Tax Break Bulletins

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

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

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 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.

• 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.

On December 13, 2017, the Department of Finance released a number of updates relating to the income sprinkling proposals (originally announced on July 18, 2017). Below is a summary of the proposals as they are currently drafted.

Individuals that receive certain types of income derived from a “related business” will be subject to Tax on Split Income (TOSI) unless an exclusion applies. TOSI is subject to the highest personal tax rate with no benefit of personal credits. Commencing on January 1, 2018 TOSI will potentially apply in respect of amounts that are received by adults, not just those under 18 years. The application of TOSI to individuals under age 18 (commonly known as the “kiddie tax”) would not generally change.

Income Streams at Risk

Private corporation dividends, partnership allocations, trust allocations, capital gains, and income from debt may all be subject to TOSI.

Related Business

A related business includes any business, where another individual related to the recipient of income does any of the following:

• personally carries on the business (this means income from a sole proprietorship to a related person can be subject to TOSI);
• is actively engaged in the business carried on by a partnership, corporation or trust;
• owns shares of the corporation carrying on the business;
• owns property the value of which is derived from shares of the corporation having a fair market value not less than 10% of the fair market value of all of the shares of the corporation; or
• is a member of a partnership which carries on the business.

The definition is broadly drafted to capture income derived directly or indirectly from the business.

Exceptions and Exclusions

Several exclusions from the TOSI rules for adult individuals have been introduced.

Some exclusions depend on the age of the taxpayer at the start of the taxation year. Different rules apply to taxpayers at least 17 years of age at the start of the year (i.e. these exceptions are first available in the year the taxpayer turns 18) and to those at least 24 years of age at the start of the year (i.e. these exceptions are first available in the year the taxpayer turns 25). For the purposes of this analysis, the first age group will be referred to as those “over age 17” while the second group will be referred to as those “over age 24“.

The exclusions are as follows:

1. Excluded Business: A taxpayer over age 17 will not be subject to TOSI on amounts received from an excluded business. An excluded business is one where the taxpayer is actively engaged on a regular, continuous and substantial basis in either the year in which the income is received, or in any five previous years. The five taxation years need not be consecutive.

An individual will be deemed to be actively engaged in any year where the individual works in the business at least an average of 20 hours/week during the portion of the taxation year that the business operates. A person not meeting this bright line test may also be “actively engaged” depending on the facts, but this will carry greater risk of challenge by CRA.

4. Excluded Shares: A taxpayer over age 24 will be exempt from TOSI in respect of income received from excluded shares, including capital gains realized on such shares.
5. Reasonable Return: TOSI will not apply to amounts which reflect a reasonable return.
   • For taxpayers over age 24, an amount which is reasonable is based on work performed, property contributed, risks assumed, amounts paid or payable from the business, and any other factors in respect of the business which may be applicable.
   • For taxpayers over age 17, but not over age 24, the rules are more restrictive. Only a reasonable return in respect of contributions of capital will be considered.
6. Certain Capital Gains: Although TOSI will be expanded to apply to capital gains of interests in entities through which a related business is carried on, some gains will be excluded. For example, capital gains arising due to a deemed disposition on death. Also, capital gains on qualified farm or fishing property, or qualified small business corporation shares will generally be excluded from TOSI.
7. Retirement Income Splitting: The TOSI rules will not apply to income received by an individual from a related business if the recipient’s spouse was age 65 in or before the year in which the amounts are received and the amount would have been excluded from TOSI had it been received by the recipient’s spouse.

 This new draft legislation is a substantial change from the current rules. The provisions are lengthy, complex and nuanced, and it is likely that additional concerns and challenges will be identified. It is uncertain whether there will be further changes, given the concerns which have already been identified, as well as the recommendations of the Senate Finance Committee released on the same date as these proposals.

 Action Item: Review whether your earnings may be impacted. Consider whether additional documentation should be kept to prove meaningful contributions and time worked. Also, restructuring of ownership or working relationships may be beneficial in some cases.

 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.

This is a friendly reminder that the deadline to file your 2017 personal income tax return is less than one week away – Monday, April 30^th 2018

CRA has released a tax tip summarizing “Six things to avoid at tax time”.

1. Not doing your taxes
2. Not reporting all your income
3. Making a claim you’re not entitled to
4. Missing out on tax credits, benefits and deductions
5. Filing late
6. Not keeping receipts and records

To read the full article click on the following link: https://www.canada.ca/en/revenue-agency/news/newsroom/tax-tips/tax-tips-2017/six-things-avoid-tax-time.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.

Last year The Canada Revenue Agency (CRA) was warning Canadian tax payers of an increase in telephone scams where the caller was impersonating a CRA representative. The CRA has reported, that this year reports of emails, text messages and telephone calls related to tax scams are continuing.

Consumers are receiving emails and/or text messages indicating a refund pending from the CRA. The link directs customers to a website that looks like the actual CRA. Specific personal information is requested in order to get an email money transfer. Victims who input their personal information are subject to identity fraud (no refund is ever issued).

A clear indication of a scammer will be if they request unusual or suspicious information from you. This information includes your credit card information – including prepaid credit cards, and your passport, health card, or driver’s license details. In addition, the CRA will never leave personal information in a voice mail message or request you to do the same.

To verify if you are dealing with a legitimate CRA representative, request their name and identification number – some collections official may come off as forceful and aggressive, but all valid representatives will provide their identification number.

You can then call the CRA back at their general inquires line and explain the situation. Once you provide them with the identification number and information received they will be able to authenticate the original call. Due to the high increase in fraudulent calls occurring, it is recommended that you never release the information being requested and following up with the general inquires line at the CRA at once. You can also talk with your accountant and they can provide additional guidance on your specific situation.

In most cases, the CRA will use mail to contact consumers (not email, phone or text messages). Never provide personal information over the telephone, by text or email.

A special note: If you are ever the victim of one of these calls, you should report it to the Canadian Anti-Fraud Centre at once.

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 friendly reminder that the deadline for the following returns and reconciliations is less than one week away – Monday, April 2^nd 2018:

• T3 (RL16) slips and summary filing
• NR4 filing information
• Annual reconciliation form to WSIB
• T5013 (RL15) Partnership Information Return

Our 2017 Personal Income Tax Return Checklist is now available to download.

• Visit our resources tab for more information

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

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

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