Posts Tagged ‘tax’

The CRA’s Matching Program – Mismatch and You May be Assessed a 20% Penalty

The Matching Program

The CRA’s matching program catches the non-reporting of income every fall. Each year the CRA checks the T-slip information in its database against Canadian taxpayer’s income tax returns to ensure the T-slip income reported matches. Where the income filed by a taxpayer does not match the CRA’s database records, an income tax reassessment is mailed to the taxpayer asking for the income tax due. If the taxpayer is a first time offender, they are just assessed the actual income tax owing and possibly some interest. If this is the second occurrence in the last four years, a 20% penalty of the unreported income is assessed.

The Penalty Provision

Under Subsection 163(1) of the Income Tax Act, where a taxpayer has failed to report income twice within a four-year period, he/she will be subject to a penalty. The penalty is calculated as 10% of the amount you failed to report the second time. A corresponding provincial penalty is also applied, so the total penalty is 20% of the unreported income. 

According to an article by Tom McFeat of CBC News, the number of Canadians penalized for this repeated failure to report income totaled over 81,000 in 2011 with an income tax cost of slightly over $78,000,000.

Tax Tip for T-slips Received after You Filed Your Return?

If you received a T-slip after filing your tax return and ignored the slip since it was a small amount, dig it out tonight and file a T1 adjustment as soon as possible before the matching program gets you. Even a small $10 missed slip will start your clock ticking for a potentially larger penalty if you miss reporting income again in the subsequent three years.

http://www.thebluntbeancounter.com/2013/09/the-cras-matching-program-mismatch-and.html

 

Claiming Automobile Expenses

One of the more common expenses claimed by taxpayers are automobile expenses (applies to any motor vehicle such as a 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. Use a log book.

Maintaining Automobile Expenses
The use of an automobile log provides one of the safest ways to substantiate and keep track of all your automobile expenses incurred that are deductible for income tax purposes and the kilometres driven on income-earning activities. The type of expenses to keep track of can be broken down into two categories. They are operating and fixed expenses.

Operating Expenses
The types of operating expenses related to an automobile include gasoline, maintenance and repairs (such as oil changes and car washes), insurance, license and registration fees. Such expenses may vary in relation to the amount of kilometres driven.

Fixed Expenses
Fixed expenses differ from operating expenses in that they relate to the automobile itself as opposed to the amount of kilometres driven. When an automobile is purchased, they would relate to the capital cost allowance and interest expense when financed. In the case of a leased automobile, such expenses would include the lease payments. It is important to note that there are special rules and restrictions which limit the portion of actual costs that can be included in your total expenses. You can consult with your Padgett Business Services representative to obtain more information on what these special rules and limitations are.

Deductible Expenses
Because your automobile will most likely be utilized for both business and personal reasons, it is essential that the total automobile expenses be allocated between these two uses on a reasonable basis in order to arrive at only the deductible portion for income tax purposes. The best method to achieve this will involve the distance traveled calculated by taking total kilometres driven for business purposes divided by total kilometres driven for both business and personal purposes. Certain expenses such as parking expenses incurred while on a business trip and car repairs made as a result of an accident while on a business trip do not have to be prorated. However, such expenses incurred resulting from a personal trip made are not deductible..

Digital currencies

Digital currency is electronic money. It’s not available as bills or coins.

Cryptocurrencies are a type of digital currency created using computer algorithms. The most popular cryptocurrency is Bitcoin.

No single organization, such as a central bank, creates digital currencies. Digital currencies are based on a decentralized, peer-to-peer (P2P) network. The “peers” in this network are the people that take part in digital currency transactions, and their computers make up the network.

Using digital currencies

You can use digital currencies to buy goods and services on the Internet and in stores that accept digital currencies. You may also buy and sell digital currency on open exchanges, called digital currency or cryptocurrency exchanges. An open exchange is similar to a stock market. 

To use digital currencies, you need to create a digital currency wallet to store and transfer digital currencies. You can store your wallet yourself or have a wallet provider manage your digital currency for you.

