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.

  • ACCELERATED DEPRECIATION: Federal Fall Economic Update Changes
    Posted

    In response to U.S. tax changes and cuts, the Federal Government released its Fall Economic Update on November 21, 2018 which primarily focused on changes to the first year of depreciation on most capital assets. The changes include immediate full depreciation in respect of manufacturing & processing assets, along with clean energy generation and storage assets. Also, an enhanced first year depreciation claim is now available for most other depreciable assets.

    Manufacturing and Processing Machinery and Equipment

    Machinery and equipment used in manufacturing and processing acquired and made available for use from November 21, 2018 to December 31, 2023 will be eligible for a full capital cost allowance (CCA) deduction in the year of acquisition (the full deduction will then be phased out incrementally). Specifically, the asset must be used directly or indirectly by the taxpayer in Canada primarily for the manufacturing or processing of goods for sale or lease, or leased by certain corporations to a lessee who can reasonably be expected to use the property in this manner.

    In broad terms, the manufacture of goods normally involves the creation of something (e.g. making or assembling machines, clothing or soup) or the shaping, stamping or forming of an object of something (e.g. making steel rails, wire nails, rubber balls, or wood moulding).

    Processing of goods usually refers to a uniform process, system, technique, or method of preparation, handling or other activity designed to effect a physical or chemical change in an article or substance (e.g. galvanizing iron, creosoting fence posts, dyeing cloth, dehydrating foods, or homogenizing and pasteurizing dairy products), other than natural growth. Jurisprudence has determined that a taxpayer would be engaged in processing if the following two tests are met: there is a change in the form, appearance, or other characteristics of the goods subject to the operation; and the product becomes more marketable.

    Property “used directly or indirectly” in eligible activities may qualify for this enhanced deduction.

    Some assets commonly used in smaller operations, such as restaurants, bars or bakeries, may qualify. For example, an oven which converts ingredients into a meal for sale may be considered used in manufacturing or processing.

    Clean Energy Assets

    Clean energy assets (Classes 43.1 and 43.2) will qualify for the same first year depreciation claims as manufacturing and processing equipment (100% up to December 31, 2023, declining thereafter). Eligible assets for these classes include certain types of energy and heat production and storage equipment related to hydro, wind, solar, bio fuel, eligible waste fuels, hydrogen fuel cells, kinetic wave/tidal, ground source heat pump systems and heat recovery equipment.

    Most Other Capital Assets – Accelerated Investment Incentive

    CCA also will be enhanced for acquisitions of depreciable assets in most other classes from November 21, 2018 to December 31, 2027.

    Prior to the rule change, the half-year rule essentially only allowed half a year of depreciation in the year of acquisition (applicable to most CCA classes), regardless of how early or late in the fiscal year the asset was acquired. Now, for most assets, the usual half year of CCA available in the year of acquisition will be tripled for acquisitions to December 31, 2023 (the enhancement will decline thereafter, returning to the typical half-year rule in 2028).

    For example, a Class 10 vehicle which is normally subject to a 15% depreciation claim in the first year would now be allowed a 45% claim.

    Planning and Purchases

    Claiming depreciation is optional. In essence, one has the option of claiming depreciation up to the maximum level available in respect of its class for any given year (other less common limits may also apply). The accelerated depreciation rules operate as the name implies: they accelerate when a tax deduction for depreciation can be claimed, but they do not increase the overall lifetime amounts that can be claimed. In other words, more can be claimed up front, but less will be available in the future. Note that an accelerated CCA claim in the year of acquisition is only available in that year – one must “use it or lose it”. Reducing the claim in the year of acquisition does not allow an accelerated deduction in a future year.

    When determining whether, and to what extent a claim should be made, considerations vary depending on factors such as:

    • whether the asset is owned personally or in a corporation;
    • the current income levels, and the expected income in the future;
    • future corporate tax rates (for example, whether the corporation may be subject to small business deduction restrictions as too much passive income is being earned); and
    • whether the asset is generating passive or active income.

    Accelerated depreciation is available even if purchased just before year’s end, as long as it is also made available for use by that point as well.

     

    ACTION ITEM: Review whether capital purchases should be accelerated, and whether the accelerated deduction should be claimed given your particular situation.

    In response to U.S. tax changes and cuts, the Federal Government released its Fall Economic Update on November 21, 2018 which primarily focused on changes to the first year of depreciation on most capital assets. The changes include immediate full depreciation in respect of manufacturing & processing assets, along with clean energy generation and storage assets. Also, an enhanced first year depreciation claim is now available for most other depreciable assets.

