Blog Posts

Tax Tips-Increases to Automobile Limits effective January 1, 2026

Tue, 01 Sep 2026 13:47:52 +0000

For passenger vehicles purchased on or after January 1, 2026, the maximum limit for capital cost allowance increased to $39,000. Previously, the maximum limit was $38,000 for passenger vehicles purchased in 2025, $37,000 if purchased in 2024, $36,000 if purchased in 2023, $34,000 if purchased in 2022, and $30,000 if purchased prior to 2022.

For passenger vehicles newly leased on or after January 1, 2025, the maximum deductible amount is $1,100 per month before GST/HST. Previously, the maximum deductible amount was $1,050 per month if lease started in 2024, $950 per month if lease started in 2023, $900 if lease started in 2022, and $800 per month for leases that started prior to 2022.

For zero-emission passenger vehicles purchased on or after January 1, 2023, the maximum limit for capital cost allowance is $61,000. Previously, the maximum limit was $59,000 if purchased in 2022, and $54,000 if purchased prior to 2022.

The mileage allowance rates considered reasonable for employers to reimburse employees for business use of their personal vehicle increased on January 1, 2026 to $0.73 per km for the first 5,000km, and to $0.67 for every km thereafter. In the previous year 2025, it was $0.72 per km for the first 5,000km, and $0.66 for every km thereafter.

The above information is of a general nature only and should not be relied upon for specific situations. Call Marlies Y Hendricks, CPA at 416-766-3941 or submit email enquiry form below to set up a consultation.

CRA Voluntary Disclosure Program Changes

Wed, 22 Jul 2026 20:18:22 +0000

CRA Voluntary Disclosure Program Changes

The Voluntary Disclosure Program (VDP) is a tax relief system that allows taxpayers to correct past errors or omissions, receiving reduced penalties, and partial interest relief. In September 2025, the CRA updated the VDP which received an update that is effective on or after October 1, 2025.

Types of Application:

Unprompted application:

The unprompted application is if you came forward on your own to the CRA to report an issue if they have not contacted you. You may receive the following

Up to 100% penalty relief of penalties
75% relief on applicable interest charges

Prompted application:

The application prompted is when the CRA contacted you by letter or notice regarding a tax issue, without being under audit or investigation. You may receive the following

Up to 100% penalty relief of penalties
25% relief on applicable interest charges

What’s New

Taxpayers are now only required to correct the most recent six years for domestic tax issues.
Eligibility, even when there is no penalty, only unpaid tax and interest

Errors involving foreign income or assets located outside Canada continue to require disclosure for the past 10 taxation years.

The above information is of a general nature only and should not be relied upon for specific situations. Click here for additional tax accounting services information. Call Marlies Y Hendricks, CPA at 416-766-3941 to discuss your tax case in the event of a tax audit and to set up an appointment if you'd like professional help to represent you.

The First Home Savings Account (FHSA)

Tue, 05 Aug 2025 19:22:00 +0000

Introduced in 2023, the First Home Savings Account (FHSA) is a valuable tool for Canadians planning to purchase their first home. It combines the tax-deductibility of RRSP contributions with the tax-free withdrawal benefits of a TFSA, offering a powerful incentive to save.

What Is the FHSA?

The FHSA allows eligible Canadians to contribute up to $8,000 per year, with a lifetime maximum of $40,000, toward the purchase of a first home. Contributions are tax-deductible, and qualifying withdrawals (including investment growth) are completely tax-free.

Key Features

Eligibility: Canadian residents aged 18 to 71 who have not owned and lived in a home in the current or previous four calendar years.
Contribution Room: Unused annual contribution room (up to $8,000) can be carried forward, but only after the account is opened.
Multiple Accounts: Individuals may open multiple FHSAs, but the contribution limits apply across all accounts.
Tax Benefits:
- Contributions are deductible from taxable income.
- Withdrawals for qualifying home purchases are tax-free.
- Withdrawals for non-qualifying purposes are fully taxable and do not restore contribution room.
Over-Contribution Penalty: A 1 percent monthly tax applies excess contributions.
Account Closure: The FHSA must be closed within 15 years of opening, by the end of the year following a qualifying withdrawal, or by the end of the year the account holder turns 71.

