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Should I Pay Myself Dividends or Salary?

The question “should I pay myself dividends or a salary?” is one that comes up frequently with small business owners. There are several factors to consider when trying to determine the best option for you.

Declaring dividends will have no impact on your corporate taxes, since dividends are not an expense to your company. They are taxed at your personal tax rate just like any other source of income. You do not have to pay CPP on your dividend income, however you will have to pay income tax when you complete your personal taxes. Dividend income also does not add to your RRSP contribution room. So, if you want to contribute to CPP and RRSPs, dividends may not be the best option.

Taking a salary differs from dividends in many ways. This would be considered an expense to your company, and therefore would decrease your corporate taxes payable. You are required to contribute to CPP if you earn employment income, and this (along with income taxes) will be deducted from your pay throughout the year. In addition, any employment income you earn will add to your RRSP contribution room.

Overall, it is best to consult your accounting professional to help you weigh the costs and benefits of each alternative and choose the best one suited to your needs. 

Tax Season Has Come to an End

Tax season 2021 has come to an end, so what happens if you were not able to file on time?

April 30 was still the cutoff for turning in your individual income tax return and paying any taxes owed. As usual, if you are self-employed, you and your spouse or common-law partner have until June 15 to hand your tax paperwork over to the Canada Revenue Agency. But any tax owing was still due April 30th.

Filing late can cause delays in receiving your Canada Child Benefit (CCB) as well as any income supports that you may have applied for. Even if you do not owe any taxes, you must file a tax return to access any tax credits and benefits you might be entitled to, such as the GST/HST tax credit, the CCB, as well as the Old Age Security pension and the Guaranteed Income Supplement.

If you are late turning in your 2020 tax return and owe taxes, the CRA will charge you a late-filing penalty that is five per cent of your 2020 tax balance, plus another one per cent of your balance for each month your return is late, to a maximum of 12 months. On top of that, the tax agency will charge compound daily interest on your unpaid 2020 taxes, also starting May 1, 2021.

The good news is the CRA said it will not be charging interest on 2020 taxes owing if your taxable income is $75,000 or less and you received one or more COVID-19 benefits in 2020. The interest relief will be in place until April 30, 2022, the tax agency said.

If you do not qualify for interest relief and cannot pay your tax bill in full by April 30, the CRA expects you to put in your best effort to find the funds to pay the government, including by borrowing the money. If you must borrow, the ideal course of action would be borrowing from a low-interest loan or line of credit to pay off your tax bill and then setting up a payment plan for yourself to extinguish your debt as soon as possible.

Still, the CRA may cancel or waive any interest or penalties if you cannot meet your tax obligations due to circumstances outside of your control.https://globalnews.ca/news/7812769/canada-2021-tax-deadline-april-30/

The 2021 Federal Budget Has Been Released

The budget focuses on jobs creation, small businesses and growth, women and early learning and child care, climate action and a green economy, and young Canadians.

Budget 2021 proposes to introduce the new Canada Recovery Hiring Program for eligible employers that continue to experience qualifying declines in revenues relative to before the pandemic. The proposed subsidy would offset a portion of the extra costs employers take on as they reopen, either by increasing wages or hours worked, or by hiring more staff. The budget also proposes to extend the wage subsidy, the rent subsidy, and Lockdown Support until September 25, 2021.

Budget 2021 proposes to invest $4.1 billion to help make postsecondary education more affordable, and to provide direct support to students with the greatest need. This includes:

  • Doubling of the Canada Student Grants for two additional years.
  • Waiving interest on federal student loans until March 31, 2023.
  • Enhancing repayment assistance so that no person earning $40,000 per year or less will need to make any payments on their federal student loans.
  • Extending disability supports for recipients of student financial assistance whose disabilities are persistent or prolonged, but not necessarily permanent.

https://www.budget.gc.ca/2021/home-accueil-en.html

Don’t Miss the April 30th Tax Filing Deadline

With all there is to worry about regarding the pandemic and our working lives, the idea of rushing to file income tax returns on time this year may seem a bit quaint. But anyone hoping to receive any of the various COVD-19 relief benefits going forward could face delays of up to two months if they miss the April 30 deadline, the Canada Revenue Agency warns.

In the latest post on its “Tax Tips 21” page, the CRA acknowledges the challenges that some Canadians may face meeting their filing obligations this year, but points out that it needs 2020 tax information to determine eligibility for the Canada Recovery Benefit (CRB), the Canada Recovery Caregiving Benefit (CRCB) or the Canada Recovery Sickness Benefit (CRSB). All three programs require applicants to have earned at least $5,000 in 2019, 2020, or in the 12 months before the date of application.

The agency says on-time filings can be processed within 3-5 business days, though it encourages those using paper returns to file early as it can take 10 to 12 weeks to process those returns. More than 90 per cent of tax filers in Canada file electronically.

Last week, the federal government came under pressure from Opposition Conservatives to delay this year’s tax-filing deadline, and Quebec has said it will push its deadline to the end of May. Francisco Sorbara, parliamentary secretary to the revenue minister, responded in the House of Commons question period that Canadians should file on time to avoid an interruption of benefits.

https://www.ctvnews.ca/canada/filing-2020-taxes-late-could-lead-to-months-of-delays-for-covid-19-financial-aid-says-cra-1.5392960

Selling Your Principal Residence

Did you sell your principal residence in 2020? You can designate a house, cottage, condo, apartment, duplex, trailer, mobile home, or houseboat as your principal residence if you own the property and you, your spouse, or any of your children lived in it at some time during the year.

