Announcements

Get caught up with Andrews & Co.

Whether it’s tax season or welcoming new team members, we have a lot going on at our firm. We’ll keep you connected by sharing our ongoing news.

Tips Collected Electronically: Withholding Requirements

Where tips are “paid” by an employer, they are pensionable and insurable. In such cases, the employer must also withhold income tax and report the amounts on the employee’s T4. CRA’s current administrative policy is that if the tip is controlled by the employer (controlled tips)...

Where tips are “paid” by an employer, they are pensionable and insurable. In such cases, the employer must also withhold income tax and report the amounts on the employee’s T4.

CRA’s current administrative policy is that if the tip is controlled by the employer (controlled tips) and then transferred to the employee, it is considered to be paid by the employer. In contrast, direct tips are considered to have been paid directly by the customer to the employee. Therefore, the tips are neither insurable nor pensionable, income tax deductions are not required to be withheld and amounts are not required to be reported on the T4.

Controlled tips are generally those where the employer has influence over the collection or distribution formula. CRA has provided several examples of controlled tips, including the following:

  • the employer adds a mandatory service charge to a customer’s bill to cover tips;
  • tips are allocated to employees using a tip-sharing formula determined by the employer; and
  • cash tips are deposited into the employer’s bank account and become, or are even commingled with, the property of the employer, and then are paid out to the employees.

 

Direct tips are paid directly to the employee by the customer, where the employer has no control over the tip amount or its distribution. CRA has also provided several examples of direct tips, including the following:

  • a customer leaves money on the table at the end of the meal and the server keeps the whole amount;
  • the employees and not the employer decide how the tips are pooled or shared among employees;
  • a customer includes an amount for a tip when paying the bill by credit or debit card, and the employer returns the tip amount in cash to the employee at the end of the shift. In exceptional situations, the cash tips could be paid out the day after, for example, if there was not enough available cash on hand; and
  • the restaurant owner informs the server that if a customer pays by credit or debit card and includes a voluntary tip, the restaurant will return the full tip amount to the server in cash at the end of each shift.

An August 31, 2022 Federal Court of Appeal case reviewed whether the electronic tips left by restaurant customers (e.g. paid by credit or debit cards) that were distributed by the restaurant to the servers were considered “paid” and therefore pensionable and insurable. Only a portion of the electronic tip was distributed to the servers, based upon the particular tipping arrangement at the restaurant (some funds were retained for items such as credit card fees and tip-outs to the kitchen staff). Amounts were transferred to the servers the day after the particular shift was worked. The Tax Court of Canada (TCC) previously held that the amounts transferred to servers were paid by the employer, and therefore, pensionable and insurable.

Taxpayer loses
The FCA found that the TCC did not err in its finding. In particular, the TCC noted that the electronic tips had not previously been in the server’s possession. Instead, the customers had provided the electronic tips to the employer as part of a single transaction to settle the dining bill. The TCC followed a 1986 Supreme Court of Canada case that found that the word paid could be interpreted broadly to mean the mere distribution of an amount by the employer to the employee.The FCA also stated that factors such as the following are not determinative and might be of little to no relevance when determining whether an amount is paid by an employer:

  • when the amount is paid;
  • whether the server is paid all or some of their own tips or pooled tips;
  • whether the employer keeps a portion of the tips; and
  • whether the tips are distributed under a collective agreement, a written contract, an oral agreement or otherwise.

The case did not deal with any cash tips the servers may have received or tip-outs received by kitchen staff, on-site management or support staff. Likewise, the FCA was not concerned with the total electronic tips left for the servers, but only the net amount paid out the next day.

It remains to be seen whether CRA’s administrative policy will be changed to reflect the courts’ rulings. As of October 10, 2022, the CRA website did not have information showing an integration of the courts’ rulings into their administrative policy.

Action: Restaurant operators should be vigilant for developments on this issue and be prepared to adjust tipping policies, and/or reporting and withholding policies if necessary.

GST/HST Input Tax Credits: Reasonable Expectation of Profit

A July 28, 2022 Tax Court of Canada case considered whether input tax credits (ITCs) in respect of a farming operation’s expenditures were available. The farming activity consisted of breeding and racing various horses and involved at least four full-time employees at one point. Over...

