Posts Tagged ‘corporate tax’

Claiming Automobile Expenses

One of the more common expenses claimed by taxpayers are automobile expenses (applies to any motor vehicle such as van, bus, pickup truck, station wagon, SUV or other truck). Many individuals use their automobile for work or business and incur personal expenses in doing so.

It is important to note that only expenses of a business nature are eligible as a deduction against their related income. As such, the Canada Revenue Agency (CRA) has strict requirements in ensuring that only business-related expenses are claimed. As a result, the retention of automobile tax records becomes imperative for every taxpayer that uses an automobile for work or business.

Automobile allowance rates

The automobile allowance rates for 2016 and 2017 are:

  • 54¢ per kilometre for the first 5,000 kilometre driven; and
  • 48¢ per kilometre driven after that.

In the Northwest Territories, Yukon, and Nunavut, there is an additional 4¢ per kilometre allowed for travel.

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.

What changes come with the revised T1135?

The Revised T1135 – This Could Get Ugly for Taxpayers, Investment Advisors & Accountants

 

The T1135


To provide some symmetry to my return to blogging, I start off where I left off. You may recall that my last blog discussed the revised T1135 Foreign Income Verification Form (“T1135”). In that post I discussed the new reporting requirements, which now includes the following:

  • The name of the specific foreign bank/financial institution holding funds outside Canada
  • For each foreign property identified on the T1135, the maximum funds/cost amount for the property during the year and cost amount at the end of the year (the old form only required the cost amount at the end of the year if at anytime in the year you exceeded the threshold)
  • For each foreign property identified on the T1135, the income and capital gain/loss generated (the old form asked for total income or gains from all foreign property in one lump sum)
  • Specific country where each foreign property is located (the old form had pre-defined groupings based on each continent for all the property on an aggregate basis) 

 

The T3/T5 Exclusion


I concluded my July 2nd post by saying that “There is one important saving grace to these rules. If the income for a foreign property is reported on a T3 or T5, the details do not have to be reported. This will exempt most U.S. or foreign stocks held with Canadian brokerages; but the details for property held outside Canadian institutions will be burdensome”.

While the above statement is essentially correct, the CRA’s administrative position in regard to this exemption may prove problematic. You see, the CRA is saying that even where you hold a foreign stock or bond in an account with a Canadian brokerage firm that issues a T3 or T5 for that account; if that security does not pay income in the form of a dividend or interest and thus is not reported on the T3 or T5, the specific stock or bond will not be excluded and will have to be reported in detail on the T1135. This position was recently confirmed by a CRA representative to one of my tax managers.

 

In addition, it must be noted you will still be required to file the T1135 if the total cost amount of your foreign holdings exceeds $100,000 at anytime during the year, even if dividends or interest is reported on a T3 or T5. See the example discussed in this article by Jamie Golembek, where the CRA representative states you would still need to file the form and check the reporting exclusion box for the stocks reported on a T-slip.

The Tax to English Version

 

So what does this all mean in English? Say you own 25 foreign stocks held at a Canadian brokerage that have a total cost of $150,000, but five of those stocks do not pay dividends or fail to pay a dividend in that year. As we now understand the CRA’s position, even though the 20 dividend paying stocks do not need to be individually listed, the 5 non-dividend paying stocks must be reported. Thus, you will need to tick the box on the T1135 Form to claim the exclusion for the 20 stocks, but you will also have to determine the highest cost amount of each of the five non-excluded stocks during the year (troublesome if you bought and sold) and the cost amount at the end of the year in addition to providing other information such as country location and capital gain or loss.

In the example above, if all 25 stocks pay dividends that will be reported on a T3 or T5, you will still have to file the T1135 and check the exclusion box; however, you do not need to report all the details of each individual stock. Clear as mud.

For people with only a few foreign holdings, this is not much of an issue. However, I have clients who are in private client programs with the large Canadian financial institutions that own 20-50 shares of multiple foreign stocks or have private managers running their money who have upwards of 50 U.S. and foreign stock/bond holdings. This means that the client, the advisor, or their accountant, or probably a combination of all three must review all these stocks to determine which ones are exempt from reporting because they paid a dividend or interest that was reported on a T3 or T5 from those that did not have any income reported on a T3 or T5.