When you sell your principal residence, you are exempt from paying tax on any capital gains that arise from the disposition. However, starting with the 2016 tax year, individuals who sell their principal residence need to report the sale on their personal taxes.

You will need to report your original purchase price, the sale price, and how many years you resided at the property. The CRA requires this information to ensure tax compliance. Learn more here:

https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/federal-government-budgets/budget-2016-growing-middle-class/reporting-sale-your-principal-residence-individuals.html

How to Claim Medical Expenses

Did you have medical expenses in 2020? You can claim eligible medical expenses to reduce your taxes payable if you meet certain criteria.

These expenses must be “eligible”; the CRA has a list of what kinds of expenses are considered eligible. In addition, these expenses must exceed specific thresholds before you can receive the tax credit. Medical expenses must exceed the lesser of:

  • 3% of your net income (line 23600) OR
  • $2,397

If your medical expenses do not exceed this threshold, you will not see the tax credit on your return. Learn more about how to claim medical expenses on the CRA’s website:

https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/lines-33099-33199-eligible-medical-expenses-you-claim-on-your-tax-return.html

Auditor General Report

Canada’s auditor general says the Canada Revenue Agency lacked controls and the up-to-date information it needed to accurately assess applicants when the federal government launched its wage subsidy program at the start of the pandemic — putting the integrity of the program at risk.

In a new report, Auditor General Karen Hogan said CRA needs to bolster its tax compliance wing. The result of the audit found that to get the program out the door as quickly as possible, the CRA was only able to conduct limited tests before approving payments.

The AG also said CRA did not have all up‑to‑date earnings and tax data when assessing applicants. For example, 28 per cent of applicants did not file a GST/HST return for the 2019 calendar year. Hogan stated “It is our view that this situation presented a risk that the subsidy program would not achieve its goal of maintaining the employee‑employer relationships needed to support economic recovery because it may have subsidized applicants that were operating non‑viable organizations.”

National Revenue Minister Diane Lebouthillier said the CRA is committed to following the AG’s recommendations by, among other things, strengthening tax compliance. She said more audits are underway to make sure there is no abuse of the program.

https://www.cbc.ca/news/politics/auditor-general-report-1.5963221

Working Parents Benefit

Working families have faced additional pressure and costs because of the pandemic. Some have lost their jobs, some are working fewer hours, and all families have experienced more anxiety and stress. As a result, fewer families have been using child care, which has meant that money normally used to support families through child care subsidies has not been spent.

To support working parents who need and have paid for child care so they can continue working during the pandemic, the Alberta government is providing the Working Parents Benefit, a one time payment of $561 per child. Families can apply until March 31, 2021. Eligibility requirements include:

  • You had a household income of $100k or less in 2020.
  • You are a Canadian citizen or a permanent resident living in Alberta
  • You are the parent or legal guardian of a child who was born on or after February 29, 2008
  • You paid $561 per child or more for 3 months of child care between April 1, 2020 and December 31, 2020 (receipts required)
  • The child care you paid for was provided by (receipts, bills or invoices required) someone other than the child’s father or mother, your spouse or common law partner, or someone who is dependent on you or dependent on your spouse or common law partner, including:
    • a licensed daycare
    • a licensed out-of-school care
    • a licensed group family child care
    • an approved family day home
    • a private day home
    • a nanny
    • any other child care provider, licensed or unlicensed
  • You required the child care above because you were working or attending school

https://www.alberta.ca/working-parents-benefit.aspx

CRA Accounts Hacked

On March 12, 2021, the Canada Revenue Agency announced that that 800,000 users of online accounts are being locked out, due to concerns that people’s usernames and passwords have been hacked.

If attempts are made to log in to a frozen account, the user will receive an error message informing them that their CRA user ID has been revoked. Impacted individuals will be contacted by the email address associated with their accounts, or if there was not one on file, by mail. Taxpayers can re-gain access to their CRA account by going to the CRA login page and creating a new CRA user ID and password or by using a different login method associated with their CRA account, the agency says.

It may take until March 22 for the issues to be resolved, but after that date, if users are unable to log in they should call the CRA.

https://www.ctvnews.ca/canada/cra-locking-800k-canadian-taxpayers-out-of-accounts-1.5345069

CEWS Rate to Stay at 75%

On March 3 2021, government announced that the CEWS rate will remain at 75% between March 14 and June 5, 2021 (period 14-period 16) and that businesses will be able to use 2019 revenue numbers in their 2021 revenue drop calculations.

In addition, the government announced that the CERS base rate will remain at 65% and the top-up support will remain at 25% between March 14 and June 5, 2021 (period 7-period 9). Businesses will also be able to use 2019 revenue numbers in their 2021 revenue drop calculations.

https://app.cyberimpact.com/newsletter-view-online?ct=SRvUHUKqYHCMeYsQZBw_cTe9IIlyRRdqk21YYlrPgoC1a2gkjUIrDkKOSpoLS-08dpZXjusrUXCXkgKiRcT2YkPmLDO3AuXqcIDlCQNjz1s~

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Email: Padgett Calgary

Daniela H. Barber Professional Corporation

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