    Manufacturing and Processing Machinery and Equipment

    Machinery and equipment used in manufacturing and processing acquired and made available for use from November 21, 2018 to December 31, 2023 will be eligible for a full capital cost allowance (CCA) deduction in the year of acquisition (the full deduction will then be phased out incrementally). Specifically, the asset must be used directly or indirectly by the taxpayer in Canada primarily for the manufacturing or processing of goods for sale or lease, or leased by certain corporations to a lessee who can reasonably be expected to use the property in this manner.

    In broad terms, the manufacture of goods normally involves the creation of something (e.g. making or assembling machines, clothing or soup) or the shaping, stamping or forming of an object of something (e.g. making steel rails, wire nails, rubber balls, or wood moulding).

    Processing of goods usually refers to a uniform process, system, technique, or method of preparation, handling or other activity designed to effect a physical or chemical change in an article or substance (e.g. galvanizing iron, creosoting fence posts, dyeing cloth, dehydrating foods, or homogenizing and pasteurizing dairy products), other than natural growth. Jurisprudence has determined that a taxpayer would be engaged in processing if the following two tests are met: there is a change in the form, appearance, or other characteristics of the goods subject to the operation; and the product becomes more marketable.

    Property “used directly or indirectly” in eligible activities may qualify for this enhanced deduction.

    Some assets commonly used in smaller operations, such as restaurants, bars or bakeries, may qualify. For example, an oven which converts ingredients into a meal for sale may be considered used in manufacturing or processing.

    Clean Energy Assets

    Clean energy assets (Classes 43.1 and 43.2) will qualify for the same first year depreciation claims as manufacturing and processing equipment (100% up to December 31, 2023, declining thereafter). Eligible assets for these classes include certain types of energy and heat production and storage equipment related to hydro, wind, solar, bio fuel, eligible waste fuels, hydrogen fuel cells, kinetic wave/tidal, ground source heat pump systems and heat recovery equipment.

    Most Other Capital Assets – Accelerated Investment Incentive

    CCA also will be enhanced for acquisitions of depreciable assets in most other classes from November 21, 2018 to December 31, 2027.

    Prior to the rule change, the half-year rule essentially only allowed half a year of depreciation in the year of acquisition (applicable to most CCA classes), regardless of how early or late in the fiscal year the asset was acquired. Now, for most assets, the usual half year of CCA available in the year of acquisition will be tripled for acquisitions to December 31, 2023 (the enhancement will decline thereafter, returning to the typical half-year rule in 2028).

    For example, a Class 10 vehicle which is normally subject to a 15% depreciation claim in the first year would now be allowed a 45% claim.

    Planning and Purchases

    Claiming depreciation is optional. In essence, one has the option of claiming depreciation up to the maximum level available in respect of its class for any given year (other less common limits may also apply). The accelerated depreciation rules operate as the name implies: they accelerate when a tax deduction for depreciation can be claimed, but they do not increase the overall lifetime amounts that can be claimed. In other words, more can be claimed up front, but less will be available in the future. Note that an accelerated CCA claim in the year of acquisition is only available in that year – one must “use it or lose it”. Reducing the claim in the year of acquisition does not allow an accelerated deduction in a future year.

    When determining whether, and to what extent a claim should be made, considerations vary depending on factors such as:

    • whether the asset is owned personally or in a corporation;
    • the current income levels, and the expected income in the future;
    • future corporate tax rates (for example, whether the corporation may be subject to small business deduction restrictions as too much passive income is being earned); and
    • whether the asset is generating passive or active income.

    Accelerated depreciation is available even if purchased just before year’s end, as long as it is also made available for use by that point as well.

     

    ACTION ITEM: Review whether capital purchases should be accelerated, and whether the accelerated deduction should be claimed given your particular situation.

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  • Travel Expenses: Home to Work Site
    Posted

    Travel from home to a regular place of employment is usually a personal expenditure, the costs of which cannot be claimed as an employment expense. However, if the taxpayer is required to travel away from the employer’s place of business, amounts may be deductible by the employee.

    A June 29, 2018 Tax Court of Canada case examined this issue. The taxpayer travelled from home to three different construction sites to carry on employment duties. Specifically, the taxpayer’s work for a Toronto construction corporation required frequent travel to sites requiring round trips of 167 km (Hamilton) and 92 km (Aurora), and infrequently to a site requiring a 94 km round trip (Whitby).