A July 28, 2022 Tax Court of Canada case considered whether input tax credits (ITCs) in respect of a farming operation’s expenditures were available. The farming activity consisted of breeding and racing various horses and involved at least four full-time employees at one point. Over a nine-year period (2007-2015), the operations never experienced positive net earnings and more than $4 million in losses were accumulated. The owner partially financed operations with earnings from his law practice.

In order for ITCs to be available, supplies must have been made in the course of a commercial activity. For a commercial activity to have occurred, there must have been a reasonable expectation of profit.

The Court considered the following criteria when determining whether the taxpayer carried on a commercial activity:

  • profit and loss experience;
  • the taxpayer’s training;
  • the taxpayer’s intended course of action; and
  • the capability to show a profit.

Taxpayer loses
While the Court noted that the taxpayer was clearly passionate and knowledgeable about horses and had invested significant funds and time, it was insufficient to demonstrate that there was a reasonable expectation of profit. Ultimately, the Court found that the taxpayer’s lack of financial organization (he did not have financial statements) and lack of financial tools left him without the ability to diagnose the causes of his farm losses. Without the ability to understand the losses, he did not have the ability to truly stem them, and therefore he did not have a reasonable expectation of profit. The ITCs were denied.

Action: Ensure to sufficiently compile financial records and information such that you can reasonably identify the profitability problems in your operation.

Kicking off the 2022 Toy Drive in Support of Toy Mountain

It’s that time of year again! November starts the annual Toy Drive in Support of Toy Mountain. Each year, Toy Mountain and the Salvation Army provide toys to over 25,000 children, and this year their goal is to leave no child in Ottawa without a gift...

It’s that time of year again! November starts the annual Toy Drive in Support of Toy Mountain.

Each year, Toy Mountain and the Salvation Army provide toys to over 25,000 children, and this year their goal is to leave no child in Ottawa without a gift to open on Christmas morning.

Toy Mountain is encouraging everyone to donate in whatever way they are able. Let’s work together to continue the tradition of helping Toy Mountain and their partners at The Salvation Army bring smiles to the faces of children and teens on Christmas morning.

You can find more about Toy Mountain here.

Please bring a new and unwrapped gift to the office between Nov 28- Dec 12, 2022. 

We are collecting new and unwrapped toys for kids ages 8-12yrs old. All gifts are needed and appreciated immensely.

Please see below a list of ideas provided by Toy Mountain:

  •  Oodie hooded blanket
  • Butter Slime Kit
  • DIY Journaling Set
  • Jewelry Making Kit
  • LED Lights Kit
  • Funko pops
  • Football
  • Soccer ball
  • Baseball glove and baseball, baseball bat
  • Lego
  • Sneaker cleaning kit
  • Nerf
  • Portable table ping pong set
  • Star Wars toys
  • Marvel Comics toys
  • Remote control cars/Helicopters/Planes
  • Minecraft toys
  • Fortnite toys
  • Disney princesses
  • Squishmallows
  • Bathbombs
  • Puzzles
  • Board games
    • Sequence
    • Catan
    • Monopoly & clue (special editions)
    • Uno
    • Exploding Kittens
    • Throw Throw Burrito
    • Apples to Apples
    • Say Anything

If you have any questions, please let us know.

Thanks for your continued support of this great cause.

Director Liability: Is Asking About Source Deductions Enough?

Directors can be personally liable for payroll source deductions (CPP, EI and income tax withholdings) and GST/HST unless they exercise due diligence to prevent the corporation from failing to remit these amounts on a timely basis. An August 31, 2022 Tax Court of Canada case found...

Directors can be personally liable for payroll source deductions (CPP, EI and income tax withholdings) and GST/HST unless they exercise due diligence to prevent the corporation from failing to remit these amounts on a timely basis.

An August 31, 2022 Tax Court of Canada case found that the director was not duly diligent and therefore was personally liable for the corporation’s unremitted payroll deductions, interest and penalties of $78,121 from January 2011 to April 2012.

The taxpayer argued that he was duly diligent as he asked at the directors’ meeting each month whether the tax remittances were up-to-date and received oral confirmations that they were. The taxpayer stated that he had “checked the box” at each directors’ meeting. He also argued that his decisions were driven by materiality; he focused his efforts on the corporation’s overall well-being and safeguarding the millions of dollars of investment, rather than the payroll remittances that he considered “tiny.”

