Archive for the ‘Uncategorized’ Category

Estate Planning

Who is estate planning for? It is a common misconception that only the wealthy need to concern themselves with estate planning. However, young or old, wealthy or middle class, an estate plan can reduce the taxes and expenses of an estate, simplify and speed the transition of assets to the next generation and ensure that beneficiaries are protected. Learn more about estate planning at retirehappy.ca.

Stocks and housing are doing well

Is the financial world out of sync? While there are signs of economic distress, the stock and housing markets appear to be booming. This could be for a variety of reasons, such as the lack of activity in March and much of April led to a catch-up period in the housing market. The technology and healthcare sectors have also been flourishing over the past few months, which make up a significant portion of the US indexes that Canadians invest in. The Blunt Bean Counter explores other possible explanations for this unforeseen influx.

http://www.thebluntbeancounter.com/

Additional T4 Reporting

On August 26, the CRA announced it will be introducing additional T4 reporting requirements applicable to all employers and will involve reporting amounts paid for specific periods during 2020.

The CRA states that the new reporting will be used to validate benefit payments under the Canada Emergency Wage Subsidy (CEWS), the Canada Emergency Response Benefit (CERB), and the Canada Emergency Student Benefit (CESB). Additional details on the new reporting requirements can be found on the CRA’s COVID-19 update page.

https://www.canada.ca/en/revenue-agency/campaigns/covid-19-update/support-employers-cra-covid-19.html

CERB is Transitioning to EI

The Government of Canada will be transitioning from CERB (Canada Emergency Response Benefit) to a simplified EI (Employment Insurance) program starting September 27, 2020. While the government prepares for this transition, CERB benefits have been extended an additional four weeks, providing up to 28 weeks of benefits. The Government has made several revisions to the EI eligibility requirements to help Canadians receive assistance during this recovery period of the economy.

https://www.canada.ca/en/employment-social-development/news/2020/08/supporting-canadians-through-the-next-phase-of-the-economy-re-opening-increased-access-to-ei-and-recovery-benefits

Cyberattacks on the CRA

On August 15, 2020 the Canada Revenue Agency has temporarily shut down its online services after the agency confirmed it was recently hit by three cyberattacks that compromised thousands of accounts linked to its services. The federal government described the three separate hacks as a “credential stuffing” scheme — a type of cyberattack that uses passwords and usernames from other websites to access accounts with the CRA. The Canada Revenue Agency expects online services to be fully restored by Wednesday after hackers used thousands of stolen usernames and passwords to fraudulently obtain government services.
https://globalnews.ca/news/7281539/cra-hack-accounts-online-services/

CRA Payment Deadlines

On July 27, 2020, the Canada Revenue Agency announced new payment deadlines and interest/penalty policies designed to support Canadians through COVID 19. The payment due date for individuals, corporations and trusts has been extended to September 30, 2020. In addition, the CRA is also waiving interest on existing tax debts related to individual, corporate, and trust income tax returns from April 1, 2020, to September 30, 2020 and from April 1, 2020, to June 30, 2020, for goods and services tax/harmonized sales tax (GST/HST) returns. The CRA will also waive late filing fees provided the return is filed by September 30, 2020.

https://www.canada.ca/en/revenue-agency/news/2020/07/the-canada-revenue-agency-announces-an-extension-to-the-payment-deadline-and-offers-interest-relief-on-outstanding-tax-debts-during-the-covid-19-pa.html

Canada Emergency Wage Subsidy Calculator

On August 11, 2020, the Canada Revenue Agency launched an updated Canada Emergency Wage Subsidy (CEWS) online calculator. This new calculator will help employers prepare for their application for the next period of the CEWS program, which opens for applications on August 17, 2020. Several other enhancements to the program are also being implemented during this new period which include expanding eligibility criteria, introducing a sliding revenue-decline test to determine the subsidy amount, and providing a top-up subsidy for the most impacted employers.

https://www.canada.ca/en/revenue-agency/news/2020/08/government-of-canada-launches-updated-canada-emergency-wage-subsidy-calculator-to-support-employers.html

CERB Changes

PM Justin Trudeau recently announced that the CERB would not be extended beyond the last claim period ending September 26th. Instead, individuals unable to find work would be transitioned onto the EI system. The EI system will also be modified to create a new track for contract workers. No further details have been provided.

Renting out a room to students? CRA wants to know

As students fan out across the country for another school year, homeowners are finding opportunity in renting out accommodations.

There’s nothing wrong with making a few bucks renting out a room, but the Canada Revenue Agency wants a piece of the action – and how you claim deductions could be costly in the long run.

The name of the game is to preserve your home’s principal residence status. If the CRA considers your home a principal residence, you don’t pay any tax on the amount it appreciates when it is sold. As an example; if you bought your house for $400,000 and sold it for $800,000, you don’t pay any tax on that $400,000 gain.

If your home does not meet the CRA’s principal residence requirement, you must pay tax on half of that $400,000.      

If you are drawing rental income from your home, there are three ways to ensure it remains your principal residence for tax purposes:

  1. The partial use of the residence for income-producing purposes is ancillary to the main use as a residence. In other words, there’s a fine line between renting out a room and renting out a house the owner happens to live in.
  2. There is no structural change to the property. You can put a coat of paint on the walls and make some modifications but you can’t build an addition, for example.
  3. You cannot claim capital cost allowance (CCA), or depreciation on the property.

Of course, the rental income must be claimed (form T776) and filed with your tax return, but there are several deductions available to lower your tax bill. They can include: a portion of mortgage interest, property taxes, insurance, repairs and maintenance, landscaping, utilities, advertising costs, office expenses, professional fees, management fees, salaries or wages, travel costs, and car expenses.

If you’re not sure if you are crossing the line between principal residence and income property, consult your tax professional.

By Dale Jackson 

Dale is Finance Journalist: writer and producer Business News Network, Globe and Mail, Yahoo! Finance.

 

 

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.

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