My tax manager said the CRA representative he spoke with, gave him the impression that the CRA’s position has not gone over very well. Let’s hope the CRA simplifies life for many Canadians and just exempts any foreign security held at any Canadian Institution whether income is reported on a T-slip or not.

 

This article is posted on The Blunt Bean Counter website.  It provides information of a general nature and should not be considered specific advice, as each reader’s personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the article.

What is my risk as a director of a corporation?

Director’s liability

Being a director of a corporation carries a lot of responsibility, as well as a certain level of risk. The harshest penalty available in our society — criminal sanction — can befall a director if he or she acts fraudulently or negligently. This reflects Parliament’s view that, under subsection 227.1(3) of the Income Tax Act, directors must “exercise the degree of care and skill that would be exercised by a reasonably prudent person in comparable circumstances.”

At common law, judges had long held that a director was to be judged according to his or her particular knowledge and experience. But that old common law standard of subjective liability was seen as insufficient protection for the public. To protect the public generally and shareholders specifically, Parliament decided to impose a higher standard, holding directors to the standards imposed on comparable professionals. So, Parliament created objective liability through the insertion of subsection 227.1(3) into the Act.

This had the effect of raising the standards of directors to the level of the reasonable, professional director who shares the characteristics (education, experience etc.) of the one under scrutiny.

To avoid liability, then, a director need only show that he or she acted the way a reasonably prudent individual in similar circumstances would have acted. That means a director is justified in trusting his or her officials to execute their duties according to corporate policies — if a reasonable person in that position would not have grounds for suspicion.

Generally, a director will be personally liable only if he or she assists the corporation in committing an offence or is grossly negligent in his or her dealings for the company. So, the director needs to participate actively in the offence.

Even if the corporation is not prosecuted or convicted for an offence, the director can still be held liable. If the corporation has committed an offence under the Act and the director participated with knowledge in some way in the commission of that offence, then the two elements of culpability are established. A director may be convicted, but only if it is established he or she had the mens rea (that is, the “guilty mind”).

Directors may also be liable for gross negligence, which is a greater departure from the errant behaviour associated with regular negligence. In Venne v The Queen (1989), the court stated: “Gross negligence must involve a high degree of negligence tantamount to intentional acting, an indifference as to whether the law is complied with or not.”

Parliament and the courts have made it clear directors have a lot of responsibility and are subject to immense liability if they act fraudulently or negligently. The goal is to ensure shareholders have adequate protection, but it is also a balancing act — no one wants to dissuade professionals and those with business experience from becoming directors.

Greer Jacks is updating jurisprudence in the EverGreen Explanatory Notes, an online research library of assistance to tax and financial professionals in working with their clients.

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

Does the Bank of Canada email to the public?

Bank of Canada Warns of Ongoing Email Scam

The Bank of Canada (the Bank) has warned Canadians that an unsolicited email scam has falsely claiming to originate from the Bank has been circulating.

 

These scams are misrepresenting the Bank and use the institution’s name, logo, and other identifiers without authorization. The Bank has warned that it has no connection to such emails. In a statement released on its website, stating that: 

“The Bank of Canada is Canada’s central bank and therefore does not accept deposits from or on behalf of individuals, nor does it collect personal or financial information from individuals. The Bank has reported these fraudulent emails to the police. If you receive an unsolicited email, delete it immediately. The Bank of Canada and its employees and officers do not request personal or financial information through email and do not participate in any email or Internet-based communications that request information or payment for services.”

The Bank suggests the following if you receive an email that purports to be from the Bank of Canada, and you have concerns about the contents of that email:

  • Delete the email immediately and contact your local authorities.

  • Access the Bank of Canada website at www.bankofcanada.ca by typing the URL yourself (do not follow links). Look for references to the program identified in the suspect email.

  • Call the Public Information Office at 1.800.303.1282 (toll free in North America), or see the “Contact Us” page on their website.

    Link to the Bank’s warning: http://www.bankofcanada.ca/bank-of-canada-warns-of-email-scams/

What is the red tape reduction measure?