Taxpayer loses

The Court ruled that the taxpayer was not duly diligent in preventing the failure to make adequate payments. It noted that the taxpayer never contacted CRA to confirm whether payroll remittances were current, which was particularly problematic as he was unable to obtain reliable financial statements and was aware of the difficult financial situation. While it was the taxpayer’s view that this was someone else’s job, there was no evidence of the taxpayer ever asking anyone else to follow up with CRA.

Action: Prior to accepting any role as a director, ensure to fully understand your responsibilities and potential exposure to personal liability. If currently acting as a director, make sure to be dully diligent in ensuring payroll and GST/HST payments are properly made.

Executor: Whether to Accept This Role

Individuals may be asked to take on various roles in respect of loved ones, friends, clients or others. One role that is particularly riddled with challenges is that of an estate executor. While an individual may carry out their duties in an appropriate manner, it...

Individuals may be asked to take on various roles in respect of loved ones, friends, clients or others. One role that is particularly riddled with challenges is that of an estate executor. While an individual may carry out their duties in an appropriate manner, it is important to consider the risks of unhappy beneficiaries and any other undesirable outcomes, including litigation and/or strained relationships.

A March 4, 2022 Tax Court of Canada case reviewed whether the taxpayer was personally liable for the estate’s tax debts. On the death of the taxpayer’s father in 1994, the taxpayer and his brother became executors of the estate. The taxpayer argued that he renounced his role of executor two months after the death of his father and therefore should not be held liable for the estate’s tax debts.

The father left most of his estate to the taxpayer’s brother, as well as a portion to grandchildren and great-grandchildren. The taxpayer accepted this decision but wanted to ensure that his daughter received her share of the estate. To this effect, in 2010, the taxpayer and his brother took steps to distribute a balance of $240,000 payable to the taxpayer’s daughter, secured by a mortgage against one of the estate’s properties. That is, the taxpayer’s daughter was essentially provided a $240,000 receivable from the estate. No clearance certificate was obtained, and the estate was in arrears with its taxes. In 2016, the brother died.

While the taxpayer argued that he renounced his role as executor and provided an alleged handwritten note from 1994 to that effect, the Court did not accept that he formally renounced his role. While the Court acknowledged that the taxpayer may not have understood everything about being an executor or every aspect of a land transfer, the Court believed he understood that he was signing as an executor. As he was the executor when the mortgage was secured and did not obtain a clearance certificate, he was held personally liable for the estate’s tax debts.

The Court further stated that even if it did find that the taxpayer had properly renounced his role, the taxpayer acted as a “trustee de son tort” (a person who is not appointed as a trustee but whose course of conduct suggests that he be treated as one), and for income tax purposes, he would have been considered a “legal representative.”

Action: Acting as an executor comes with significant responsibilities. Failure to properly administer the estate can result in personal liability. If you choose to decline the role, you must do so properly and not as an executor.

Trusts: New and Expanded Disclosure Requirements

Legislation has been proposed for trusts (including estates) with years ending on December 31, 2022 and onwards that would significantly expand the reporting rules. More trusts would be required to file tax returns, and more information would be required to be disclosed in these returns....

Legislation has been proposed for trusts (including estates) with years ending on December 31, 2022 and onwards that would significantly expand the reporting rules. More trusts would be required to file tax returns, and more information would be required to be disclosed in these returns. In addition, sizable penalties would be introduced for non-compliance.

More trusts and estates required to file

Under the existing rules, trusts are exempt from filing a T3 tax return if they have no taxes payable and no dispositions of capital property. However, under the proposals, tax returns will be required for all Canadian resident express trusts (this generally means trusts created deliberately) that do not meet at least one of a number of exceptions. Some of the more common exceptions include the following:

  • trusts in existence for less than three months at the end of the year;
  • trusts holding only assets within a prescribed listing (including items such as cash and publicly listed shares) with a total fair market value that does not exceed $50,000 at any time in the year;
  • trusts required by law or under rules of professional conduct to hold funds related to the activity regulated thereunder, excluding any trust that is maintained as a separate trust for a particular client (this would apply to a lawyer’s general trust account, but not specific client accounts); and
  • registered charities and non-profit clubs, societies or associations.