    CRA argued that each was a regular place of employment, such that no deduction was available. The Court, however, concluded that this was travel “away from the employer’s place of business or in different places”, as required by the Income Tax Act. As such, the costs of this travel could qualify as deductible employment expenses.

    While the taxpayer was not ultimately successful in his claim due to his receipt of an allowance from his employer, the case may provide a basis for business travel from home to a construction site.

    As implied above, there are other conditions that must be met in order to deduct amounts against employment income. For example, the employee must not receive a non-taxable allowance in respect of the travel, and an appropriately completed T2200 from their employer must have been issued.

     

    CAUTION ITEM: Although it may be possible deduct travel amounts against employment income, such amounts are often challenged by CRA.

    Travel from home to a regular place of employment is usually a personal expenditure, the costs of which cannot be claimed as an employment expense. However, if the taxpayer is required to travel away from the employer’s place of business, amounts may be deductible by the employee.

    A June 29, 2018 Tax Court of Canada case examined this issue. The taxpayer travelled from home to three different construction sites to carry on employment duties. Specifically, the taxpayer’s work for a Toronto construction corporation required frequent travel to sites requiring round trips of 167 km (Hamilton) and 92 km (Aurora), and infrequently to a site requiring a 94 km round trip (Whitby).

    CRA argued that each was a regular place of employment, such that no deduction was available. The Court, however, concluded that this was travel “away from the employer’s place of business or in different places”, as required by the Income Tax Act. As such, the costs of this travel could qualify as deductible employment expenses.

    While the taxpayer was not ultimately successful in his claim due to his receipt of an allowance from his employer, the case may provide a basis for business travel from home to a construction site.

    As implied above, there are other conditions that must be met in order to deduct amounts against employment income. For example, the employee must not receive a non-taxable allowance in respect of the travel, and an appropriately completed T2200 from their employer must have been issued.

     

    CAUTION ITEM: Although it may be possible deduct travel amounts against employment income, such amounts are often challenged by CRA.

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  • TAX DEADLINE REMINDER
    Posted

    This is a friendly reminder that the deadline to file your 2018 personal income tax return is tomorrow – Tuesday, April 30th 2019. 

    This is a friendly reminder that the deadline to file your 2018 personal income tax return is tomorrow – Tuesday, April 30th 2019. 

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  • 2019 TAX SCAMS
    Posted

    The Canada Revenue Agency (CRA) has released some valuable information in regards to how to protect yourself against fraud. It is important that taxpayers are very attentive when they receive information by telephone, mail, text message or email requesting personal information such as: social insurance number, credit card number, bank account number or passport number.

    These scams are usually sent with the intention that taxpayers can’t receive a refund or benefit payment unless they send the required information. Other communications ask taxpayers to visit a fake CRA website where they need to enter personal information. These are all scams, and should never be responded to.

    The CRA has come up with the following information to identify legitimate communications (please be aware of these guidelines and understand what to expect when the CRA contacts you):

     

    The CRA may:

    • Verify your identify by asking for personal information such as: full name, date of birth, address or social insurance number
    • Ask for details about your account, in the case of a business enquiry
    • Call you to begin an audit process

    The CRA will never:

    • Ask for information about your passport, health card, drivers license
    • Ask for payment by Interac e-transfer, bitcoin, prepaid credit cards or gift cards
    • Use aggressive languor or threaten you (or leave voicemails threatening you)

     

    To find out more information of what the CRA may do, or will never do by mail, email and text messages please visit: https://www.canada.ca/en/revenue-agency/corporate/security/protect-yourself-against-fraud.html?wbdisable=true

     

     

    The Canada Revenue Agency (CRA) has released some valuable information in regards to how to protect yourself against fraud. It is important that taxpayers are very attentive when they receive information by telephone, mail, text message or email requesting personal information such as: social insurance number, credit card number, bank account number or passport number.

    These scams are usually sent with the intention that taxpayers can’t receive a refund or benefit payment unless they send the required information. Other communications ask taxpayers to visit a fake CRA website where they need to enter personal information. These are all scams, and should never be responded to.

    The CRA has come up with the following information to identify legitimate communications (please be aware of these guidelines and understand what to expect when the CRA contacts you):

     

    The CRA may:

    • Verify your identify by asking for personal information such as: full name, date of birth, address or social insurance number
    • Ask for details about your account, in the case of a business enquiry
    • Call you to begin an audit process

    The CRA will never:

    • Ask for information about your passport, health card, drivers license
    • Ask for payment by Interac e-transfer, bitcoin, prepaid credit cards or gift cards
    • Use aggressive languor or threaten you (or leave voicemails threatening you)

     

    To find out more information of what the CRA may do, or will never do by mail, email and text messages please visit: https://www.canada.ca/en/revenue-agency/corporate/security/protect-yourself-against-fraud.html?wbdisable=true

     

     

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  • The 2019 Federal Budget
    Posted

    The 2019 Federal Budget has now officially been released.