Strategic Planning Considerations

The FHSA can be combined with the RRSP’s Home Buyers' Plan to maximize down payment.
- This results in up to $75,000 per individual ($40,000 from FHSA and $35,000 from HBP), or $150,000 as a couple toward a first home purchase!
Transfers from an RRSP to an FHSA are allowed but are not tax-deductible and do not restore RRSP contribution room.
Unused FHSA savings may be transferred tax-deferred to an RRSP or RRIF, ensuring the funds continue to grow in a tax-advantaged account.
After making a qualifying withdrawal, the account holder must occupy the purchased home as their principal residence within one year and provide a signed purchase agreement.

Other Considerations

U.S. citizens and residents should be cautious. The FHSA may be considered a foreign trust or taxable account by the IRS.
Only qualified investments are permitted in the FHSA. Excessive trading or holding non-qualified assets may result in tax penalties.

Reporting and Compliance

Contributions, withdrawals, and transfers must be reported annually using CRA Form Schedule 15.
Over-contributions must be reported using Form RC728 and any tax owing must be paid by June 30 of the following year to avoid penalties and interest.

The above information is of a general nature only and should not be relied upon for specific situations. Call Marlies Y Hendricks, CPA at 416-766-3941 to discuss your best options and set up an appointment.

New Tax Rules for Short Term Rentals (STR)

Thu, 05 Dec 2024 17:03:57 +0000

Effective January 1, 2024, CRA will deny rental expenses claimed against rental income that are from non-compliant short-term rentals. You have short-term rental income if you rent any portion of your home for less than 90 consecutive days to a tenant. The short-term rental is non-compliant if the municipality where the home is located does not permit short term rentals. Some municipalities allow short term rentals with certain regulations that require registration, license or permit, and collection of certain municipal taxes. If you do not comply with these regulations, then it is non-compliant.

For the first year, 2024, if you become compliant by December 31, 2024, then CRA will consider that you have been compliant throughout the year.

Therefore, it is extremely important: first, to determine whether your rental income is short-term (less than 90 consecutive days to a tenant). Then, check with the municipality if short-term rental is permitted. If permitted, then what are the requirements in terms of registrations, licenses, permits, municipal taxes. Make sure to become compliant before January 1, 2025.

If a property is used primarily (more than 90%) for short-term rentals, CRA could consider it to be a commercial property. Which means the property will become GST/HST taxable and subject to GST/HST on sale. You need to be aware as this could happen when you switch from long-term rental to short-term rental of the property.

If your short-term rental income totals more than $30,000 a year, then you will have to register for and collect GST/HST on the rental income.

Changes to Loss Carryback by Estates

Thu, 22 Aug 2024 21:18:10 +0000

According to legislative proposals released recently, capital losses incurred by an estate in the first 3 tax years as a graduated rate estate can now elect under Subsection 164(6) to carry back the capital losses to the terminal return of the deceased taxpayer. Previously, capital losses incurred only in the first tax year could be carried back under Subsection 164(6). Capital losses in the 2^nd and 3^rd years could not be carried back to the terminal return. This is beneficial to those estates where the deceased taxpayer has significant capital gains on the terminal return and subsequent capital losses in any of the first 3 graduated rate estate tax returns.

Changes to Reporting for Trusts with tax years ending on or after December 31, 2023

Thu, 23 May 2024 19:57:58 +0000

Changes for Trust reporting that were announced in Budget 2018 have now come into effect starting with 2023 trust tax returns. The new rules are intended to address tax evasion, money laundering and other financial crimes. With the new rules, fewer trusts will be exempt from filing annual tax returns, and trusts will have to provide more information.