Reporting will be required where a trust acts as an agent for its beneficiaries (referred to as bare trusts in the government’s explanatory notes). No details on the intended breadth of such trusts have been provided by the Department of Finance or CRA to date.

More disclosure of parties to trusts

Where a trust is required to file a tax return, the identity, including residency, of all of the following people must be disclosed:

  • trustees, beneficiaries and settlors; and
  • anyone that has the ability (through the terms of the trust or a related agreement) to exert influence over trustee decisions regarding the income or capital of the trust.

The requirement to provide information in respect of the beneficiaries would be met if beneficiary information is provided for all whose identity is known or ascertainable with reasonable effort by the person making the return at the time of filing the return. Where there are beneficiaries whose identity is not known or ascertainable with reasonable effort, the person making the return would be required to provide sufficiently detailed information to determine with certainty whether any particular person is a beneficiary of the trust. For example, where the beneficiaries are both the current and future grandchildren of the settlor, details in respect of the current children must be provided in addition to details of the trust terms describing the future class of beneficiaries.

The new rules would not require the disclosure of information subject to solicitor-client privilege.

Substantial penalties

Failure to make the required filings and disclosures on time attract penalties of $25 per day, to a maximum of $2,500, as well as further penalties on any unpaid taxes. New gross negligence penalties have been proposed, applicable to filings not made on time and inaccurate filings. These penalties are proposed to be the greater of $2,500 and 5% of the highest total fair market value of the trust’s property at any time in the year. These will apply to any person or partnership subject to the new regime, leading to the concern that multiple persons could be subject to these substantial penalties for a single trust.

Action: Make a list of all arrangements that you and your family have that may be considered a trust or bare trust. Review them with a professional to determine whether they would be subject to the rules. Obtain relevant information that will be required for the filing of the particular trust returns.

Crowdfunding: Taxable or Not?

A June 2, 2022 Technical Interpretation discussed the taxability of funds received through crowdfunding campaigns. CRA first noted that amounts received through a crowdfunding arrangement could represent loans, capital contributions, gifts, income or a combination of two or more of these. This means that the...

A June 2, 2022 Technical Interpretation discussed the taxability of funds received through crowdfunding campaigns. CRA first noted that amounts received through a crowdfunding arrangement could represent loans, capital contributions, gifts, income or a combination of two or more of these. This means that the funds received could be taxable (such as business income) or not (such as a windfall, gift or voluntary payment). As the terms and conditions for each campaign vary greatly, the determination of tax status must be conducted on a case-by-case basis.

Where an amount is not a windfall, gift or other voluntary payment, the amount may be taxable if it constitutes income from a source. To be a non-taxable gift or other voluntary payment, the following conditions must be met:

  • there is a voluntary transfer of property;
  • the donor freely disposes of their property to the donee; and
  • the donee confers no right, privilege, material benefit or advantage on the donor or on a person designated by the donor.

CRA opined that contributions would likely be considered non-taxable gifts in the case of a “Go Fund Me” campaign created by family members of an individual with cancer to assist in that individual’s treatment.

In an August 23, 2019 Technical Interpretation, CRA considered whether an employer’s contribution to their employee’s crowdfunding campaign to assist with the cost of additional therapies and support for the employee’s recently born child would be received in the recipient’s capacity as an employee (taxable) or individual (not taxable).

CRA indicated that, where the person is dealing at arm’s length with the employer and is not a person of influence (such as an executive who controls employer decisions), the benefit or amount would generally be received in the person’s capacity as an individual (non-taxable) where the amount is:

  • provided for humanitarian or philanthropic reasons;
  • provided voluntarily;
  • not based on employment factors such as performance, position or years of service; and
  • not provided in exchange for employment services.

If considered non-taxable, CRA opined that, as the contribution was not an expense incurred to gain or produce income, it would not be deductible

ACTION: Amounts raised by crowdfunding campaigns may be taxable or non-taxable, depending on the circumstances. Ensure to provide details on these activities so that the amounts are properly reported.