    To find out everything you need to know about this year’s budget, visit our resources tab to download your own copy.

     

    The 2019 Federal Budget has now officially been released.

    To find out everything you need to know about this year’s budget, visit our resources tab to download your own copy.

     

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  • Personal Tax Return Checklist
    Posted

    Our 2018 Personal Income Tax Return Checklist is now available to download.

    • Visit our resources tab for more information

    Our 2018 Personal Income Tax Return Checklist is now available to download.

    • Visit our resources tab for more information
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  • Quarterly installment & EHT annual return deadlines
    Posted

    A friendly reminder that the following due dates and deadlines are fast approaching:

    The first quarterly personal tax installment is due on Friday, March 15th.

    The Employer Health Tax annual return deadline is Friday, March 15th.

    A friendly reminder that the following due dates and deadlines are fast approaching:

    The first quarterly personal tax installment is due on Friday, March 15th.

    The Employer Health Tax annual return deadline is Friday, March 15th.

    Read More
  • Important Filing Dates 2019
    Posted

    Take a look at our 2019 important filing dates to ensure you stay on track for the rest of the year!

    • Visit our resources tab to download your own copy

    Take a look at our 2019 important filing dates to ensure you stay on track for the rest of the year!

    • Visit our resources tab to download your own copy
    Read More
  • CHILDCARE COSTS: Art, Sport and Educational Camps
    Posted

    A September 11, 2018 Tax Court of Canada case examined the eligibility of a number of child care costs with a recreational and educational component. The taxpayer and his spouse worked full time and had two children, aged 10 and 12.

    The Court acknowledged two separate lines of cases related to eligibility of child care expenses (all informal and, therefore, not binding on CRA).

    The first set, argues that the definition of a “child care expense” is restrictive such that recreational or educational activities do not qualify. The reasoning is that expenses to develop the physical, social and artistic abilities of the child would have been incurred whether or not the parents had been working.

    The second line of cases requires that one evaluate whether the purpose of the expense was to allow the parent(s) to work. A bona fide expense would not be denied solely because the activity was recreational or educational in nature.

    Taxpayer Wins, Mostly

    The Court accepted the second set of cases as guidance, noting that if Parliament had intended to limit such activities, it would have said so in more specific and restrictive language. As such, the Court accepted the majority of the taxpayer’s child care expenses that contained a recreational and educational component.

    Parental Discretion

    The Court found that the taxpayer’s decision to engage university students, who were paid $5/hour more than what was paid to high school students, was irrelevant as “it is not for the state to decide who minds the appellant’s children as long as the expenses are reasonable.” In other words, it is the parents that are responsible for choosing who they wish to use, and they do so, based on the child’s needs; this choice is an exercise of parental discretion.

    The Minister also suggested that the child who was 12 years of age in the year may not have needed some of these expenditures due to his age, to which the Court responded that Parliament grants child care expenses for eligible children up to age 16 – it is up to the parent to decide whether a child 12 or older should stay home alone.

     Limitations

    Costs related to activities on a Saturday, and during school hours, were denied as they did not facilitate the taxpayers’ ability to work. Amounts related to camp were limited to a weekly amount of $125 (as the child was over 7), as specifically provided for in the Income Tax Act. Camp costs for children under 7 are limited to a weekly amount of $200. A higher amount may be available for those with a disability.

    CRA Administrative Policy

    As this case was informal, it is not precedential. While it may provide a filing position, CRA may still challenge these types of child care expenses. CRA’s webpage continues to state that fees for leisure or recreational activities, and fees related to education costs, cannot be claimed as a child care expense.

     

    ACTION ITEM: If incurring child care costs with a recreational or educational component, consideration may be given to claiming these amounts as a child care expense, up to the maximum allowed amount. That is, an annual amount of $8,000/child under 7, $5,000/child aged 7 to 16 and $11,000 for a disabled child.

    A September 11, 2018 Tax Court of Canada case examined the eligibility of a number of child care costs with a recreational and educational component. The taxpayer and his spouse worked full time and had two children, aged 10 and 12.

    The Court acknowledged two separate lines of cases related to eligibility of child care expenses (all informal and, therefore, not binding on CRA).