Under the old rules, a trust had to file a trust return only if it had tax to pay, or if it disposed of a capital property, or if it made any income or capital distributions to its beneficiaries. Also, trusts did not have to identify all of its beneficiaries if they never received any income or capital distributions.

Under the new rules, a trust must file a trust return regardless of whether it had any tax to pay, or if it disposed of any capital property, or made any distributions.

Initially, under the new rules, bare trust arrangements were also required to file a T3 trust return. However, at the very end, CRA waived the filing requirement for 2023 for bare trusts.

Under the new rules, a new Schedule 15: “Beneficial ownership information of a trust” is included in the trust return that has to be completed. It was supposed to be included in the 2021 trust return but could not be implemented by CRA on time and was deferred to 2022 and then 2023. The new schedule requires details of all the reportable entities of the trust, which includes the trust’s trustees, beneficiaries (including contingent beneficiaries), settlers and controlling persons.

Reportable entities include individuals, trusts, corporations or other entities. Details required are names of the entities, addresses, date of birth in case of individuals, and depending on the type of entity, the SIN number, trust account number, business number or foreign tax identification number.

Late filing penalty, including missing information, remains at $25 for each day late, with minimum penalty of $100 and maximum of $2,500.

The above information is of a general nature only and should not be relied upon for specific situations. Call Marlies Y Hendricks, CPA at 416-766-3941 or submit email enquiry form below

Toronto Vacant Home Tax

Fri, 31 Jul 2026 16:16:07 +0000

Toronto Vacant Home Tax

Updated: July 30, 2026

All Toronto Homeowners are required to submit an annual declaration regarding the occupancy status of their residential properties for each year that began in 2022. The deadline to file the declaration for 2025 was April 30, 2026.

Properties that are considered “vacant” are subject to the Vacant Home Tax.

A property is considered “vacant” if any of the following applies:

- the property was not the principal residence of the owner or it was not occupied by permitted occupants (family member, friend) or tenants for six months or more in the calendar year.

- the property does not qualify for an exemption*.

- the owner fails to submit the annual declaration.

- the owner fails to submit required supporting documents for an exemption.

* There are various situations that could qualify for exemptions. See link below. Note that supporting documents are required to be submitted for the applicable situation.

Declarations can be submitted through the online portal or by mail. You will need the 21-digit assessment roll number and the customer number from your property tax bill.

https://www.toronto.ca/services-payments/property-taxes-utilities/vacant-home-tax/

For 2022 and 2023, the tax was 1% of the Current Value Assessment (CVA).

For 2024 and onwards, the tax has been increased to 3% of the CVA.

Those who are subject to the tax will be issued a Vacant Home Tax Notice in June.

Overdue tax payments will be subject to interest charge of 1.25% on the first day after due date and 1.25% for each month thereafter.

False declarations or failure to provide information when requested may result in a fine of up to $10,000, in addition to the tax.

When purchasing property, buyers have to make sure to obtain proof that declarations have been filed and no taxes are owed. If previous owner did not make a declaration, the property will be considered vacant and buyer will be held responsible for taxes and fees.

If property transfer occurs before Dec.31 of 2026, the buyer or seller can submit the declaration for 2026 by Apr.30, 2027.

If property transfer occurs after Dec.31 of 2026, the seller has to submit the declaration for 2026 by Apr.30, 2027.

Moving Expense Deductions

Tue, 28 Nov 2023 21:48:25 +0000

If you have relocated to start a new job or business, or to attend a post-secondary school as a full-time student then you may be eligible to claim the related moving expenses. In order to qualify, your new home must be at least 40 kilometers closer to your new workplace or school than your old home. Generally, both the old home and new home must be located in Canada, unless you are a deemed or factual resident of Canada.

Deductible expenses include cost of packing, transportation, and in transit storage of your household items as well as any associated travel expenses like vehicle usage, meals, and lodging during your trip. Actual costs or per diem deductions are available as legitimate deduction methods.