You need a “public key” and a “private key” to use your wallet. Keys are made up of a random sequence of numbers and letters.

Public keys are used to identify your wallet.

Private keys are used to unlock your wallet and access your money. Private keys should be kept secret.

All transactions are recorded to a public ledger or “blockchain” that everyone can see.

How tax rules apply to digital currency

Tax rules apply to digital currency transactions, including those made with cryptocurrencies. Using digital currency does not exempt consumers from Canadian tax obligations.

This means digital currencies are subject to the Income Tax Act.

Buying goods or services using digital currency

Goods purchased using digital currency must be included in the seller’s income for tax purposes. GST/HST also applies on the fair market value of any goods or services you buy using digital currency.

Buying and selling digital currency like a commodity

When you file your taxes you must report any gains or losses from selling or buying digital currencies.

Digital currencies are considered a commodity and are subject to the barter rules of the Income Tax Act. Not reporting income from such transactions is illegal.

Tips for using digital currency

Here are a few tips to help you protect yourself when using digital currency.

Protect your wallet

Take steps to protect your wallet:

  • keep your wallet, and any backups, in a safe place
  • encrypt your wallet using encryption software
  • encrypt any copies you make or online backups
  • set a password to help prevent thieves from withdrawing your funds
  • use a strong password that contains letters, numbers and symbols

Know the merchant’s refund, return and dispute policies

Before you make a purchase, find out:

  • what the exchange rate will be
  • if refunds are available
  • if refunds will be processed in digital currency, Canadian dollars or store credit
  • how to contact someone if there’s a problem

Wait for multiple confirmations before completing a transaction

It can take 10 minutes or more for a digital currency transaction to be confirmed. Confirmation happens when users on the network verify the transaction. During that time, a transaction could be reversed and you could lose your funds to a dishonest user.

Understand what the actual costs will be

Find out if there are any mark-ups or other fees. Find out what will happen if the rate changes before the exchange is completed.

Think about the future

Consider what will happen if you fall ill or die and can no longer access your wallet.

If no one knows the locations and passwords of your wallets when you are gone, the funds can’t be recovered.

Consider having a backup plan for your peers and family.

What is the Canada caregiver credit?

Do you support a spouse or common-law partner, or a dependant with a physical or mental impairment? The Canada caregiver credit (CCC) is a non-refundable tax credit that may be available to you.

The CCC combines three previous credits: the caregiver credit, the family caregiver credit, and the credit for infirm dependants age 18 or older. If you previously claimed any or all of these credits and your situation remains the same as in 2016, then your 2017 CCC claim will stay about the same as in 2016. In some cases, your claim may increase.

However, the one exception is that the previous caregiver credit for people who support a parent or grandparent, who is 65 years of age or older, living with them, and who does not have a physical or mental impairment, is no longer available.

Just like the former family caregiver credit, the CCC is part of other tax credits. This means you also have to meet the conditions for claiming those other tax credits. See What amount can you claim?

Who can you claim this credit for?

You may be able to claim the CCC if you support your spouse or common-law partner with a physical or mental impairment.

You may also be able to claim the CCC for one or more of the following individuals if they depend on you for support because of a physical or mental impairment:

your or your spouse’s or common-law partner’s child or grandchild

your or your spouse’s or common-law partner’s parent, grandparent, brother, sister, uncle, aunt, niece, or nephew (if resident in Canada at any time in the year)

An individual is considered to depend on you for support if they rely on you to regularly and consistently provide them with some or all of the basic necessities of life, such as food, shelter and clothing.

What amount can you claim?

The amount you can claim depends on your relationship to the person for whom you are claiming the CCC, your circumstances, the person’s net income, and whether other credits are being claimed for that person.

For your spouse or common-law partner, you may be entitled to claim an amount of $2,150 in the calculation of line 303. You could also claim an amount up to a maximum of $6,883 on line 304.

 

For an eligible dependant 18 years of age or older, you may be entitled to claim an amount of $2,150 in the calculation of line 305. You could also claim an amount up to a maximum of $6,883 on line 304. See Note below.

