Tip of the Month
(Published 4 times a year - not March and April)
Tip of the Month is a brief comment on current personal and business issues that I feel may be of general interest to you, my clients. Any discussion contained herein which seems appropriate to your specific situation, may need to be adapted and you must decide whether further individual consultation is required. Each and every person's financial situation differs and the enclosed comments are of a general nature only.
Did you sell your principal residence in 2016?
The CRA is changing its administrative policy with respect to principal residences and will now require the reporting of the sale of your personal home which remains capital gain (or loss) exempt. Beginning with the 2016 taxation year, if you sell your home, you will be required to report the sale and report the gain or loss along with the principal residence designation on Schedule 3 of your personal income tax return. If the gain is not exempt (ie. you rented part or all of your home for a few years), you will also be required to file form T2091. If you do not comply, any portion of the gain is taxable and CRA will be able to assess you to impose that tax indefinitely rather than the 3 years after your Notice of Assessment as is the normal case. Obviously, it is important to report and will be costly if you do not.
Do you have Foreign Bank Accounts?
As part of a worldwide crackdown on tax evasion, over 100 countries, Canada included, have committed to automatic information exchange about bank accounts. Starting in 2018, non-residents's accounts will be reported to the CRA. There is nothing wrong with having a foreign bank account or investments overseas, or in the USA, as long as you report the account and report the income from it. Already if you have foreign property costing over $100,000, you are reporting it on Form 1135, both indivdually or as a business.
Does CRA have your banking information?
The Government of Canada will increase the use of direct deposit by slowly phasing out federal government cheques by April 2016. The government is saying
it is faster, reliable, secure and paperless. Whether you believe this
or not, the reality is you need to get your bank direct deposit setup
for both personal and business accounts. Businesses have been sent form
RC366 Direct Deposit Request for Businesses which we encourage you to
complete or we can assist you with this matter.
to personal accounts, that is, for personal income tax refunds and all
other credits, such as GST, Ontario Tax Benefits and child tax benefits,
a void cheque or a form from your bank with the bank coding can be
given to us. We can then setup the direct deposits at the time of
e-filing your 2013 personal income tax return. The information MUST be
inputed before the return is filed, otherwise another form must be used
which is signed and mailed by you to the government. Because of CRA
security reasons, we can only setup or change, NOT stop or cancel
direct deposit at the time of e-filing.
CRA and Increasing Use of Electronic Services and Filings
Over the past year it has become increasingly evident that CRA wants business and individuals to file and pay taxes online - not at the bank, but online. CRA wants to stop issuing cheques for refunds and wants businesses to register their bank accounts with them for all online transactions with a goal to achieve this in 2016. Forms for those businesses that CRA is missing bank account information are being sent out in order to collect this information with the business' approval. For some small businesses this will require changes in the way a business operates and the way one thinks. It does take some time to get things set up both at your bank and with CRA due to security and confidentiality issues. Online services with CRA are built around three platforms: My Business Account, Represent a Client and My Account. At our office, all business clients are registered with the business' approval, with Represent a Client platform so that we can access your information and service your needs.
Changes to the CPP Contribution Rules
Starting January 2012, Employers will have to begin deducting CPP on employees between 60 to 70 years of age, even though the employee is receiving CPP or QPP retirement pension.
Under the new rules, an employee who works and receives a CPP or QPP retirement pension between 60 to 65 years of age must pay into the CPP program again. Those employees between the ages of 65 to 70 years of age must also pay into CPP again, UNLESS the employee files an election – CPT30 to stop paying CPP contributions. The election takes effect on the first day of the month following the month the employee provides you with a completed and signed election form.
Form CPT30 is filed with Revenue Canada and applies only to those between the ages of 65 to 70 years of age. The original goes to Revenue Canada and the individual keeps a copy for himself as a copy must be given to each employer the individual works for during the year. It can be revoked and if one wants to restart making CPP contributions, a new CPT30 election form must be filed with Revenue Canada and any employer the individual is working for.
Accessibility for Ontarians with Disabilities Act
The new Accessibility Standard for Customer Service comes into effect across Ontario January 1, 2012. This was discussed by me in September 2010 Tip of the Month and since then, many resources have become available to help business develop policies and plans to comply with this new requirement. Service Ontario (AccessOn) and CFIB both have very good and inexpensive information to help with this process. There are also some businesses which are offering paid for services to help in business compliance. The bottom line is this is another regulation that a small business must follow and comply with or consequences will apply. If further information is required and you are unclear as to what you have to do, please do not hesitate to contact me.
