Announcements

Have you recently received written notification from the Canada Revenue Agency (CRA) on your personal or corporate accounts?

As part of their letter campaign, the CRA will often conduct spot checks, react to inconsistencies in information provided, and focus on differences between your information and that of people you deal with. Many of these notices are random and will not always result in an audit of your records; however if your selection by CRA does result in an audit, here are five helpful tips to make the audit process run as smooth as possible:

• Contact your accountant: Your accountant is best suited to handle the audit in a timely and efficient manner. Make sure you contact them as soon as possible.
• Do not take a passive approach: If you have been contacted, it’s in your best interest to respond as soon as you can. Ignoring a reassessment or audit letter will escalate the situation quickly and could lead to significant interest and penalties being incurred.
• Be patient: This process may not be completed overnight – it may take some time, so patience is key.
• Do not feel you are being targeted: The CRA is doing their best to ensure that tax compliance has been met across the board and many audits are actually conducted at random and as such should not be taken personally.
• Right to object: Any CRA assessment arising from the audit is not a matter of fact. You always have the right to file an objection.

Keeping these tips in mind will help you stay proactive and informed while being audited – which will allow the process to go a smooth as possible.

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.

On Tuesday June 21st, Kathleen Wynne announced there is no longer the need for Ontario to proceed with the proposed retirement plan that was promised as part of her 2014 victory.

An agreement was reached a day earlier between the Federal and Provincial governments which resulted in a new and enhanced Canada Pension Plan.

This agreement will see the following changes go into effect January 1, 2019:

• Increase the income replacement from 1/4 to 1/3 of pensionable earnings
  • E.g.: Individual with $52,400 in constant earnings throughout their working life would now receive an annual pension of approximately $17,460 instead of the current $13,110
• Increase to the maximum amount of income subject to CPP of 14%
  • Current projection results in this maximum being $82,700 in 2025 – the current maximum is $54,900
• Changes will be phased-in gradually over 7 years to allow businesses more time to adjust

The main advantage of the enhanced CPP when compared to the Ontario Retirement Pension Plan is that it will apply across Canada thereby benefiting more individuals.

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.

Starting July 2016, the Universal Child Care Benefit (UCCB) and Child Tax Benefit (CTB) will be replaced with the Canada Child Benefit (CCB).

The CCB is a monthly benefit paid to Canadian families with children under the age of 18 and is based on income level.

Some quick facts about the new benefit include:

• Canada Child Benefit is entirely tax-free
• Maximum annual benefit per child under the age of 6 is $6,400
• Maximum annual benefit per child between the ages of 6 through 17 is $5,400
• Families with less than $30,000 will receive the maximum benefit

The Government of Canada has a benefit calculator which provides an estimate of the child benefits a family could receive: http://www.budget.gc.ca/2016/tool-outil/ccb-ace-en.html

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.

Employees who earn tips or gratuities are required to report these amounts as income earned. This type of income may be included as insurable earnings and is subject to CPP and EI.

There are two types of tips an employee may receive: controlled tips and direct tips.

Controlled tips are considered part of the employee’s total gross pay and are therefore subject to CPP and EI. Controlled tips are provided by the employer and are considered to have been paid from the employer to the employee. Common examples of controlled tips are:

• Tips that are given to the employer and later disbursed to the employees.
• When a tip sharing formula is used by the employer to allocate the tips to employees.

Direct tips are not considered to be under control of the employer and are paid out by the customer. This type of gratuity is not subject to CPP or EI. Common examples of direct tips are:

• Tips left by a customer after the service is complete and the employee keeps the entire amount.
• Tips that are shared among the employees in a method determined by the employees, with no input from the employer.

An employee may receive both types of tips, but only the controlled tips will be included in the employee’s insurable earnings.

When an employer uses a controlled tip method, they are responsible for including the amounts in their employee’s gross earnings and must make the corresponding deductions for CPP and EI.

If you are unsure of what type of tip system your company is using, or how to account for tips within insurable earnings, contact your accountant today!

The Capital Gains Exemption (CGE) is available to Canadian residents who have disposed of qualifying property.