Temporary living expenses for up to a maximum of 15 days near your new, or former home for meals and lodging are deductible.

The cost of cancelling a lease, and cost to maintain your old residence if it stays vacant once you have moved out, is also eligible to a maximum of $5,000.

Incidental costs like change of address on legal forms, replacement of driver’s licenses, utility hook-ups and disconnections can be deducted.

Mortgage penalties, real estate commission, advertising costs, and legal fees from the sale of your old home may be applicable for deduction.

Cost of buying your new home which includes cost of land transfer (not GST/HST taxes), notary and legal fees.

Any of these expenses that were reimbursed by your new employer cannot be deducted.

Moving expenses must be reported in the year that they were paid and not necessarily the year of the move.

If all or part of your moving expenses is paid in the year following the year of the move, then you must report them in the following year.

If your moving expenses paid in the year of move are more than income earned at the new location, you can carry forward the unused part of the expenses and claim them in future years.

However, you cannot carry back moving expenses paid in a particular year to a previous year.

TFSA VS. RRSP-What's the Difference?

Fri, 31 Jul 2026 16:00:59 +0000

TFSA VS. RRSP-What's the Difference?

Last Updated: July 30th, 2026

Canadians planning for retirement know that they have two excellent tools at their disposal, courtesy of the government: The Registered Retirement Savings Plan (RRSP) and the Tax-Free Savings Account (TFSA). Both accounts offer tax incentives when it comes to your retirement money and gives you the opportunity to grow your money long-term by investing in stocks, bonds, ETFs, and other assets.

US citizens have US tax consequences by contributing to TFSAs, investments in REITs, ETFs and mutual funds, so they should obtain tax advice before investing in those.

Contributions to TFSAs are from your after-tax funds as you do not get a tax deduction when you contribute. When you withdraw from your TFSA accounts, they are tax-free.

Contributions to RRSPs are from your before-tax funds as they are deducted from your income and no taxes are paid as a result. When you withdraw from your RRSP accounts, they are taxable as ordinary income.

TFSA Contribution Room

The annual TFSA contribution limit for the year 2026 is $7,000 and is projected to be $7,500 for 2027. If you do not make use of the full contribution limit for any year, it is added to the following year and the contribution room grows. If you never contributed to a TFSA, then you would have $109,000 available for contribution in 2026 provided you were 18 years or older in 2009 and resident of Canada since 2009 when the TFSA commenced. The amount of withdrawal that you make from your TFSA in the current year is added back to your contribution room in the following year.

TFSA Withdrawals

It is important to note that withdrawals from a TFSA account do not reduce the total amount of contributions you have already made for the year. Withdrawals, excluding qualifying transfers and specified distributions, made from your TFSA this year will only be added back to your TFSA contribution room at the beginning of the following year. Therefore, if not careful, there is chance of over contributing.

TFSA Over-Contribution

Contributions that are over your contribution room will be penalized with 1% tax each month, so make sure to keep track of your TFSA room and contributions to avoid this unfavorable penalty.

Over-contributions should be withdrawn immediately to minimize penalty.

RRSP Contribution Room

The annual RRSP contribution limit for the year is 18% of your earned income in the previous year, up to a maximum of $33,810 for 2026. If you do not make use of the full contribution limit for any year, it is added to the following year and the contribution room grows. Unlike the TFSA, any withdrawal that you make from your RRSP is not added back to your contribution room.

RRSP Contributions and Deductions

You can make RRSP contributions up to your accumulated contribution room. Contributions made from March 3, 2026 to March 1, 2027 must be claimed on your 2023 tax return. You can choose to deduct all, none or portion of the contributions in the current tax year and carry forward any unused portion to be deducted in a future tax year or years.