Hiring Credit for Small Business (HCSB)
The federal government has announced and been promoting a temporary measure to encourage hiring during these uncertain times. The temporary measure applies to small business for a credit of up to $ 1000 against a small firm's increase in its 2011 EI premiums over those paid in 2010 in order to encourage new hirings. No application is necessay but eligible clients will be assessed and calculated by CRA after the filing of their 2011 T4s. New businesses in 2011 are also eligible but not businesses that are sold or closed in 2011. No changes and and late filings will be accepted after January 1, 2015. Registered charities who pay EI premiums of less that $ 10,000 per year are also eligible.
While this is not a large measure, it is some assistance to small business with no increase in paperwork involved.
Accessibility Standards for Customer Service
Under Ontario Regulation 429/07 which came into effect this year, businesses are required to provide Accessible Customer Service. This means that businesses must be doing the following:
- Developing guidelines for serving people with disabilities
- Training staff and volunteers on how to serve people with disabilities
- Allowing customers to bring service animals into your business
- Communicating with customers with disabilities in a way that takes into account their disability
- Letting customers with disabilities provide feedback on your service.
These changes are in followup to the Accessibilities for Ontarians with Disabilities Act of 2005. More changes are coming and are to be phased in, up to the year 2025. It will include physical changes to business premises to make businesses more accessible to people with mobility issues. It is advisable to keep up with these changes so you can plan for any additional costs to change premises and to meet these requirements on time. More information can be found on the internet at ontario.ca/AccessOn and the ministry of finance.on.ca websites.
Code of Conduct for the Credit and Debit Card Industry in Canada
In Mid-August, the Federal Government inacted a Code of Conduct for the Credit and Debit Card Industry. This is due to the the changing and complcated debit and credit card environment. The purpose was:
a)To ensure that merchants are fully aware of the costs associated with accepting cards as payment thereby allowing merchants to reeasonably forecast their monthly costs related to accepting such payments.
b)To provide merchants with increased pricing flexibility to encourage consumers to choose the lowest-cost payment option
c)To allow merchants to freely choose which payment options they will accept.
Debit and credit card promotions to consumers such as cash back and collectiong points had forgotten the cost to merchants and ultimately the consumer. The code hopefully will help to level the playing field again. Remember, nothing is free and someone has to pay the cost of all the new promotion tactics.
Traps in Using the TFSA
The Tax-Free Savings Account has turned out to be more complex than it was originally promoted by Canada Revenue Agency. A couple of points need to be made.
You can withdraw funds from your TFSA at any time, but remember, this is not a typical savings account. You MUST WAIT UNTIL THE NEXT YEAR TO REPLACE FUNDS ONCE YOU HIT THE ANNUAL CONTRIBUTION LIMIT. Otherwise the funds you replace will be subject to a 1% penalty tax per month. Because this was not clear in the first year of operation, CRA is allowing for some relief, but this request must be sent into CRA as soon as possible if you have made this error. Those taxpayers affected have been sent letters regarding this issue.
The second point is the complicated issue with respect to attribution rules which is geared to prevent income splitting that can reduce tax. Income earned in a TFSA is not subject to the attribution rules AS LONG AS IT STAYS IN THE TFSA. However, the attribution rules will start to apply once the funds or stocks are taken out of the TFSA and they continue to generate income.
Northern Ontario Energy Credit
In the spring of 2010 the Ontario Legislature introduced a new permanent, refundable energy credit for Northern Residents. Those who pay rent or property tax for their principal home are eligible for an annual credit of up to $ 130 for single people and up to $ 200 for a family which includes single parents. The credit is income -tested and is gone for singles over $ 48,000 net income and gone for familes over $ 65,000 net income.
For 2010, an application form must be completed and it should be sent to you if you filed a 2009 tax return and qualify as to income. To be eligible for the first instalment, you must be a northern Ontario resident on November 15, 2010 and for the second instalment for February 15, 2011.
For years after 2010, this credit will be paid on a quarterly basis and delivered along with the new Ontario Energy and Property Tax Credit. Hopefully no separate application should be required.
More on the HST
By now, most of my business clients have received a 10 point synopsis of the state of the HST changes at this point in time. I hope this is helpful to you and please call if you have any specific questions.
