Tax Break Bulletins

A number of issues may arise if a shareholder uses a corporate asset personally without providing the corporation with fair market value (FMV) consideration. Barring a special relieving provision of the Act, the shareholder may be subject to a shareholder benefit, essentially resulting in double tax. Another issue that may arise relates to GST/HST. This was considered in the below Court case.

In a September 23, 2016 Tax Court of Canada case, at issue was whether the input tax credits (ITCs) for the corporate purchase of a $310,000 recreational vehicle (RV), which was allegedly used for both corporate and personal purposes, would be permitted. For the periods that the taxpayer conceded that the vehicle was used personally, the shareholder paid $2,000 plus GST/HST per week. The Minister provided evidence from a 3rd party that the average rate for such a vehicle would be between $4,500 and $5,000 per week.

Taxpayer loses

The Court determined that the vehicle was acquired exclusively, or at least primarily, for the shareholder’s personal use. To be eligible for an ITC, an asset must be acquired “for use primarily in commercial activities of the registrant”. As such, the GST/HST paid would not be recoverable as an ITC.

Action Item: Assets acquired for personal use by shareholders should not generally be acquired by the corporation. Significant income tax and GST/HST issues may arise if such assets are held corporately.

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 March 17, 2017, CRA released a Tax Tip reminding those involved in the sharing economy to ensure that they comply with relevant income tax and GST/HST obligations. All income earned through sharing economy activities should be reported.

CRA identified five key sectors, being accommodation sharing, ride sharing, music and video streaming, online staffing, and peer/crowdfunding.

CRA also noted that it is co-operating with industries, the provinces, and the territories to identify and address areas where the tax system and compliance might be affected.

Action Item: If you are involved in the sharing economy, ensure you are compliant with your tax obligations.

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 deferred salary leave plan (DSLP) permits an employee to fund, through salary deferrals, a leave of absence from their employment. Generally, salary deferrals are included in income when the amounts are earned. However, if certain conditions are met under a DSLP, the employment income is taxed when the amounts are received.

In a December 19, 2016 French Technical Interpretation, CRA opined that the requirements of a DSLP must be met when the plan is entered into and throughout the duration of the plan. One requirement is that the employee return to their employment after the leave of absence for a period that is not less than the leave period.

If, when entering into the agreement, the parties expect the employee to cease employment during the plan, it would not qualify as a DSLP. In this case, the deferred amounts would be included in the employee’s income when earned.

On the other hand, if, at the time the agreement is made, it is clear that the employee will meet all the requirements, being temporarily out of work during the period should not, in and of itself, prohibit an employee from participating in a DSLP.

Action Item: Consider a deferred salary leave plan as an option for key employees wishing to take a leave of absence.

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.

Most businesses must register for a GST/HST account (and therefore collect and remit GST/HST as appropriate) if they earn revenues from worldwide taxable supplies greater than $30,000 within the previous four consecutive quarters, or exceed the $30,000 threshold in a single calendar quarter. However, a special rule applies to self-employed “taxi businesses” which requires them to register regardless of the quantum of revenues.

There has been some uncertainty as to whether drivers of ride-sharing services, such as Uber, are considered “taxi businesses”.

The 2017 Federal Budget ended this uncertainty. It proposed that, effective July 1, 2017, ride-sharing services will be defined as a “taxi business” for GST/HST purposes and therefore will be required to charge and remit GST/HST. More specifically, a “taxi business” will now include all persons engaged in a business of transporting passengers for fares by motor vehicle within a municipality and its environs where the transportation is arranged for or coordinated through an electronic platform or system, such as a mobile application or website.

Action Item: Drivers of ride-sharing services should consider registering for GST/HST.

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 a November 29, 2016 Technical Interpretation, CRA opined that where investment management fees incurred by an RRSP, RRIF or TFSA are paid from outside of the plan (such as by the annuitant or holder) the plan’s controlling individual would likely be subject to a tax equal to 100% of the fees paid.

CRA opined that investment management fees represent a liability of the registered plan trust and should, therefore, be paid using funds from the plan. If paid from outside of the plan, the resulting indirect increase in value of the plan assets would likely constitute an advantage. That is, more assets would be retained in the tax-sheltered vehicle.

CRA further noted that it is not commercially reasonable for an arm’s length party to gratuitously pay the expenses of another party. As such, there is a strong inference that a motivating factor of the above is to maximize the savings in the plan so as to benefit from the tax exemption afforded to the plan.

Recognizing that it is common practice for the holder of these accounts to pay the management fees, CRA indicated they will defer the application of this position until January 1, 2018.

Action Item: Be aware of changes in how investment management fees are charged in the near future to avoid this tax.

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.

Download our 2017 filing dates to ensure you stay on track for the rest of the year!