The Harper Government kicks off 2014 with a renewed commitment to red tape reduction for businesses

January 28, 2014 – Ottawa – Canada Revenue Agency

The Honourable Kerry-Lynne D. Findlay, P.C., Q.C., M.P., Minister of National Revenue, with the Honourable Tony Clement, President of the Treasury Board, the Honourable Edward Fast, Minister for International Trade, the Honourable Maxime Bernier, Minister of State for Small Business and Tourism, and Ms. Laura Jones, Executive Vice-President of the Canadian Federation of Independent Business (CFIB), today highlighted the Government’s progress on red tape reduction. Minister Findlay expressed optimism for the relationship between businesses and the Canada Revenue Agency (CRA), which has been made stronger as a result of the red tape reduction measures the CRA has implemented to date.

As of January 6, 2014, businesses can file their T5013, Partnership Information Return, electronically through My Business Account and Represent a Client. In addition, the CRA’s Liaison Officer Initiative will provide in-person support and information to small and medium enterprises at key points as their business grows, to help them get it “right from the start.”

In the fall of 2014, the CRA will again conduct red tape reduction consultations with small businesses and their service providers in cities across the country, seeking their views on the CRA’s progress on reducing red tape and ensuring the Agency’s action plans remain relevant to the needs of small businesses.

In the past year, the Government of Canada implemented significant red tape reduction measures, from increasing its accountability to businesses, introducing time-saving measures, to enabling businesses to file and manage their information online.

Accomplishments in 2013:

  • Agent ID for the CRA’s business enquiries telephone service. Now, when a business owner calls the CRA, the agent who answers provides an ID number at the beginning of the call. The Agent ID number increases the CRA’s accountability for business calls, ensures a consistent experience for callers, and makes it easier for business owners to give feedback on CRA services.
  • A one-stop-shop webpage for business services. Businesses can now easily find information and service options relevant to their tax situation.
  • The My Business Account online enquiries service. Businesses or their representatives can ask the CRA tax-related questions about their accounts online and they will receive answers online and in writing.
  • A new online mail service for Canadian small businesses. Through Manage Online Mail, Canadian businesses can choose to receive their notices of assessment and reassessment electronically, and some letters for their corporate and GST/HST accounts.
  • A new CRA Red Tape Reduction Action Plan webpage. Businesses can see up-to-date information on the CRA’s red tape reduction progress.

Quick facts

  • In the fall of 2012, the CRA held its own consultations with businesses. The results of the 2012 consultations are available in the report Focusing on Small Business Priorities: Canada Revenue Agency Consultations on Cutting Red Tape.
  • To participate in the upcoming consultations, please visit the CRA’s Red Tape Reduction webpage regularly, and stay connected by subscribing to our mailing lists and joining the conversation on Twitter.
  • From April 2013 to November 2013, the CRA responded to almost 4,300 enquiries online through the My Business Account enquiries service, a 25% increase over the same period last year.
  • Using the CRA’s business number (BN) as the common identifier for federal, provincial, and municipal interactions with businesses is part of the effort to reduce red tape for small businesses. So far, six provinces and one city have adopted the BN. More municipalities and governments are expected to adopt the BN to facilitate registration and eliminate duplicate accounts and errors.

Quotes

“I would like to thank the CFIB for their input on CRA red tape measures implemented in the past year, specifically on the Agent ID and My Business Account online enquiries. With the help of business communities, our Government has made significant progress on making compliance easier and decreasing regulatory burdens so businesses can be competitive and innovative within their sectors. This will in turn create jobs and underscore Canada’s reputation as one of the best places in the world to do business. Since most businesses in Canada have less than 100 employees, it’s very important to meet their needs and continue to encourage their feedback and ideas. The CRA’s promise is to consult businesses every two years, and this year, we hope to reach further than we have ever before.”

– The Honourable Kerry-Lynne D. Findlay, Minister of National Revenue

Would a partnership be a useful vehicle?

Changes to the “Bump” Rules for Partnership Interests

Subject: Partnerships

“partnerships are still a useful vehicle”

Number: 12-36

Date: November 16, 2012

A partnership is a useful form of business organization that has tax advantages as a flow-through vehicle.  If you are planning the acquisition of a business, a partnership can be useful as a way of flowing income and losses (especially losses!) to the purchaser.

Income tax rules allow a purchaser to increase, or ”bump”, the tax cost of certain assets (e.g. land that is not inventory, marketable securities and partnership interests) owned by the acquired corporation (the “target” corporation), if the target corporation is merged with the acquiring corporation after the purchase.

