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Involved in the sharing economy? Know your tax obligations

What is the sharing economy?

The sharing economy is a way to consume and access property and services. In this economy, communities pool, loan, and share their resources through networks of trust, often using technology to connect.

The five key sectors of the sharing economy are:

  • Accommodation sharing
  • Ride sharing
  • music and video streaming
  • online staffing
  • peer or crowd funding

What are your tax obligations?

If you participate in the sharing economy, you must report any income you earn through sharing-economy activities. You must also meet your goods and services tax/harmonized sales tax (GST/HST) reporting and remittance requirements.

Generally, if you are a small supplier whose supplies of GST/HST taxable property and services are $30,000 or less a year, you do not have to register for a GST/HST account. However, you can voluntarily register so that you can take advantage of input tax credits to recover the GST/HST paid or payable on your purchases and operating expenses.

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.

Home Buyers Amount

Home Buyers Amount

As a first-time home buyer, you may be able to claim $5,000 in tax credits for the purchase of a qualifying home in 2017.

To qualify for the home buyers amount, you cannot have lived in another home owned by you or your spouse or common-law partner that year or in any of the preceding four years.

The qualifying home must be located in Canada and registered in your name and/or your spouse’s or common-law partner’s name per the applicable land registration system. It includes existing homes, such as single-family houses, semi-detached houses, townhomes, mobile homes, condominium units, apartments in duplexes, triplexes, fourplexes, or apartment buildings. It also includes homes under construction.

You do not have to be a first-time home buyer if:

→ You are eligible for the disability tax credit; or

→ You purchased the home for the benefit of a related person who is eligible for the disability tax credit.

 

 

 

LOANS TO A RELATIVE’S BUSINESS: What Happens When It Goes Bad?

You’ve loaned money to a family member’s corporation. Perhaps it was an investment, maybe it was a favor, or both. Or, perhaps, it was made for a completely separate reason. Regardless, sometimes the loan may go bad and you are not able to collect on the debt. What happens from a tax perspective when this occurs?

If the loan was made to earn income and other conditions are met, you may be able to write-off half against your regular income as an allowable business investment loss (ABIL). A recent tax court case shed some light on defining whether the loan was made to earn income.

In a November 3, 2016 Tax Court of Canada case, at issue was whether an ABIL could be claimed in respect of the loan from a taxpayer to his daughter’s start-up company. Within approximately two years, operations had ceased and the daughter had claimed personal bankruptcy. The loan agreement stipulated that interest at 6% was to be charged from the onset, but no payments would be made for approximately the first two years, which, as it would turn out, was after the business eventually ceased. The Minister argued that no interest was charged, and therefore, there was no intent to earn income. This was partially based on accounting records of the daughter’s company which were inconsistent in their reflection of accrued interest.

Taxpayer wins

Despite the conflicting records, the Court opined that the interest rate included in the agreement was legitimate and that there was intent to earn income. The ABIL was allowed. The Court did not opine on whether the intention to earn income requirement would have been met if the agreement only stipulated that interest would begin to be charged or accrued at the time that repayment commenced (i.e. interest free loan for first two years, but interest generating thereafter).

Action Point: Loans to businesses of relatives are more closely scrutinized by CRA due to the inherent possibility that it was made for non-income earning reasons. If considering a loan to a relative’s business, ensure that the income earning nature is clearly documented.

 

Issued from the office of Yale & Partners LLP, Chartered Professional Accountants, Chartered Accountants, Toronto http://cdn4.yaleandpartners.ca/wp-content/uploads/2018/01/TTT121.pdf

 

2018 Federal Budget Highlights

  • a deficit of $19.4 billion for fiscal 2017-2018, and forecasts deficits of $18.1 billion for 2018-2019 and $17.5 billion for fiscal 2019- 2020
  • the new taxation regime for holding passive investments inside a private corporation, originally contemplated in July 2017. Under these proposals, if a corporation and its associated corporations earn more than $50,000 of passive investment income in a year, the amount of income eligible for the small business tax rate would be reduced, such that the business limit would be reduced to zero at $150,000 of investment income.
  • tax-tightening measures
  • does not include any changes to the personal or corporate tax rates, or any enhanced capital cost allowance in response to U.S. tax reform.

https://assets.kpmg.com/content/dam/kpmg/ca/pdf/tnf/2018/ca-2018-federal-budget-highlights.pdf

INPUT TAX CREDITS: Checking Up On Suppliers

Do I have to check up on a supplier when paying them GST/HST? Yes!

In a January 29, 2016 Tax Court of Canada case it was noted that CRA had denied over $500,000 of input tax credits (ITCs), and assessed penalties and interest, in respect of GST and QST paid to twelve suppliers.

Unknown to the taxpayer, the suppliers did not remit the tax. The taxpayer, a scrap metal dealer, obtained evidence of prospective suppliers’ GST and QST registration prior to accepting them as suppliers.

Taxpayer wins – mostly

A taxpayer must use reasonable procedures to verify that suppliers are valid registrants, their registration numbers actually exist, and that they are in the name of that person or business.

The Court held that the taxpayer’s procedures (reviewing the suppliers’ registrations, stamped by Revenue Quebec) were generally sufficient. It was not relevant that some suppliers did not have scrapyards and/or vehicles to carry on scrap businesses, nor that payment was often made in cash, making it difficult to verify the suppliers’ revenues. The taxpayer could not be expected to query government officials to ensure that GST registrations were properly issued.

However, in respect of one supplier, the facts showed that the taxpayer had been sloppy to the point of gross negligence in accepting evidence of registration where it was clear that the registered supplier was not acting on their own account.

Those ITCs were denied, and the related gross negligence penalty upheld. As well, one purchase was made on the date the supplier’s registration was cancelled, so the supplier was not a registrant on that date, and the ITC was properly denied. However, the related gross negligence penalty was reversed, based on the due diligence undertaken in respect of the supplier previously.

Action Item: Implement a system for checking GST/HSTnumbers, especially for major purchases, in CRA’s GST/HST registry. You may want to select a purchase dollar level for which extra revision of supplier GST/HST numbers is performed. The registry is located at https://www.businessregistration-inscriptionentreprise.gc.ca/ebci/brom/registry

 

http://yaleandpartners.ca/resources/tax-tips-traps-issue-121-2018/

 

Contact Us

Padgett Business Services

1511 10 Street SW Calgary, AB T2R 1E8
Phone: (403) 220-1570

Email: Padgett Calgary

Daniela H. Barber Professional Corporation

Chartered Professional Accountant

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