For an eligible dependant under 18 years of age at the end of the year, you may be entitled to claim an amount of $2,150 in the calculation of line 305 or on line 367 for your child. See Note below.

For each of your or your spouse’s or common-law partner’s children under 18 years of age at the end of the year, you may be entitled to claim an amount of $2,150 on line 367. See Note below.

For each other dependant 18 years of age or older, who is not an eligible dependant for whom an amount is claimed on line 305, you may be entitled to claim an amount up to a maximum of $6,883 on line 307.

Note

If you are required to pay child support or have shared custody of the child, additional rules may apply. See lines 305 and 367 for more information.

What documents do you need to support your claim?

When you file your income tax return, do not send any documents. Keep them in case we ask to see them.

The CRA may ask for a signed statement from a medical practitioner showing when the impairment began and what the duration of the impairment is expected to be.

For children under 18 years of age, the statement should also show that the child, because of the impairment in physical or mental functions, is, and will likely continue to be, dependent on others for an indefinite duration. Dependent on others means they need much more assistance for their personal needs and care compared to children of the same age.

You do not need a signed statement from a medical practitioner if the CRA already has an approved Form T2201, Disability Tax Credit Certificate, for a specified period.

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, so make sure to use a kilometer log book.

 

Employer-Paid Disability Programs

If you think that paying for your employees’ disability premiums is always a good thing, think again. If you provide your employees disability insurance as a non-taxable fringe benefit, the periodic payments they receive upon their disability will be, in most cases, FULLY taxable to them!

Payments received due to disability are not taxable if:

→ Your employees paid the premiums on the policy with after-tax funds, OR,

→ You paid the premiums but deducted the amount from their income.

The cost of disability insurance even over a good amount of time – can be far less than the tax due on the income received under the policy. Like all insurance, it all depends on whether you actually collect under the policy. Where the employer contribution is made after 2013, the contribution is a taxable benefit to the extent that the related coverage can be paid to you in a lump sum. However, lump sums received are not taxable.

CRA Audit- Will I Be Selected?

Reasons Specific to Individuals

We see far more desk audits (information requests in regard to certain deductions claimed) than full blown audits for individuals. You can expect an inquiry if you claim any of the following:

  • a significant interest expense,
  • an allowable business investment loss (usually if you held shares in a bankrupt private Canadian company),
  • tuition from a university outside Canada (typically the child and parent are tied together as most children transfer $5,000 of their tuition claim to their parents),
  • a child care claim for a nanny; even if you have filed a T4 for the nanny with CRA. Why CRA cannot crosscheck their records is baffling and befuddling.

In all the above cases you are just providing back-up information, these are not audits.

In past years individuals who purchased any tax shelter other than an oil & gas or mineral flow through have been audited. However, in most cases the CRA is auditing the tax shelter itself and the individual investors just get reassessed personally.

Full blown audits seem to occur with regularity in regard to individuals who earn commission income or self employment income and claim expenses against that income. In those cases, CRA gravitates to auto expense claims, requesting logs books they know one in 100 people actually keep, and advertising and promotion expenses they consider personal in nature.

Reasons Specific to Corporations

Corporations seem to be selected for three distinct reasons.

They carry on a business that is CRA’s flavour of the year; some prior flavours have been pharmacies, contractors and the real estate industry and any other industry CRA feels is a “cash is king” industry.

Corporations file General Indexed Financial Information known as GIFI. This information provides a comparative year to year summary of income and expenses. It is suspected by many accountants that CRA uses this information to review year to year expense and income variances of the filing corporation and to also compare corporations within a similar industry sector to identify those outside the standard ratios, but we don’t know that for certain.

The final reason is that it is just your turn. I have no knowledge of this, but it seems like CRA just runs down a list and if you don’t get caught in regard to #1 or #2, your turn just eventually comes up.

In all cases it is imperative you keep your source documents to provide to the auditor; CRA more then ever wants source documents. It is also vitally important if you and not your accountant are meeting with the auditor that you try and keep your cool. In the end, the auditor is just doing his or her job and if you treat them badly, you are not doing yourself any favours.

