the highest gain since July 2011.

• Also on a positive note, the number of people receiving regular Employment Insurance  (EI) benefits in November decreased by 4,500 or 0.8% to 528,000, says StatsCan. From a peak close to 850,000 in mid-2009, the number of EI recipients has consistently edged its way downward.

• Investment in non-residential building construction was $12.0 billion in the fourth quarter, a 1.0% gain from the previous quarter. This was the third consecutive quarterly increase and was led by higher spending for commercial and industrial buildings.

• Canadian existing home sales continued to weaken in December, plunging 17.4% year over year, reports the Canadian Real Estate Association. The silver lining in that dark cloud is a mere 1.6% slippage in housing prices year over year.

“The Canadian housing market continues to cool,” wrote Bank of Montreal senior economist Benjamin Reitzes in a recent report. “While some will focus on the deep dive in sales from a year ago, it looks as though prices are providing a better read on the health of the sector, as homeowners are in no rush to sell. Prices are easing gently, consistent with a soft landing through much of the country.”

TD Bank Group economist Francis Fong, likewise, ends his recent report on an upbeat note. Although he doesn’t see a lot of growth in the first half of this year, the second half is a different story. “By the second half of [the] year, we do anticipate an acceleration of economic growth,” he wrote, “particularly in the United States. With Canadian manufacturers and exporters still tightly linked to the fortunes of the U.S. economy, this should translate into a stronger pace of manufacturing sales growth.”

This article was written by Evelyn Jacks. Evelyn Jacks is president of Knowledge Bureau and has authored several of its tax courses and books.

Have I paid more taxes than necessary?

Evelyn Jacks: Don’t pay more taxes than necessary

You may not be able to control the economy but you can control the amount of income taxes you pay.

 

The growth of wealth in your lifetime will occur naturally if you do some of the right things. But the capital you accumulate — your savings — can fall victim to the eroding effects of inflation and economic uncertainty if you aren’t careful. Fortunately, under our system of self-assessment, it is your legal right to arrange your affairs within the framework of the law to pay the least possible taxes. So, to secure your own future and that of your heirs, be tax-efficient and protect earnings and savings.

This is very important because — even though you may not see your financial affairs this way — your provincial government may consider you “rich” for income tax purposes and you’ll be in line for the new, “high-income surtaxes” on withdrawal of savings as a pension or on money that’s left unspent.

So, when you complete your tax returns, be tax-efficient. If you discover you have overpaid your taxes, you can request adjustments to prior filed federal T1 returns within 10 years after the end of the taxation year being adjusted. Adjust your tax return by following these instructions:

  • If you think you missed claiming something on a previously filed return, call your tax practitioner to make an adjustment, or do it yourself using form T1-ADJ, available on the CRA’s website.
  • You can also make an electronic adjustment on the CRA website. Log on to “My account” and choose the “Change my return” option.
  • Have supporting documentation available in case of audit.
  • Never file a second tax return.

It’s Your Money. Your Life.  File a tax return each year on time to recover tax refunds and preserve wealth. You can even recover “gold” from prior years by adjusting previously filed returns. Many taxpayers miss claiming all the deductions and credits to which they are entitled. Be sure you’re not one of them.

Evelyn Jacks is the best-selling author of Jacks on Tax, Your Do-it-yourself Guide to Filing Taxes Online and Essential Tax Facts, Secrets and Strategies for Take-Charge People, available at www.knowledgebureau.com and better bookstores.

What are the consequences in off-shore tax evasion?

International Tax Information Leak Exposes 450 Canadian Tax Cheats

On April 4th, the Canada Revenue Agency released two separate statements in regards to recent media coverage that has identified rampant disregard for Canada’s tax laws, specifically hiding money in offshore tax havens.

 

CBC News and media outlets in 35 other countries reported earlier in the week that they were uncovering information regarding certain transactions as part of a huge leak of offshore financial information received by the International Consortium of Investigative Journalists in Washington D.C. Many believe it is one of the largest leaks of financial data in history.

The information procured by the Consortium exposed more than 130,000 taxpayers from various countries around the globe who have been hiding their money from their home government; the list included about 450 Canadians.

Perhaps the most high-profile Canadians on the list are Pana Merchant and her husband, prominent Prairie lawyer Toney Merchant. Merchant, also known as the class-action king, evidently tried to hide about $2 million in the Cook Islands, a New Zealand territory famous for its financial secrecy.

Over the last six years, the CRA has conducted approximately 8,000 compliance actions and reassessed in excess of $4.5 billion in federal taxes as the result of its efforts. In her announcement, Revenue Minister Gail Shea called on The International Consortium of Investigative Journalists to hand over their list to allow the Canadian Government to crack down on tax evaders and, in addition, repeated new measures from the recent Federal Budget that will be used to combat international tax evasion:

  • Requiring certain financial intermediaries, including banks, to report to the CRA international electronic funds transfers of $10,000 or more.
  • Introducing a new Stop International Tax Evasion Program through which CRA  will make payments to individuals with knowledge of major international tax non-compliance that lead to collection of additional taxes.
  • Extending the normal reassessment period by three years for taxpayers who have failed to report income from a specified foreign property on their annual income tax return and failed to properly file the Foreign Income Verification Statement (Form T1135).
  • Revising the T1135 Foreign Income Verification Statement to require reporting of more detailed information.
  • Streamlining the process for the CRA to obtain information concerning unnamed persons from third parties such as banks.