You may notice that HST may already be charged to you if an invoice goes into the new rate time after July 1st. For yourself as a GST/HST registrant, it is probably best to manually enter in your computerized accounting systems the new rate for any issues that it applies and then as of July 1st, set up the automatic calculations. For example, Simply Accounting is not time sensitive as to the date on this issue so it will charge the new rate now even though it does not start until July 1st for most billing issues.
A good source of information on HST issues is the CRA website at cra.gc.ca/harmonization and the Ontario Ministry of Revenue Website. There is also a toll-free number, 1-800-959-8287 which at present is not too busy but I'm sure will be after July 1st. Also, you can always call the office with your issues and I will be glad to assist you with this or any other business matter.
I am glad to report to you about a new service we are able to provide our clients and that is, "GoToAssistExpress." With this service, my staff is able to provide remote-support to help with your bookkeeping questions - whether that be in Simply Accounting, Quick Books or Excel. It allows us to connect with your computer and see what your technical bookkeeping problem is and fix it without you having to bring us your memory stick or us having to go out to your office. It can also be used to to allow us to enter those year end adjustments that cause some people problems. The screen sharing and remote control of your computer is 100 percent permission-based and data is fully encrypted end-to-end using Secure Socket Layer (SSL) and government approved 128-bit Advanced Encryption Standard (AES) encryption. In other words, I believe it is safe to use and provides adequate security for the both of us. I have been using this for a few months now and the feedback from both clients and staff has been very positive. So next time your having bookkeeping problems, consider this option as a possible solution and give it a try.
Government Filing Deadlines
I am often asked about filing deadlines at this time of year for various government documents. This is a brief summary of this information for 2009:
T4 ,T4A and T5 Summary and supplementaries - March 1 (February 28 falls on a Sunday)
RRSP contribution deadline for 2009 - March 1, 2010
T3 - March 31 or 90 day after if a non-calendar year end
T1 (Person Income Tax Return) - April 30
T1 for Self- employed and their spouses - June 15 but taxes are owing at April 30
T2 (Return for private corporations) - 180 days after the fiscal year but tax balances owing are payable at 3months after fiscal year end and interest will be charged if installments were required and not paid
T5018 - 6 months after the calendar year or fiscal period which ever you originally chose
Business Year End Procedures
As December 31st approached, the year end review comes up for many companies and businesses. Payroll and WSIB issues have to be reviewed and corrections done for the required government filings. If you have inventory, a physical count should be done at month end and sales tax filings have to be done if you are on the annual method. Hopefully this is a slower time in your business cycle, as this is an intensive time for bookkeeping. Accounts receivables and payables need to be listed, reviewed and assessed. Plans for the upcoming business year should also be on the agenda for discussion as well as the usual tax planning conversation.
These are the main things to look at during your year end review. There are often other issues to discuss, but this gives you a brief synopsis of what will be looked at and what documentation that needs to be brought in for the review.
Mandatory T2 Internet Filing
The government announced in the 2009 Budget statement that beginning with tax years after 2009, corporations with gross revenue in excess of $ 1 million dollars will be required to internet file their T2 Corporate tax returns using CRA approved software. All corporations are encouraged to Internet file due to increased government efficiency and to reduce the paper impact on the environment. As of 2011, paper returns (if it is deemed that the return should have been internet-filed) will be charged a penalty of $ 250. For 2012 the penalty will be $ 500 and after 2012, the penalty will be $ 1,000. Exceptions to the requirement are insurance corporations, non-resident corporations, corporations with functional currency and corporations exempt from tax payable under Section 149 of the Income Tax Act.
I have been internet filing corporate returns for a number of years so this change will not affect my clients. However, I thought it important that you be made aware of this new requirement and help keep you abreast of the ongoing move of the government to increase its internet usage.
Tax Consequences of Ceasing to Reside in Canada
As more and more people travel and move around the world, governments concerned about tax issues have begun to sign more Tax Treaties between countries to cover tax matters. Checking the Canada Revenue Agency Website, I found that Canada has currently 87 treaties "In Force", 5 Signed but not in force and 15 Under negotiation. Needless to say, Canada is serious about this matter.