• Qualifying property is identified as Qualified Small Business Corporation (QSBC) shares, qualifying farm property, and qualifying fishing property. The CGE allows for the reduction in the gain reported in taxable income.

Example:
A total net capital gain on the disposition of qualifying property is $50,000, and 50% of this is brought into net income. Provided all eligibility criteria are met, the individual could have enough CGE to offset the entire taxable capital gain. This results in none of the original gain being brought into taxable income.

In 2014, the lifetime limit was $800,000. Going forward, this limit will be indexed for inflation.

What is a Qualifying Small Business Corporation Share?

The shares of a private corporation would qualify as a QSBC share if the following criteria have been
met:

1. At the date of disposition, the shares must be those of a Small Business Corporation (SBC), a Canadian Controlled Private Corporation (CCPC) in which 90% or more of its assets (measured at fair market value) are:
   1. Used in business, actively and primarily carried out in Canada (50% or more); or
   2. Invested in either the shares or debt of a connected SBC.
2. During the last 24 months immediately prior to the disposition:
   1. The shares are CCPC shares;
   2. More than 50% of the company’s assets (measured at fair market value) are used in carrying on active business primarily in Canada; or
   3. The shares were owned by either the taxpayer or a related person.

Your business may qualify as a QSBC. If you are considering selling your business, consult with your accountant immediately to ensure that proper structure is be maintained.

Did you receive funds this year through a non­-contemporary source? Are you unsure of the tax implications imposed by receiving these funds? We are here to help!

Non­-contemporary income sources include, but are not limited to:

Crowdfunding

• Raising funds from the public to be used towards a special project.

Any funds received by means of crowdfunding are considered income and are ultimately taxable.

Expenses incurred that relate to any crowdfunding efforts – for the purpose of gaining income – may be deductible if other requirements from the Income Tax Act are met.

YouTube Advertising

• Money received from YouTube when your post generates a specific number of views.

The Canada Revenue Agency (CRA) views this income source as taxable and must be reported.

Selling Goods Online

• Money received from the sale of goods on eBay, Kijiji, and other third party websites.

The CRA targets high­-volume sellers who earn a minimum of $20,000 with at least 24 sales per year, or sellers who generate over $100,000 in a single year.

eBay has released details on certain Canadian eBay sellers who meet the above criteria.

If you are unsure on whether the funds you have received during the year are considered taxable income, please consult with your accountant before filing your income tax return.

The Canada Revenue Agency (CRA) has provided a detailed list of the most common mistakes found with personal tax returns. Understanding these common errors will help you save time and money in the long run.

The common mistakes as noted by the CRA are:

Moving Expenses

• Costs associated with home staging, job and house hunting, renovations, mail forwarding, storage costs (near former residence), and short­-term accommodation are all expenses that are not eligible to be claimed.
• Receipt issues, such as date of receipt being inconsistent with date of move, or the receipt specifying payment occurred at a later date, but contains no proof of later payment.

Student Loans

• Non­-eligible interest cannot be claimed. Interest is only eligible to be claimed on loans received under a federal or provincial/territorial government law. Interest paid on personal loans, student lines of credit, or foreign student loans is not an eligible deduction.
• Only official receipts with the taxpayer’s name are eligible for claim. Tuition, Education and Textbooks
• Only official receipts with the course name appearing on the receipt are eligible for claim. Invoices do not replace an official receipt.
• Part­-time months cannot be claimed as full-­time months – and vice versa.
• Attending an educational institution not recognized by the CRA.

Medical Expenses

• Common expenses that cannot be claimed are:
  • Vitamins, natural supplements, and over­-the­-counter medication,
  • Medical supplies, such as bandages, shoe inserts, etc.,
  • Non­medical furniture such as recliners and non­-hospital beds; and
  • Cosmetic procedures.

Public Transit

• The copy of the transit pass must be complete. It cannot have your name missing or an illegible signature.
• Electronic payment cards must meet the minimum 32 one­-way trip requirement in a 31 day period.

To ensure that any of the mistakes above are not being made, consult with your accountant if you have any questions regarding your personal tax return.