CONGRATULATIONS TO Brad Andre ON PASSING THE CFE

Andrews & Co would like to congratulate Brad Andre on passing the Chartered Professional Accountants of Canada’s Common Final Examination (CFE). We are proud of their efforts and look forward to helping them achieve their goals as accountants in the future....

Andrews & Co would like to congratulate Brad Andre on passing the Chartered Professional Accountants of Canada’s Common Final Examination (CFE). We are proud of their efforts and look forward to helping them achieve their goals as accountants in the future.

CONGRATULATIONS TO OUR NEWEST CPA, Angeline Fernandes!

  Andrews & Co would like to congratulate Angeline Fernandes on becoming a Chartered Professional Accountant.  Please join us in congratulating Angeline on this wonderful accomplishment!...

 

Andrews & Co would like to congratulate Angeline Fernandes on becoming a Chartered Professional Accountant.  Please join us in congratulating Angeline on this wonderful accomplishment!

Buying and Selling a Home: Budget 2022 Proposals

The 2022 Federal Budget included several proposals that would significantly change the taxation environment when buying and selling a home. Broadly, the government proposed various incentives for first-time buyers and extended family units in addition to bright-line tests/restrictions for those purchasing homes for profit (e.g. home flippers). Taxpayers...

The 2022 Federal Budget included several proposals that would significantly change the taxation environment when buying and selling a home. Broadly, the government proposed various incentives for first-time buyers and extended family units in addition to bright-line tests/restrictions for those purchasing homes for profit (e.g. home flippers). Taxpayers should consider how the changes will affect their intended purchases and sales. In some cases, it may be beneficial to expedite a purchase or sale, while in others, it may be prudent to delay.

New possibilities and enhanced programs include the following:

  • Home accessibility tax credit – The annual expense limit would be doubled to $20,000 such that the maximum non-refundable tax credit would be $3,000, proposed to be effective for 2022 and subsequent taxation years. This credit applies to enduring and integral home renovations in respect of a taxpayer, or a relative who is (or will be) living with the taxpayer, that is either a senior or eligible for the disability tax credit. The renovation must enable the individual to gain access to the home, be more mobile or functional in the home, or reduce the risk of harm within, or in gaining access to, the home.
  • Home buyers’ tax credit – The amount would be doubled such that eligible first-time home buyers could access tax relief of $1,500, proposed to be effective for acquisitions of a qualifying home on or after January 1, 2022.
  • Tax-free first home savings account – A new registered account would allow for tax-deductible contributions of up to $8,000 annually and up to $40,000 in total; withdrawals from the plan (including income earned in the plan) to purchase a first home would not be taxable. This initiative is expected to become available in 2023.
  • Multigenerational home renovation tax credit – A new tax credit would provide relief on up to $50,000 of eligible expenses to construct a secondary suite for a senior or person with a disability to live with a relative. This initiative is expected to become available in 2023.

New cautions and restrictions include the following:

  • Residential property flipping rule– A new rule would be introduced to deem all gains arising from the disposition of a residential property (including rental property) that was owned for less than 12 months to be business income, other than any disposition for which an exception would apply (such as where a death or addition to the family necessitates a move). Sales on homes owned for 12 months or more would follow the traditional rules. This means that such sales could still be classified as fully taxable business income and not be eligible for the principal residence exemption. This measure would apply to residential properties sold on or after January 1, 2023.
  • Foreign buyer property banForeign commercial enterprises and people who are not Canadian citizens or permanent residents would be prohibited from acquiring non-recreational residential property in Canada for two years. This would not apply to refugees and people authorized to come to Canada while fleeing international crises, certain international students on the path to permanent residency or individuals on work permits residing in Canada.
  • GST/HST on assignment sales by individuals – All assignment sales in respect of newly constructed or substantially renovated residential housing would be taxable for GST/HST

In addition to the above tax measures, Budget 2022 proposed to develop and implement a Home Buyers’ Bill of Rights and national plan to end blind bidding. This Bill of Rights could also include items such as ensuring a legal right to a home inspection and ensuring transparency on the history of sales prices on title searches.

ACTION: Consider the expected timing of implementation for each of these measures and the impacts on purchases or sales.

