Posts Tagged ‘corporate tax’

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.

Director & Personal Liability

In a Tax Alert titled “Abuse of Source Deductions and GST/HST Amounts Held in Trust” CRA warned that businesses must hold source deductions and GST/HST amounts in trust for the government. Penalties and interest and possibly personal liability for the directors will be the result if this is not done.

Federal legislation allows CRA to collect unpaid amounts through garnishments, assessments of the directors, seizure and sale of the assets of the debtor corporation, an assessed director or a sole proprietor, and any other means of recovery.

Taxpayers who have not complied with this requirement may make a voluntary disclosure to CRA. The taxpayer will not be penalized or prosecuted if valid disclosures are made before CRA begins any compliance action against the taxpayer.

Taxpayers may only be required to pay the in trust amounts owing plus interest.

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.

 

 

TAX ALERT – GOVERNMENT SIMPLIFIES MEASURES TO REIN IN INCOME SPRINKLING

On December 13, the federal government released legislation to simplify restrictions on income sprinkling, proposed to go into effect January 1, 2018. These revisions indicate they have listened to feedback during the consultation period, by providing more certainty to taxpayers through the introduction of “bright-line” tests to automatically exclude some family members, and allow income sprinkling for those members who make sufficient contributions to the business.

A summary of what the revised legislation contains can be found at https://www.bdo.ca/en-ca/insights/tax/tax-alerts/

 

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/

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