Mark Goodfield, CPA

http://www.thebluntbeancounter.com/2011/02/cra-audit-will-i-be-selected.html

CRA Collections and the Small Business Owner

Have you ever wondered how your personal assets would be affected should the CRA send you an advisory or audit for collections? Here are eleven tips that will help safeguard small business owner’s personal asset’s from CRA collections.

Never use your home address as your business address. If you have a business location outside of your house use that location. If CRA collections issues a direction to the sheriff to prepare a report of assets, the sheriff will go to the business address.

If the corporation has debts to the CRA, attempt to make a payment arrangement. A payment period of 6 – 24 months has a better chance of acceptance by CRA collections. You provide post-dated cheques for the payment period.

If a payment arrangement has been made, and the cheques issued to CRA, provide this proof to the sheriff who will include this information in their report of the assets.

Ensure there are sufficient funds in the bank account to cover the amount of the cheques. A bounced cheque forces the CRA collections officer to look for other sources to obtain the money.

Keep all CRA filings and payments up to date during the period of the payment arrangement. This includes GST/HST, payroll taxes, and income taxes, etc.

Apply for interest relief while the corporation is paying off the debt to CRA. If accepted by CRA, the outstanding balance will be decreased.

If you can make an additional large payment while paying the arrangement, this will reduce the interest on the outstanding balance.

Be honest with the CRA collections officer, whether you have nothing (or something) to hide. Do not say anything to cause the collections officer to be concerned.

Similarly, if the CRA collections officer requests information, be sure to provide it. Try to build trust with the collections officer, so that the person may show some discretion.

Be polite to the CRA collections officer. They are just doing their job.

If there is a personality conflict between the CRA collections officer and you, request a meeting with them, their supervisor and you. Attempt to improve the relationship to resolve your tax issues.

 

August 1, 2017/in News /by Chris Hammond

http://www.countbeans.com/how-to-safeguard-the-small-business-owners-personal-assets-from-cra-collections-officers/

ESSENTIAL TAX NUMBERS: UPDATED FOR 2018

http://www.advisor.ca/

WORKING CLIENTS

Maximum RRSP contribution: The maximum contribution for 2017 is $26,010; for 2018, $26,230.

TFSA limit: The annual limit for 2017 is $5,500, for a total of $52,000 in room available in 2017 for someone who has never contributed and has been eligible for the TFSA since its introduction in 2009. In 2018, the annual limit is $5,500, for a total of $57,500 for someone who has been eligible since 2009. The annual TFSA limit will be indexed to inflation in future years.

Maximum pensionable earnings: For 2017, the maximum pensionable earnings is $55,300 ($55,900 in 2018), and the basic exemption amount is $3,500 for 2017 and 2018.

Maximum EI insurable earnings: The maximum annual insurance earnings (federal) for 2017 is $51,300; for 2018, $51,700.

Lifetime capital gains exemption: The lifetime capital gains exemption is $835,716 for 2017 and $848,252 in 2018.

Low-interest loans: The current family loan rate is 1%.

Home buyers’ amount: Did your buy a home? You may be able to claim up to $5,000 of the purchase cost, and get a non-refundable tax credit of up to $750.

Medical expenses threshold: For the 2017 tax year, the maximum is 3% of net income or $2,268, whichever is less. For 2018, the max is 3% or $2,302, whichever is less.

Donation tax credits: After March 20, 2013, the first-time donor super credit is 25% for up to $1,000 in donations, for one tax year between 2013 and 2017.

Basic personal amount: For 2017, it’s $11,635, line 300. For 2018, it’s $11,809.

OLDER CLIENTS

Age amount: You can claim this amount if they were 65 years of age or older on December 31 of the taxation year and have income less than $84,597 in 2017 (the 2018 threshold is not yet available). The maximum amount they can claim in 2017 is $7,225, and in 2018 is $7,333.

Pension income amount: You may be able to claim up to $2,000 if they reported eligible pension, superannuation or annuity payments.