Federal Budget Commentary: Previously Announced Measures

Budget 2022 confirms the government’s intention to proceed with the following previously announced tax and related measures, as modified to take into account consultations and deliberations since their release: Legislative proposals relating to the Select Luxury Items Tax Act (a tax on certain automobiles, boats...

Budget 2022 confirms the government’s intention to proceed with the following previously announced tax and related measures, as modified to take into account consultations and deliberations since their release:

  • Legislative proposals relating to the Select Luxury Items Tax Act (a tax on certain automobiles, boats and aircrafts) released on March 11, 2022.
  • Legislative proposals released on February 4, 2022 in respect of the following measures:
  • electronic filing and certification of tax and information returns;
  • immediate expensing;
  • the Disability Tax Credit;
  • a technical fix related to the GST Credit top-up;
  • the rate reduction for zero-emission technology manufacturers;
  • film or video production tax credits;
  • postdoctoral fellowship income;
  • fixing contribution errors in registered pension plans;
  • a technical fix related to the revocation tax applicable to charities;
  • capital cost allowance for clean energy equipment;
  • enhanced reporting requirements for certain trusts;
  • allocation to redeemers methodology for mutual fund trusts;
  • mandatory disclosure rules;
  • avoidance of tax debts;
  • taxes applicable to registered investments;
  • audit authorities;
  • interest deductibility limits; and
  • crypto asset mining.
  • Legislative proposals tabled in a Notice of Ways and Means Motion on December 14, 2021 to introduce the Digital Services Tax Act.
  • Legislative proposals released on December 3, 2021 with respect to Climate Action Incentive payments.
  • The income tax measure announced in Budget 2021 with respect to Hybrid Mismatch Arrangements.
  • The transfer pricing consultation announced in Budget 2021.
  • The anti-avoidance rules consultation announced on November 30, 2020 in the Fall Economic Statement, with an expected paper for consultation over the summer of 2022, and legislative proposals tabled by the end of 2022.
  • The income tax measure announced on December 20, 2019 to extend the maturation period of amateur athletes trusts maturing in 2019 by one year, from eight years to nine years.
  • Measures confirmed in Budget 2016 relating to the GST/HST joint venture election.

Budget 2022 reiterates the government’s intention to return a portion of the proceeds from the price on pollution to small and medium-sized businesses through new federal programming in backstop jurisdictions (Alberta, Saskatchewan, Manitoba and Ontario). Budget 2022 proposes to provide funds, starting in 2022-23, to Environment and Climate Change Canada to administer direct payments to support emission-intensive, trade-exposed small and medium-sized enterprises in those jurisdictions.

Budget 2022 also reaffirms the government’s intention to revise the Employment Insurance (EI) system, including its support for experienced workers transitioning to a new career and coverage for seasonal, self-employed and gig workers. A long-term plan for the future of EI will be released after consultations conclude. As an interim measure, Budget 2022 proposes to extend previous expansions to EI coverage for seasonal workers.

Federal Budget Commentary: Charities Measures

Annual Disbursement Quota for Registered Charities Registered charities are generally required to expend a minimum amount each year for charitable purposes, referred to as the disbursement quota (DQ). Presently, the DQ is set at 3.5% of property not used directly in charitable activities or administration. Budget 2022...

Annual Disbursement Quota for Registered Charities

Registered charities are generally required to expend a minimum amount each year for charitable purposes, referred to as the disbursement quota (DQ). Presently, the DQ is set at 3.5% of property not used directly in charitable activities or administration.

Budget 2022 proposes to increase the DQ rate from 3.5% to 5% for the portion of property not used in charitable activities or administration that exceeds $1 million. Budget 2022 also proposes to clarify that expenditures for administration and management are not considered qualifying expenditures to satisfy a charity’s DQ.

Where a charity cannot meet its DQ, it may apply to CRA and request relief. Budget 2022 proposes to amend the existing rule such that CRA will have the discretion to reduce a charity’s DQ obligation for any particular tax year. It also proposes to allow CRA to publicly disclose information relating to such a decision to provide relief.

These measures would apply to charities in respect of their fiscal periods beginning on or after January 1, 2023.

Charitable Partnerships

Budget 2022 proposes to allow a charity to provide its resources to organizations that are not qualified donees, provided that these disbursements further the charity’s charitable purposes and the charity ensures that the funds are applied to charitable activities by the grantee.

