Tax Break Bulletins

The 2018 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 our Federal Budget Commentary

The T4/T5 filing deadline is fast approaching!

A friendly reminder that the T4 (RL1), T4A (RL2), T5 (RL3) filing deadline is less than a week away (February 28^th, 2018). Be sure to provide your accountant with all relevant documents to make sure that your T4s, T5s and all other slips are filed on time to avoid penalties.

Download our 2018 Tax Resource Guide for general information regarding 2018 tax matters now!

• Visit our resources tab to download

Webpages are constantly evolving. An individual may wish to see the history of a certain webpage for any number of reasons.

Without a webpage or website self-reporting the changes made, identifying them can be difficult. However, there are a number of tools available on the Internet that may be useful in piecing together a webpage’s historical data. One such tool, https://archive.org/web/, aims to record what a webpage looked like at various moments in time. This can enable users to see how a webpage has changed over time.

Action Item: Use this tool to find historical information on the internet.

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.

Take a look at our 2018 important filing dates to ensure you stay on track for the rest of the year!

• Visit our resources tab to download your own copy

Reminder to pay annual interest on loans received by family members or family trusts on or before January 30, 2018 to avoid income attribution for 2017

Reminder for employees who have received a low-interest loan from an employer during 2017 to pay annual interest on or before January 30, 2018 to reduce the amount that will be deemed a taxable benefit

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

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

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

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

A New Caregiving Benefit

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

More Flexible Parental Benefits

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

Education While Receiving EI Benefits

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Canadian Retirement Income Calculator (https://www.canada.ca/en/services/benefits/publicpensions/cpp/retirement-income-calculator.html) provided by the Government of Canada estimates retirement income generated through a number of programs such as the Canada Pension Plan, Old Age Security pension, an individual’s employer’s pension plan, RRSPs, and other sources based on past and intended contributions.

When using this tool, individuals should have their CPP Statement of Contributions, financial information about their employer’s pension, most recent RRSP statement, and any other information related to savings that will provide for ongoing monthly retirement income.

Action Item: Use this tool to help assess your financial readiness for retirement.

A death benefit is a payment received subsequent to the death of an employee, in recognition of the deceased employee’s services. Up to $10,000 can be received by the Estate or beneficiaries of the deceased as a death benefit on a tax-free basis. As an employment-related cost, this would generally be deductible to the payer.

A March 14, 2017 Technical Interpretation, addressed several questions related to these payments following the death of an owner-manager.

CRA noted that the determination of whether an individual is an employee is a question of fact. The fact that an owner-manager received salaries for several years but was only paid dividends in the two years prior to death would not automatically mean that no death benefit could be received. It would be more difficult to support an employment relationship where the individual never received employment income from the corporation.

The existence of a formal commitment, such as a contract or a Directors’ Resolution, prior to the date of death is not a requirement for an amount to be a death benefit. Finally, a death benefit could be paid out over time, but the $10,000 exclusion applies only once, not once for each year.

Action Item: Consider this tax-free employment benefit.

Historically, CRA has stated that an employee enjoying a discount on the purchase of merchandise from their employer is only taxable if a limited number of specified situations exist, such as where the employer makes a special arrangement with the employee or group of employees to buy the merchandise at a discount; the employee buys the merchandise for less than the employer’s cost; or the employer makes a reciprocal arrangement with another employer so that the employees of one employer can buy merchandise from the other at a discount.

While the above guidance is still published in certain CRA documents, CRA has recently released updated guidance which appears to limit this administrative position. In CRA Folio S2-F3-C2, CRA noted that where an employee receives a discount on merchandise because of their employment, the value of the discount is generally a taxable benefit. This would apply regardless of whether the discount was provided by the employer or a third-party.

This updated guidance appears to be consistent with a number of Court decisions.

Action Item: Consider your business policy in respect of discounts on merchandise for employees in light of this updated administrative position.

On July 18, 2017, Minister of Finance, Bill Morneau announced the release of a Consultation Paper which focused on three tax practices that the Government considers to provide an unfair tax advantage to private corporations and their owners. These include:

• Income Sprinkling – The Government is concerned that business owners can direct income to lower income family members who are not involved in the business, gaining a tax advantage unavailable to other Canadians. A common example is dividend sprinkling, where lower income family members own a share of the business and therefore can receive dividends, subject to their lower marginal rate. The Paper suggests taxing the unreasonable portion of dividends received by a family member of the principal of the business at the top marginal tax rate. Reasonability will be based on factors such as labour and capital contributions, and risk assumed. While this reasonableness test will apply on all dividends to family members of the principal, a more stringent criteria will apply for individuals between age 18 and 24.

Similarly, the Paper proposed limits on access to the capital gains exemption (CGE) based on age and reasonableness, with minors not entitled to the CGE at all. The proposals also deny the CGE for most gains accumulated while shares are held by a trust.

The Paper noted that the Government is committed to addressing this issue in some fashion, and that the changes will be effective in 2018.

• Passive Investment Income – The Government is concerned that it is unfair to most Canadians to permit the accumulation of passive investments with capital shielded from the higher personal tax rates. No specific proposals were made, but a number of possible approaches were set out which will essentially eliminate the advantage provided by the deferral on funds retained for investment in private corporations.

The new rules will be designed in the coming months. The timing of any changes was not specified.

• Capital Gains – The Government is concerned with plans to withdraw corporate funds as capital gains rather than dividends. The overall tax liability on capital gains is generally much lower than that of dividends, in particular for individuals subject to tax at the top marginal tax rate. The Government has proposed some more complicated technical measures which would limit this type of planning.

These changes will apply to amounts received, or becoming receivable, on or after July 18, 2017 (i.e. the date the Paper was released).

Action Item: If you or your corporation utilizes one of the above tax planning strategies, be cognizant of any legislated changes, their impact, and the effective date of the change.