This article was written by Evelyn Jacks.  Evelyn Jacks is president of Knowledge Bureau, whose curriculum includes wealth-management and income tax-preparation courses. You can also offer Knowledge Bureau financial education books to your clients or family members.

What is the PST in Manitoba?

Manitoba Raises PST by 1%

In a controversial budget, Manitoba raised its Provincial Sales Taxes by 1% to 8% effective July 1, 2013 over a “temporary” 10 year period, waiving the requirement to hold a referendum, citing reasons of financial urgency due to potential flooding.

 

Despite this, the province’s deficit will be $518 Million and its five year debt reduction plan is two years off base; now a surplus is projected not before 2016/2017. Revenues will rise by 3%; spending by 3.1%, while the economy is expected to grow by 1.9% in 2013 and inflation by 1.7%.

The Basic Personal amount is scheduled to rise by $250 in 2013 from $8634 to $8884; another $250 raise will be given to the BPA in 2014. These were provisions announced last year. Seniors, though eligibility was undefined in the budget, will pay no school taxes by 2015, while qualifying small businesses will have an increase in the small business deduction, from $400,000 to $425,000 effective in 2014. The dividend tax credit on other than eligible dividends will be adjusted by 0.83 to offset the changes the federal government made in its March 21, 2013 budget to the taxation of these sources.

An increase in the Corporate Capital Tax on banks from 4 to 5% and a restriction of the Farmland School Tax Credit to residents of Manitoba only will raise the revenues required to offset tax benefits provided. The latter must now be filed annually by March 31, and a grandfathering provision will allow for application for tax years 2011 and 2012 by March 31, 2014.

The Film and Video Tax Credit, Digital Media Tax Credit and Venture Capital Tax Credit have all been extended to 2016 and a new Rental Housing Tax Credit equal to 8% of the capital cost of new housing has been introduced to offset the new sales taxes; however it was unclear when this credit would begin. The Natural Gas Fuel tax will increase gradually over the period ending 2015, and the Odor Control Tax Credit to reduce nuisance gases has been continued.   

The minimum wage was also increased slightly from $10.25 an hour to $10.45. There were no increases for indexation in the provinces marginal tax brackets.  

The net result for families could be a wash, depending on taxable income levels; however, for many families, the PST increase will cost approximate $25 a month more out-of-pocket, while the increase to the BPA will recover only $27 for singles, $54 in income tax savings. In a province of 1.3 Million people, where approximately half do not pay personal income taxes, an increase in the sales tax is regressive. Young families, however, will get some tax relief through an exemption from the PST on baby cribs, strollers, diapers and other supplies; adults and children alike will see a PST break on bicycle helmets.

On the user fee side, it will cost more to register a corporate and business name, pay the Fire Commissioner for inspection fees, the vet for diagnostic test fees, and fishermen will pay more to tap into the provinces 100,000 fresh water lakes. Amongst others is a new fee for adult abuse registry checks and an increase in vehicle impoundment fees.

This article was written by Evelyn Jacks.  Evelyn Jacks is president of Knowledge Bureau, whose curriculum includes wealth-management and income tax-preparation courses. You can also offer Knowledge Bureau financial education books to your clients or family members. For more information about the knowledge Bureau visit: http://www.knowledgebureau.com/

Did you sell a condo in 2012?

CRA Condo Audit Begins

Tax Audit Season is upon us and with it a warning for those who sold condominiums in 2012: The Canada Revenue Agency (CRA) is conducting an audit of condominium sales to check for non-compliance with the Income Tax Act (the Act).

 

The story was widely reported last month in the Toronto Star and Financial Post and supports the recent trends announced in the federal budget to catch more “tax cheats”. Knowledge Bureau will be offering an Audit Defence workshop later this month in Winnipeg, Calgary, Vancouver, and Toronto to prepare professionals to defend their clients in situations like this.

At issue is how the income was reported on sale. Taxpayers must have the paperwork that proves the sale of the condo was on account of capital (50% income inclusion) rather than income (100% income inclusion). Alternatively, the entire transaction may have qualified for the principal residence exemption.

The CRA is particularly concerned with transactions where one person agrees to purchase a condo before it is built, but ultimately sells their right to buy that condo before the building is registered in the Land Titles Office (LTO), using what are called “assignment clauses” in their agreements.

Under this type of arrangement, the builder will usually collect a fee, but the name of the original purchaser is never registered on title at the LTO. Usually the developers do not have to furnish the CRA with the names of these assignors, but under the CRA “Condo Project” which this audit target has been dubbed, they could be forced to do so.

People who have assigned multiple properties over the year or even the last few years will have difficulty persuading the CRA that these transactions should be on account of capital rather than income, and they certainly won’t be able to claim the principal residence exemption contained in Section 40(2)(b) of the Act. However, in many cases, the capital gains and/or  principal residence is legitimate and should be allowed.

