Announcements

The Canada Revenue Agency (CRA) has initiated a program that entails performing a limited review of taxpayers’ corporate income tax returns. They are specifically targeting balances reported as professional fees on the corporate tax return and are requesting information such as invoices, receipts and proof of payment. Professional fees are one of the first categories targeted by the CRA but it is expected that other types of expenses such as travel and advertising and promotion may be reviewed going forward.

Action item: ensure the professional fees reported on your corporate tax return are tax deductible and that appropriate documentation has been kept. If you are unsure of the deductibility of your expenses for tax purposes, please consult your accountant or advisor.

This publication is produced by Andrews & Co. as an information service to clients and friends of the firm, and is not intended to substitute for competent professional advice. No action should be initiated without consulting your professional advisors.

The 2017 Federal Budget proposed a number of changes to Employment Insurance (EI). Some of the proposals include the following:

A New Caregiving Benefit

This benefit will provide eligible caregivers up to 15 weeks of EI benefits while they are temporarily away from work to support or care for a critically ill or injured family member.

More Flexible Parental Benefits

This will allow parents to choose to receive EI parental benefits over an extended period (up to 18 months) at a lower benefit rate (33% of average weekly earnings). The existing benefit rate (55% over a period of up to 12 months) will remain available for parents who prefer this arrangement. Finally, women will be able to claim EI maternity benefits up to 12 weeks before their due date (expanded from the current standard of 8 weeks).

Education While Receiving EI Benefits

Changes to enhance the ability of EI claimants to pursue self-funded training while maintaining their EI status were proposed.

Action Item: Ensure you are aware of these changes to Employment Insurance.

This publication is produced by Andrews & Co. as an information service to clients and friends of the firm, and is not intended to substitute for competent professional advice. No action should be initiated without consulting your professional advisors.

An individual who gifts cash or assets to a charity is able to claim a donation tax credit which reduces their personal tax liability. If the individual gifts certain publicly traded securities directly to the charity, they may enjoy additional benefits.

While the full value of the securities will be a charitable donation either way, if the securities are donated directly to the charity, the taxable portion of the capital gain is reduced to 0%. That means there is no tax liability on the disposition. For example, consider an individual who wishes to gift $5,000. If that individual sells $5,000 worth of publicly traded securities, they must then pay capital gains tax on the disposition. However, if they donate the shares directly to the charity, they are not subject to the capital gains tax, but still benefit from the donation tax credit.

Though the planning may seem simple there are a number of complexities that may arise. For example, while similar benefits can be obtained when gifting securities acquired through an employee stock option plan, careful planning is required to eliminate the taxable benefit which normally arises on exercise of these options.

Corporations also benefit from no capital gains tax on these donations. In addition, they receive the added benefit of increasing their capital dividend account by the full amount of the capital gain, potentially allowing payment of tax-free dividends.

Action Item: When planning charitable giving, consideration should be given to gifting publicly traded securities, rather than cash, to better the tax benefits.

This publication is produced by Andrews & Co. as an information service to clients and friends of the firm, and is not intended to substitute for competent professional advice. No action should be initiated without consulting your professional advisors.

A registered charity may work with a for-profit entity to promote the sale of the for-profit’s items on the basis that part of the revenues will go to the charity. This is commonly called cause-related marketing. On February 9, 2017, CRA published guidance addressing this.

CRA noted that the benefit that a for-profit receives from this type of arrangement is considered an advantage. The charity must quantify this advantage and reduce it from the amount of the donation to calculate the eligible donation. Where the total value of the advantage cannot be calculated, the charity cannot issue a receipt. That said, CRA noted it may be possible to claim the donation as an advertising expense.

Action Item: Consider this type of arrangement to raise funds for your charity! Or, as a for-profit, to raise your profile in the community.

This publication is produced by Andrews & Co. as an information service to clients and friends of the firm, and is not intended to substitute for competent professional advice. No action should be initiated without consulting your professional advisors.

In the past, taxpayers in certain designated professions (i.e., accountants, dentists, lawyers, medical doctors, veterinarians and chiropractors) may have elected to exclude the value of work in progress (WIP) in computing their income for tax purposes. This essentially enabled these professionals to defer tax by permitting the costs associated with WIP to be expensed without including the matching revenues.

However, the 2017 Federal Budget proposed to eliminate this election, effective for the first tax year that begins after March 22, 2017. Transitional rules have been introduced to implement the change over two years. Once fully implemented, WIP, which is valued at the lower of cost or fair market value, will need to be included in income each year.

At present, many professionals either do not account for WIP in their financial accounts or account for WIP at its expected billing amount, using staff and partner billing rates rather than cost. These professionals will be required to determine the cost of their WIP in order to comply with these new provisions. There has been some uncertainty expressed regarding how the cost of WIP is properly calculated.

CRA has stated that the proposed changes are not expected to have any impact on bona fide contingency fee arrangements. That said, some practitioners have expressed concern that this concession has little or no basis in law.

Action Item: If you are in one of the industries impacted, and have not previously tracked the cost of your WIP, consider doing so. Also, budget for the possible additional tax liability over the next two years due to catching up the deferral of WIP.