    The first set, argues that the definition of a “child care expense” is restrictive such that recreational or educational activities do not qualify. The reasoning is that expenses to develop the physical, social and artistic abilities of the child would have been incurred whether or not the parents had been working.

    The second line of cases requires that one evaluate whether the purpose of the expense was to allow the parent(s) to work. A bona fide expense would not be denied solely because the activity was recreational or educational in nature.

    Taxpayer Wins, Mostly

    The Court accepted the second set of cases as guidance, noting that if Parliament had intended to limit such activities, it would have said so in more specific and restrictive language. As such, the Court accepted the majority of the taxpayer’s child care expenses that contained a recreational and educational component.

    Parental Discretion

    The Court found that the taxpayer’s decision to engage university students, who were paid $5/hour more than what was paid to high school students, was irrelevant as “it is not for the state to decide who minds the appellant’s children as long as the expenses are reasonable.” In other words, it is the parents that are responsible for choosing who they wish to use, and they do so, based on the child’s needs; this choice is an exercise of parental discretion.

    The Minister also suggested that the child who was 12 years of age in the year may not have needed some of these expenditures due to his age, to which the Court responded that Parliament grants child care expenses for eligible children up to age 16 – it is up to the parent to decide whether a child 12 or older should stay home alone.

     Limitations

    Costs related to activities on a Saturday, and during school hours, were denied as they did not facilitate the taxpayers’ ability to work. Amounts related to camp were limited to a weekly amount of $125 (as the child was over 7), as specifically provided for in the Income Tax Act. Camp costs for children under 7 are limited to a weekly amount of $200. A higher amount may be available for those with a disability.

    CRA Administrative Policy

    As this case was informal, it is not precedential. While it may provide a filing position, CRA may still challenge these types of child care expenses. CRA’s webpage continues to state that fees for leisure or recreational activities, and fees related to education costs, cannot be claimed as a child care expense.

     

    ACTION ITEM: If incurring child care costs with a recreational or educational component, consideration may be given to claiming these amounts as a child care expense, up to the maximum allowed amount. That is, an annual amount of $8,000/child under 7, $5,000/child aged 7 to 16 and $11,000 for a disabled child.

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  • TAX.. some quick points to consider
    Posted
    • The annual TFSA contribution limit for 2019 will be increased to $6,000 (from $5,500) due to indexation. For those who have been eligible to build contribution room since inception of the program in 2009 and have never contributed, the total maximum room as of January 1, 2019 is $63,500.
    • For 2019, the Employment Insurance premium rate is reduced to 1.62% (from 1.66%). The maximum insurable earnings is $53,100 (from $51,700), resulting in a maximum employee premium of $860 (a net increase of $2) and maximum employer premium of $1,204 (a net increase of $3).
    • Registered charities will now be able to pursue their charitable purpose by engaging in non-partisan political activities in the development of public policy without limitation. These rule charges are largely retroactive to January 1, 2008. Previously, a registered charity must have limited their non-partisan political activities to 10% of their resources.
    • CRA recently opined that investment management fees in respect of tax-sheltered accounts (like RRSPs, RRIFs and TFSAs) paid outside of the account (e.g. management fees charged to a non-registered account), would be subject to a 100% advantage tax. That is, a tax equal to the full value of the management fee would be levied. It was recently announced that the implementation date of this policy was extended indefinitely until a review had been completed.

    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 annual TFSA contribution limit for 2019 will be increased to $6,000 (from $5,500) due to indexation. For those who have been eligible to build contribution room since inception of the program in 2009 and have never contributed, the total maximum room as of January 1, 2019 is $63,500.
    • For 2019, the Employment Insurance premium rate is reduced to 1.62% (from 1.66%). The maximum insurable earnings is $53,100 (from $51,700), resulting in a maximum employee premium of $860 (a net increase of $2) and maximum employer premium of $1,204 (a net increase of $3).
    • Registered charities will now be able to pursue their charitable purpose by engaging in non-partisan political activities in the development of public policy without limitation. These rule charges are largely retroactive to January 1, 2008. Previously, a registered charity must have limited their non-partisan political activities to 10% of their resources.
    • CRA recently opined that investment management fees in respect of tax-sheltered accounts (like RRSPs, RRIFs and TFSAs) paid outside of the account (e.g. management fees charged to a non-registered account), would be subject to a 100% advantage tax. That is, a tax equal to the full value of the management fee would be levied. It was recently announced that the implementation date of this policy was extended indefinitely until a review had been completed.

    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.

    Read More