To be considered a qualifying disbursement, the charity will need to meet mandatory accountability requirements, including, for example:

  • conducting a pre-grant inquiry sufficient to provide reasonable assurances that the charity’s resources will be used for the purposes set out in the written agreement, including a review of the identity, past history, practices, activities and areas of expertise of the grantee;
  • monitoring the grantee, which would include receiving periodic reports on the use of the charity’s resources, at least annually and taking remedial action as required; and
  • publicly disclosing on its annual information return information relating to grants above $5,000.

In addition, Budget 2022 proposes to require charities to, upon request by CRA, take all reasonable steps to obtain receipts, invoices, or other documentary evidence from grantees to demonstrate amounts were spent appropriately.

Finally, Budget 2022 proposes to prohibit registered charities from accepting gifts, the granting of which was expressly or implicitly conditional on making a gift to a person other than a qualified donee.

These changes would apply as of Royal Assent.

Federal Budget Commentary: Retirement Plans

Borrowing by Defined Benefit Pension Plans Budget 2022 proposes to provide more borrowing flexibility to administrators of defined benefit registered pension plans (other than individual pension plans) for amounts borrowed on or after April 7, 2022. Reporting Requirements for RRSPs and RRIFs Budget 2022 proposes to require financial...

Borrowing by Defined Benefit Pension Plans

Budget 2022 proposes to provide more borrowing flexibility to administrators of defined benefit registered pension plans (other than individual pension plans) for amounts borrowed on or after April 7, 2022.

Reporting Requirements for RRSPs and RRIFs

Budget 2022 proposes to require financial institutions to annually report to CRA the total fair market value of property held in each RRSP and RRIF at the end of the calendar year. This information would assist CRA in its risk-assessment activities regarding qualified investments held by RRSPs and RRIFs. This measure would apply to the 2023 and subsequent taxation years.

Congratulations to our newest CPA, James Rawlings!

Andrews & Co would like to congratulate James Rawlings on becoming a Chartered Professional Accountant.  Please join us in congratulating James on this wonderful accomplishment! ...

Andrews & Co would like to congratulate James Rawlings on becoming a Chartered Professional Accountant.  Please join us in congratulating James on this wonderful accomplishment!

JAMES RAWLINGS

Federal Budget Commentary: Sales and Excise Tax

GST/HST on Assignment Sales by Individuals An assignment sale in respect of residential housing is a transaction in which a purchaser (an “assignor”) under an agreement of purchase and sale with a builder of a new home sells their rights and obligations under the agreement to...

GST/HST on Assignment Sales by Individuals

An assignment sale in respect of residential housing is a transaction in which a purchaser (an “assignor”) under an agreement of purchase and sale with a builder of a new home sells their rights and obligations under the agreement to another person (an “assignee”). An assignment sale of newly constructed (or substantially renovated) residential real estate made by an individual would generally be taxable if the individual had originally entered into the agreement of purchase and sale with the builder for the primary purpose of selling their interest in the agreement. Where there was another primary purpose, such as residing in the property, the assignment sale would generally be exempt.

To provide greater certainty on the status of assignment sales, Budget 2022 proposes to make all assignment sales in respect of newly constructed or substantially renovated residential housing taxable for GST/HST purposes. As a result, the GST/HST would apply to the total amount paid for a new home by its first occupant. Typically, the consideration for an assignment sale includes an amount attributable to a deposit that had previously been paid to the builder by the assignor. That deposit would already be subject to GST/HST when applied by the builder to the purchase price on closing. Budget 2022 proposes that the amount attributable to the deposit be excluded from the consideration for a taxable assignment sale.

The assignor in respect of a taxable assignment sale would generally be responsible for collecting the GST/HST and remitting the tax to CRA. Where an assignor is non-resident, the assignee would be required to self-assess and pay the GST/HST directly to CRA.

The amount of a new housing rebate is determined based on the total consideration payable for a newly-constructed home, which would include the consideration for a taxable assignment sale. Accordingly, these changes may affect the amount of a New Housing Rebate that may be available in respect of a new home.

This measure would apply in respect of any assignment agreement entered into on or after May 7, 2022 (one month after Budget Day).