Have you ever wanted to check a charitable organization’s identity and tax status before you donate?  In Canada all Registered Charities have key information made publicly available.  You can use the Charities Listing (Link below) to find out if a Charity is registered, revoked, annulled, suspended, or penalized.  You can even find a Charity’s contract information, general activities and financial information.

http://www.cra-arc.gc.ca/chrts-gvng/lstngs/menu-eng.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.

The Canada Revenue Agency (CRA) is warning Canadian tax payers of an increase in telephone scams where the caller is impersonating a CRA representative. These callers are requesting personal and banking information that can result in identity and financial theft.

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 enquires 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 enquires line at the CRA at once. You can also talk with your accountant and they can provide additional guidance on your specific situation.

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

CRA released a Tax Tip summarizing “Six things to avoid at tax time”.

Read about it here to find out how you could save time and money: http://www.cra-arc.gc.ca/nwsrm/txtps/2017/tt170209-eng.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.

The deadline for Trusts filing a T3 Statement of Trust Income Allocations and Designations is March 31, 2017.

Action Item: Please consult with your accountant to determine if this applies to you.

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.

Have you been affected by Phoenix payroll issues?

If so, the government has issued a question and answer bulletin on how to file your taxes. Please refer to the following link: http://www.cra-arc.gc.ca/gncy/prm/phnx-fq-eng.html

Currently, a taxpayer (including individuals, corporations and trusts) may be assessed a repeated failure to report income penalty of 10% of the unreported amount of income for a second or subsequent failure to report income on a tax return that occurs within a four-year period.

For 2015 and subsequent tax years, the penalty would only apply where the amount of unreported income by the taxpayer is $500 or more. The budget also proposes changes to the penalty calculation. Under these changes, the amount of the penalty will be the lesser of 10% of the amount of unreported income; and

an amount equal to 50% of the difference between the understatement of tax (or the overstatement of tax credits) related to the omission and the amount of any tax paid in respect of the unreported amount.

Example:

Greg failed to report interest income of $10,000 on both his 2015 and 2016 Personal Income Tax return (T1). Since this was his second failure to report income within the four year window, a penalty of $1,000 plus a provincial/territorial penalty of $1,000 are assessed.

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.

Employer Health Tax (EHT) is an Ontario payroll tax on remuneration paid to employees and former employees in excess of $450,000.  If your total payroll including any associated corporations’ payroll exceeds this balance, a separate tax filing is due by March 15, 2017.

Action Item: Please consult with your accountant to determine if this applies to you.

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 recent article reported that CRA is reviewing every electronic fund transfer over $10,000 from Canada to four foreign jurisdictions per year. The first two targets were the Isle of Man and the Island of Guernsey, with two more undisclosed jurisdictions to be reviewed by March 31, 2017. CRA has started audits of 166 high-risk taxpayers and sent over 1,000 “nudge” letters to lower risk taxpayers. For 2017-2018, CRA plans on reviewing about 100,000 fund transfers to four other undisclosed jurisdictions.

The article also noted that the Offshore Tax Informant Program received over 3,000 tips as of October 31, resulting in almost 200 audits and 124 active files under review.

In addition to these activities, a November 14, 2016 Huffington Post article indicated CRA identified 2,600 documents with a Canadian link, opened 85 investigations into Canadians, and has commenced 60 audits with respect to the Panama Papers.

Action Item: If transferring funds offshore, retain appropriate documentation in case of CRA review.

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.

CRA may grant relief from penalties and interest in cases where the timely satisfaction of a tax obligation was not completed due to:

• extraordinary circumstances;
• actions of the CRA; or
• inability to pay or financial hardship.

In a March 31, 2016 Federal Court Judicial Review, the taxpayer appealed a decision by CRA to refuse relief on penalties and interest.  In this case, the taxpayer argued that the CRA agent did not reasonably appreciate the taxpayer’s financial difficulties.

The Court agreed with CRA that the concept of financial difficulties for a person is a financial insecurity or lack of what is necessary to meet basic living needs (that is food, clothing, housing, and reasonable non-essential elements).

As it appeared that the taxpayer was able to repay the outstanding tax arrears, without having an undue impact on a lifestyle of a relatively affluent Canadian taxpayer, CRA’s decision to deny the request was deemed reasonable.

CRA has also noted that relief may be granted:

• when collection had been suspended due to an inability to pay and substantial interest has accumulated or will accumulate;
• when a taxpayer’s demonstrated ability to pay requires an extended payment arrangement. Consideration may be given to waiving all or part of the interest for the period from when payments start until the amounts owing are paid, as long as the agreed payments are made on time and compliance with the Act is maintained.

Action Item: In addition to financial hardship, some of the more common reasons why taxpayer relief may be granted include: natural or human-made disaster; death/accident/serious illness/emotional or mental distress; or civil disturbance. If one of these situations apply, an application for interest and penalty relief may be available. Note that taxes would still be owing.

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.