The best thing to do is be prepared. Taxpayers need to have documentation to show intent of purchase and how the property was used, amongst other factors.  Dig out the purchase and sales agreements, occupancy permits, utility bills, and any documents that show the condo as a residence. Also document life events like marriage, divorce or birth of a child which indicates a change in the use of the residence.  In some cases, like a career move, an election can be made to preserve the principal residence exemption even if the taxpayer took a job in another city.

If the CRA determines that there was a transaction on account of income rather than capital, and reassesses the tax return, the resulting financial outcomes can be very expensive, plus the interest clock runs on unpaid balances. The taxpayer will need to act quickly in gathering evidence and formulating a defense in time to respond to the audit proposal letter. 

The deadline to be respond to an audit letter is usually 30 days and the deadline for filing a Notice of Objection is 90 days from the date of a reassessment. Extensions may be granted upon request for responses to the audit letter in some cases. It’s always prudent, however, to file a Notice of Objection on time to preserve further appeal rights.

That’s where a relationship with a certified tax practitioner can really pay off. This audit project it could affect many taxpayers – many of whom are innocent – and have nothing to fear but the extra time it will take to comply with the documentation requests. However, professional advisors need to brush up on the rules and be ready to defend their clients in cases where the more advantageous tax treatment claimed on the return is in fact, their right.

This article was written by Evelyn Jacks.  Evelyn Jacks is president of Knowledge Bureau, whose curriculum includes wealth-management and income tax-preparation courses. You can also offer Knowledge Bureau financial education books to your clients or family members. http://www.knowledgebureau.com/

Do you run an unincorporated small business from your home or office?

File Proprietorship Returns by June 15

Do you run an unincorporated small business from your home or office?

 

If you haven’t filed your tax return yet, you must do so before June 15 to avoid a late filing penalty; if you owe money, however, do so as soon as possible because the interest clock started to tick on May 1.  

If you are serious about running a for-profit business, (that is, know that losses on hobby ventures cannot be deducted – there must be a reasonable expectation of profit), be aware that a business can be formed in a variety of organizational structures. 

For most people who begin an owner-operated business, an unincorporated structure is best at the start. Also known as a proprietorship, the income, expenses and capital transactions are reported on the T1 Tax and Benefit Return, generally using form T2125. Net income is then added to other income of the year and in most cases, Canada Pension Plan (CPP) premiums will be remitted if income exceeds contribution exemptions. 

Losses from the unincorporated business, also known as non-capital losses, offset other income of the current year, or if excess losses exist after this, the previous three years or income in the next 20 years. They can, therefore, be lucrative.

The incorporated company, on the other hand, is a separate legal entity.  Under this scenario, legal liability is limited, and earnings may be retained in the company, or distributed on an after-tax basis to shareholders; losses, however, stay within the corporate structure. The shareholder, who is generally also the owner-manager, can earn salary, dividends, or other income from the business. A third form of business organization is the partnership, which may be incorporated or not. 

It’s Your Money. Your Life. Understanding the best form of business organization is important, as your tax filing outcomes can significantly enhance your after-tax position. If you are unsure about whether your enterprise is a hobby or business, or whether it should be incorporated or not, do see a tax professional. And, it should go without saying, always file your tax returns on time.  

Evelyn Jacks is President of Knowledge Bureau and author of 50 books on tax and personal wealth management. She is also the founder and director of the Distinguished Advisor Conference (DAC). The theme of this year’s three day think tank in Ojai, CA Nov 10-13 will be “Back to the Future – Collaborative Wealth Management.”  Follow Evelyn on Twitter at @EvelynJacks.

Should you pay to have your Disability Tax Credit application processed?

Disability Tax Credit Promoters Restrictions Act

Last fall, Cheryl Gallant, MP for Renfrew-Nipissing-Pembroke introduced the Disability Tax Credit Promoters Restrictions Act, a private members bill to limit the fees charged for the preparation of Disability Tax Credit Applications.

 Last month, this bill passed second reading in the House of Commons unanimously and was referred to the Standing Committee on Finance.

This bill seeks to place a limit on the fees charged by promoters to file for the Disability Tax Credit on behalf of taxpayers.  In recent years, the ability to claim up to ten years of missed disability tax credits has prompted a new industry of “consultants” who may charge a contingency fee of up to 40% of the benefits received. With the value of the credit being about $1500 (depending on the province of residence), a 10-year claim could result in a $15,000 refund – and a contingency fee of up to $6,000.

This bill, if it is passed, would allow the maximum fee for the preparation of the Disability Tax Credit Application to be set by Regulation. Those who charge more than the prescribed maximum fee would be subject to a fine of the greater of $1,000 and the excess fee charged. The bill further requires that anyone who charges more than the prescribed fee notify the Minister of the fee charged and, if they fail to do so, are subject to an additional fine of between $1,000 and $25,000.

This article was posted on the Knowledge Bureau’s newsletter, whose curriculum includes wealth-management and income tax-preparation courses. You can also offer Knowledge Bureau financial education books to your clients or family members.  For more information go to:  http://knowledgebureau.com/

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