GST/HST Health Care Rebate

Hospitals can claim an 83% rebate and charities and non-profit organizations can claim a 50% rebate of the GST (or federal component of the HST) that they pay on inputs used in their exempt supplies. The 83% hospital rebate also applies to eligible charities and non-profit organizations that provide health care services similar to those traditionally performed in hospitals.

One of the conditions to be eligible for the expanded hospital rebate is that a charity or non-profit organization must deliver the health care service with the active involvement of, or on the recommendation of, a physician, or in a geographically remote community, with the active involvement of a nurse practitioner.

Budget 2022 proposes to allow the 83% hospital rebate to a charity or non-profit organization that delivers health care service with the active involvement of, or on the recommendation of, either a physician or a nurse practitioner, irrespective of their geographical location.

This measure would generally apply to rebate claim periods ending after April 7, 2022 in respect of GST/HST paid or payable after that date.

Excise Tax on Vaping Products

Budget 2021 announced a consultation on a new excise duty on vaping products. Budget 2022 sets out a taxation framework on vaping products that include either liquid or solid vaping substances (whether or not they contain nicotine), with an equivalency of 1 ml of liquid = 1 gram of solids (excluding those already subject to the cannabis excise duty framework).

A federal excise duty rate of $1 per 2 ml, or fraction thereof, is proposed for the first 10 ml of vaping substance, and $1 per 10 ml, or fraction thereof, for volumes beyond that. If a province or territory were to choose to participate in a coordinated vaping taxation regime administered by the federal government as set out in the budget documents, an additional duty rate would be imposed in respect of dutiable vaping products intended for sale in that participating jurisdiction.

Other Excise Tax Measures

Excise Duty Framework

Budget 2022 proposes several amendments to streamline, strengthen, and adapt the cannabis excise duty framework specifically, as well as other excise regimes, including the following:

  • allow licensed cannabis producers to remit excise duties on a quarterly rather than monthly basis, starting from the quarter that began on April 1, 2022 where the licensee’s required excise duty remittances for the four immediately preceding fiscal quarters were less than $1M in excise duties during the four fiscal quarters;
  • allow CRA to approve certain contract-for-service arrangements between two licensed cannabis producers to permit the producers to:
  • transfer stamps, and packaged but unstamped products, between them;
  • stamp and enter cannabis products into the retail market that have been packaged by the other producer; and
  • pay the excise duty on cannabis products that were stamped by the other producer.
  • amend the penalty provision for lost cannabis excise stamps so that the higher penalty for losing stamps for a province or territory would only apply where the adjustment rate for that jurisdiction is greater than 0%;
  • apply the existing cannabis penalty provisions to situations where unlicensed parties illegally possess or purchase cannabis products, and where licensed parties illegally distribute cannabis products;
  • exempt holders of a Health Canada-issue Research Licence or Cannabis Drug Licence from the requirement to be licensed under the excise duty regime;
  • in respect of spirits, wine, tobacco and cannabis products:
  • add all cancellation criteria for an excise licence, other than a proactive request by a licensee to cancel its licence, to the criteria that CRA may use to suspend an excise licence;
  • remove cash and transferable bonds issued by the Government of Canada, and add bank drafts and Canada Post money orders, to the types of financial security that could be accepted by CRA; and
  • confirm the ability of CRA to carry out virtual audits and reviews of all licensees.

Except where indicated otherwise, the above proposals would be effective only on Royal Assent.

100% Canadian Wine Exemption

Wine that is produced in Canada and composed wholly of agricultural or plant product grown in Canada (i.e. 100% Canadian wine) is presently exempt from excise duties. However, this exemption was challenged at the World Trade Organization (WTO). In accordance with a settlement reached in July 2020, Budget 2022 proposes to repeal the 100% Canadian wine excise duty exemption effective on June 30, 2022.

Low-alcohol Beer

At present, wine and spirits containing no more than 0.5% alcohol by volume (ABV) are exempt from federal excise duty, however beer containing no more than 0.5% ABV is subject to duty. Budget 2022 proposes to eliminate excise duty for beer containing no more than 0.5% ABV, bringing the tax treatment of such beer into line with the treatment of wine and spirits with the same alcohol content. This measure would come into force on July 1, 2022.