OAS recovery threshold: If your net world income exceeds $74,788 for 2017 and $75,910 for 2018, you may have to repay part of or the entire OAS pension.

CLIENTS WITH CHILDREN

Family caregiver amount: If you have a dependant who’s physically or mentally impaired, you may be able to claim up to an additional $2,121 in calculating certain non-refundable tax credits.

Disability amount: The amount for 2017 is $8,113 (non-refundable credit; $8,235 in 2018), with a supplement up to $4,733 for those under 18 (the amount is reduced if child care expenses are claimed; $4,804 in 2018). Canadians claiming the disability tax credit (DTC) can file their T1 return online regardless of whether or not their Form T2201, Disability Tax Credit Certificate has been submitted to CRA for that tax year.

Child disability benefit: The child disability benefit is a tax-free benefit of up to $2,730 (for the period of July 2016 to June 2018) for families who care for a child under age 18 with a severe and prolonged impairment in physical or mental functions.

Canada Child Benefit: This non-taxable benefit is effective as of July 1, 2016. The maximum CCB benefit is $6,400 per child under age six and up to $5,400 per child aged six through 17. In the 2017 Fall Economic Update, the government pledged to index the benefit beginning in 2018.

Universal child care benefit (UCCB): This benefit was replaced with the Canada Child Benefit as of July 1, 2016. However, Canadian residents can still apply for previous years if they meet certain conditions, including living with the child and being primarily responsible for the child’s care and upbringing.

Child care expense deduction limits: As of 2017, the maximum amounts that can be claimed are $8,000 for children under age seven, $5,000 for children aged seven through 16, and $11,000 for children who are eligible for the disability tax credit.

Children’s fitness tax credit: This credit has been phased out, and is gone as of 2017.

Children’s arts tax credit: This credit has been phased out, and is gone as of 2017.

Originally published on Advisor.ca

1/26/2018 Essential tax numbers: updated for 2018 | Advisor.ca

 

FEDS CLARIFY INCOME SPRINKLING PROPOSAL

Advisor.ca http://www.advisor.ca/tax/tax-news/feds-clarify-income-sprinkling-proposal

The federal government provided revised income sprinkling measures, offering clarity about how its controversial changes to the Income Tax Act will be implemented.

Specifically, the feds provided bright-line tests for determining whether family members are significantly involved in a family business, and thus are excluded from potentially being taxed at the highest marginal tax rate (known as the tax on split income, or TOSI).

A key requirement is “regular, continuous and substantial” contribution to the business, says Walsh. Family members who fall into these categories won’t be subject to TOSI:

Family members who fall into these categories won’t be subject to TOSI:

  • The business owner’s spouse, provided the owner meaningfully contributed to the business and is aged 65 or over. This aligns with current pension income splitting rules.
  • Adults aged 18 or over who have made a regular, substantial labour contribution – generally an average of at least 20 hours per week – to the business during the year, or during any five previous years. The measure recognizes that post-secondary students may step back from the business during the school year. Hours will be prorated for seasonal businesses.
  • Adults aged 25 or over who own 10% or more of a corporation that earns less than 90% of its income from services, and isn’t a professional corporation. This is consistent with current tax rules concerning capital, and recognizes that some service-based or professional-based businesses often don’t require significant capital to do business. (Service- or professional-based businesses must pass the labour test, above). Business owners have until Dec. 31, 2018, to adjust to this exclusion.
  • People who receive capital gains from qualified small business corporation shares and qualified farm or fishing property,if they wouldn’t be subject to the highest marginal tax rate on the gains under existing rules. This is consistent with the feds’ withdrawal in October of the lifetime capital gains exemption measures.

Family members aged 25 or older who don’t meet any of these exclusions would be subject to a reasonableness test to determine how much income, if any, would be subject to the highest marginal tax rate.

In certain cases, adults aged 18 to 24 who have contributed to a family business with their own capital will be able to use the reasonableness test on the related income.

In a conference call, a spokesperson for Finance Minister Bill Morneau said CRA audits will require proof when it comes to claiming an exemption for a family member.

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