These rules are useful where the purchase price for the shares of the target corporation is higher than the underlying tax basis in the assets of the target corporation, such as companies that own substantial amounts of real estate.  Acquisition planning often involves a tax-free transfer of assets that would not be eligible for a bump (such as depreciable assets and goodwill) to a partnership in advance of the acquisition so that, at the time of the acquisition, the target corporation owns a partnership interest (eligible for the bump) as opposed to assets that were not eligible. 

The March 2012 budget, and the October 2012 draft legislation implementing the budget proposals, will effectively eliminate this planning opportunity. These rules also prevent planning that would otherwise restore the ability to bump the partnership interest.

While the ability to bump the partnership interest has been restricted, partnerships are still a useful vehicle for business acquisitions or structuring newly formed businesses.  Your TSG representative would be happy to discuss with you the best way to structure your business.

TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group  member firms.  The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.

Do you qualify for the SR & ED program?

Despite Proposed Changes, Scientific Research and Experimental Development (SR&ED) Still Provides Big Benefits for Small Businesses

Subject: SR&ED
Number: 12-37
Date: 11/23/2012

it is a good idea to review upcoming SR&ED expenditures and accelerate the spending

On August 14, 2012, the Department of Finance released draft proposals to reduce some of the benefits available under the SR&ED program however significant benefits still remain for small businesses.  In particular, the 35% refundable credit has not been changed.

What is SR&ED?

The SR&ED program provides tax credits to businesses conducting research and development in Canada that will lead to new, improved or technologically advanced products or processes. The definition of SR&ED for tax purposes is the subject of much uncertainty and beyond the scope of this tax tip.  In general, however, eligible SR&ED is a subset of what is commonly referred to as research and development.

CCPC vs. Non-CCPC

Canadian Controlled Private Corporation’s (CCPC’s) generally receive a cash refund of 35% of the first $3,000,000 eligible SR&ED expenditures, annually. This benefit is ground down if the prior year’s taxable income exceeds $500,000, or taxable capital exceeds $10 million. The draft proposals do not reduce this refundable credit.

Non-CCPC’s receive a 20% investment tax credit (ITC) which can be applied to reduce current year taxes payable, carried back 3 years or carried forward 20 years. The Non-CCPC tax credit rate will be decreasing to 15% effective January 1, 2014.

Proxy method instead of actual overhead

The proxy method can be used to determine the amount of overhead costs that can be claimed for tax credit purposes.  This amount is usually easier to determine (and audit) as it is calculated as 65% of direct R&D wages. The proxy factor will be reduced to 60% effective January 1, 2013 and to 55% effective January 1, 2014. The decreasing proxy factor may cause organizations to consider whether using the traditional method of accounting for overhead will now result in a greater claim. The traditional method requires detailed calculations to track overhead so consideration should be given to the time it will take to produce (and support on audit) the detailed overhead calculations required by the traditional method.

Summary of changes

 

2012

January 1, 2013

January 1, 2014

Non-CCPC rate

20%

20%

15%

CCPC rate

35%

35%

35%

Prescribed proxy amount (PPA)

65%

60%

55%

With the modifications to the SR&ED rules coming into force over the next two years, it is a good idea to review upcoming SR&ED expenditures and accelerate the spending, where practical, before certain rates are curtailed.

TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.

 

Does it pay you be organized?

Tax Tips:

 

Being an organized tax filer starts now

The biggest challenge to preparing your tax return is not your math skills. It’s the gathering and organizing of the various forms and receipts that feed into your return. In fact, it usually takes longer to sort receipts than it does to enter the data into the tax return.

So, get organized — and the best time to do this is now, while the horrors of the 2012 tax filing season are fresh in your mind. Set up your files now and file charitable donations, document medical expenses, keep track of employment or business expenses on an ongoing basis. Time new asset purchases and tweak your investments to your best advantage. You’ll be ready to file as soon as the last slip arrives in the mail!

Remember: the better you are at bringing order to your documentation, the wealthier you will be at tax filing time. It will also reduce the amount you’ll pay a tax professional to do your taxes. Do yourself a favor and beat the taxman with an organized approach to your income taxes.