How this affects you depends on a number of issues, the first being whether your non-residency is temporary or permanent and believe it or not, this is a difficult question. Often, one has to file tax returns in both Canada and the other country and rules vary by country, the amount you have for income and from where - eg. wages, salary, pension, interest
If you have become a permanent non-resident, you are deemed to have disposed of your property at fair market value with certain exceptions. These issues are rather complex and each case needs to be reviewed and discussed as to requirements, both here in Canada and the new country. More and more students and young people are getting into these areas and think it does not affect them as they have very limited taxable income. While in the past, this area was not formalized as Canada Revenue Agency, this is not the situation now. Emigrating and Immigrating status returns should be filed and it is worth the time and cost of a consultation regarding this matter.
Ontario and British Columbia Plan to Harmonize Single Sales Tax
Ontario and British Columbia have announced that they plan to go to a single Sales Tax July 1, 2010 at 13% for Ontario and 12% for British Columbia. The Federal government has been trying for many years to get the provinces to go with a national VAT (Value Added Tax) system which is the GST. The governments say they are following the lead of 130 nations as well as provinces east of Ontario and that reform is part of tax relief to make the Canadian system more competitive.
Currently the Provincial/Retail Sales Tax is embedded in costs and prices throughout the supply chain. The new single sales tax will use the value-added tax structure with input tax credits being available to businesses. Removing the embedded sales taxes from business costs should result in savings being passed on to consumers. Time will tell as some products and most services will see the total sales tax go from 5% to 13% in Ontario.
Adjustment measures have been proposed. For businesses, to help compensate for the cost of adjustment to point-of-sale accounting systems, there is a proposed one-time credit of between $ 300 and $ 1,000 per business, depending on the amount of tax remitted. For individuals, there are proposed temporary transitional rebates for eligible families, paid in three instalments through June 2011. In addition, the current Ontario Sales Tax Credit will be structured to provide ongoing quarterly rebates to low income families and individuals. There are many details that still need to be worked out, especially issues that straddle the July 1, 2010 implementation date. For businesses, it is important to stay tuned to this very significant change and how it will affect your business.
Home Renovation Tax Credit
By now, most of you have heard of the Home Renovation Tax Credit announced in the January 2009 budget. This short term credit is based on eligible expenditures incurred for work performed, or goods acquired, on your home or camp/cottage after January 27, 2009 and before February 1, 2010. The credit will be claimed on your 2009 personal income tax return when you file in the spring of 2010.
The credit is 15% of the expenditures in excess of $ 1,000. and up to $ 10,000, for a maximum credit of $ 1,350 on taxes owing.
Revenue Canada has published a list of expenses it considers eligible for the credit. These include:
- Renovating a kitchen, bathroom, or basement
- New carpet or hardwood floors
- An addition, garage, deck, garden/storage, shed or fence
- Re-shingling a roof
- A new furnace, woodstove, boiler, fireplace, water softener, or water heater
- A new driveway or resurfacing a driveway
- Painting the interior or exterior of a house
- Window coverings directly attached to the window frame and whose removal would alter the nature of the dwelling
- New sod on your yard
- Swimming pools of a permanent nature, either in-ground and above-ground
- Fixtures such as lights and fans
- Cost of permits, professional services, equipment rentals and incidental expenses related to above
Thus far, Revenue Canada indicates the following are NOT Eligible expenses:
- Furniture, appliances and audio/visual electonics
- Carpet cleaning or house cleaning
- Maintenance including furnance cleaning, snow removal, lawn care, and pool cleaning
- Financing costs
Processing Review Letters - Personal Tax
After the busy tax period ending June 15th, Revenue Canada (CRA)begins to do a check on the Efiling system. There are many reasons for this - eg. checking discrepancies, checking compliance by taxpayers and tax preparers and ensuring the accuracy of the system. It also results in increased income for the government due to taxpayers' filing errors and non-response to letters.
For the tax returns that I efile, the taxpayer receives the processing review letter which requires a response typically within 30 days. It is usually a matter of sending in documents - some with required signatures - with the enclosed addressed label. If there are any specific information wanted or a schedule requested, it is included with the letter. The papers that are sent into Revenue Canada are reviewed and then returned to you. If you do not respond, CRA will do a reassessment which usually results in money payable to them. Therefore , it is important to answer the letters!
While reassessments can be returned to the original filing, if the required documents are sent in, it is easier and better to send in the information on the first request. Since I have reviewed all documents prior to efiling and these documents have been given to you in your T1 package, sending in documents should be easy.
For those who would prefer me to answer the Processing Review Letter, please bring in the letter, label and your T1 package so I can answer this for you. Also, if a specific schedule is requested and you are not sure if you have it, please let me know and I will print one for your submission.