RRSP Withdrawals

RRSP withdrawals are taxable as ordinary income. Exceptions are when you withdraw from your RRSP under the Home Buyers’ Plan (HBP) or the Lifelong Learning Plan (LLP). If eligible, you can withdraw up to $35,000 under the HBP. You have start repaying 1/15th of the amount each year to your RRSP starting the 2nd following year by making an RRSP contribution and designating it as an HBP repayment. If you do not make a repayment you have to add the repayment shortfall to your income. If eligible, you can withdraw up to $10,000 per calendar year under the LLP, up to a maximum of $20,000 limit. Similar to the HBP, you have to make repayments. Amount of the LLP repayment required is 1/10th of the amount over 10 years.

RRSP Over-Contribution

The penalty for RRSP over-contributions is 1% per month for each month you are over the limit. CRA does allow a $2,000 grace amount for over-contributions. However, that amount is not tax deductible, but this $2,000 over RRSP deduction limit for the tax year is still tax sheltered.

The only way to remedy an RRSP contribution overpayment immediately is to withdraw the amount. That amount will be subject to taxation and taxes will be withheld. If you make the withdrawal of the over contribution in the same year or following year of contribution, or year in which you receive the assessment, you can claim a deduction to offset the RRSP withdrawal income. In such cases, you can also file Form T3012A so that the financial institution does not withhold taxes on the RRSP over-contribution withdrawal. The downside is that the form has to go through the CRA for approval and then the Financial Institution before the over-contribution can be withdrawn, which could take a long time.

To calculate and pay the RRSP over-contribution penalty, you have to file a T1-OVP return which is due 90 days after the calendar year end.

The above information is of a general nature only and should not be relied upon for specific situations. Call Marlies Y Hendricks, CPA at 416-766-3941 to set up a consultation.

Dividends from Canada

Tue, 28 Nov 2023 21:50:23 +0000

There are two types of dividends-”eligible dividends” and “other than eligible dividends”, that you may receive from taxable Canadian corporations with different gross-up factors and calculations for the corresponding dividend tax credits.

“Eligible dividends” (generally those received from Canadian public corporations on the stock exchanges) are grossed-up by 38% and a federal dividend tax credit is allowed which is calculated as 6/11 of the gross-up (or 15.0198% of the grossed-up dividends).

A Canadian Controlled Private Corporation (CCPC) can also pay eligible dividends up to the amount of General Rate Income Pool (GRIP) balance that it has at its fiscal year end. A CCPC will have a GRIP balance if it has paid income tax on part of its taxable income at the higher rate. The GRIP balance is generally the taxable income that has not benefitted from the small business deduction or any other special tax rate and carries forward if not used in the year. To be valid, corporations are required to designate each eligible dividend that they pay, before or at the time of payment, and notify shareholders in writing that the dividend is eligible. Notification could be made through letters to shareholders, on the cheque stubs, or in cases where all the shareholders are also directors, a notation in the corporate minutes.

For example, $100 “eligible dividend” received will be grossed up to $138 taxable dividend and the dividend tax credit will be $20.73.

Dividends “other than eligible dividends” (usually from owner-managed small corporations) are grossed-up by 15% and a federal dividend tax credit is allowed which is calculated as 9/13 of the gross-up (or 9.0301% of the grossed-up dividends).

For example, $100 “other than eligible dividend” received will be grossed up to $115 taxable dividend and the dividend tax credit will be $10.38. The “eligible dividend” is less taxing.

What is “deemed disposition” and how can it be dealt with?

Fri, 31 Jul 2026 16:28:05 +0000

What is “deemed disposition” and how can it be dealt with?

Last Updated: July 31, 2026

The CRA currently considers the capital assets of a person who has recently passed to have been disposed of at "fair market value" right before death. This is the “deemed disposition”.

This “deemed disposition” triggers a tax event, even though the Capital asset was never sold. The deemed disposition can create a capital gain or loss. This does not include depreciable properties or personal use properties.

As the ”deemed disposition” is reported as a capital asset disposition value at the fair market value, the transferee who receives the property recognizes the capital asset at the same fair market value as their cost of the property.

The transferor estate, however, may acquire the property in the case that there is no direct transferee. The estate is then considered a taxpayer for income tax purposes and must have a Tax Form T3: "Trust Return".

If the estate decides to sell the property, the resulting capital gain or loss is deemed by the cost of the acquisition. If this results in a capital gain or loss the estate has two options.

The estate can report the capital gain or capital loss amount on the estate T3 Tax Return; or.
If the date of death is after August 11, 2024 and there is a capital loss in any of the first three taxation years of the estate, the estate can elect under subsection 164(6) to carry back the loss to the transferor’s year of death to offset the capital gains. If the date of death is before August 12, 2024, the estate can only elect to carry back capital loss realized in the first taxation year of the estate.

This second option may be a beneficial option to the estate if it has no capital gains or offset the capital loss.

Do Canadian Businesses Selling Online Product in the U.S need to file for U.S Tax?

Tue, 28 Nov 2023 22:38:05 +0000

Do Canadian Corporations which sell online product or services in the United States need to consider filing sales and/or income tax in both Canada and the United States?

Well, according to RCI Section 882, 1A, in general, “A foreign corporation engaged in trade or business within the United States during the taxable year shall be taxable as provided in section 11 or 59A,[1] on its taxable income, which is effectively connected with the conduct of a trade or business within the United States.” (See 26 USC 882)

In layman terms, any individual or corporation doing official business within the United States are subject to taxation. Thus, to answer the initial question: yes, Canadian Corporations selling online product or services in the United States should consult their Certified Public Accountant (U.S.) about filing taxes for both Canada and the United States – more specifically, sales tax.

This is done on Form 8833, Treaty-Based Return Position Disclosure, which is filed along with the taxpayer’s Form 1120-F (Canadian Corporation needs to obtain a U.S. EIN by filing SS-4 with the IRS). Where a Canadian corporation is claiming no permanent establishment according to the treaty, only the information section of the Form 1120-F is required to be completed. In practice, this type of filing is referred to as a treaty-based return, or ‘short form’.

Remember to file Form 7004 by the 15th day of the 6th month after the end of the tax year to request a 6-month extension of time to file with no permanent establishment.

Watch These Common Errors with GST/HST Tax Returns

Tue, 28 Nov 2023 22:37:54 +0000

Starting and growing a small business can be very exciting but also stressful and overwhelming, especially when it comes to the ins and outs of paying taxes. Small business owners may be unsure, or sometimes unaware, of their responsibilities when it comes to collecting and remitting sales tax to the CRA. Lack of knowledge combined with the complexities related to GST/HST can lead to make mistakes, which may lead to possible penalties and interest.

One of the most common errors for new small business owners when it comes to GST/HST is registration. Many aren’t aware of the requirements set forth by the CRA. Once a business crosses over the $30,000 “small supplier” threshold they must register with the CRA to collect and remit taxes. The timing of when the cross-over occurs dictates how quickly a business must register and begin collecting GST/HST to the CRA.

A business may also be unaware that they must re-register upon incorporation. If a small business sees exponential growth and decides to restructure their business as it better suits their needs, they must register for a new business number and therefore a new GST/HST account as the original one is only associated with the business as a sole-proprietorship.

Another common error is a business’s failure to file and/or pay taxes due on time. Late filing can result in penalties owed, while late or incorrect payments can incur interest charges. Small businesses may find themselves in this situation due to lack of cash flow in the business, or sheer forgetfulness.

Another common error for small businesses is claiming ITCs (input tax credits), correctly. ITC’s allow a business to reduce their tax liability by claiming the tax they have paid for a purchase as an expense. Errors often occur due to improper record keeping, missed ITC claims or claiming credits that aren’t associated with business related purchases.

Lastly, confusion involving the varying tax rates across provinces may cause mistakes when it comes to filing. A small business must charge the applicable sales tax rate associated with the province where they are selling their product to their customer if outside their own province. Complexities may arise when trying to figure the correct sales tax to charge to out of province, or even foreign customers.

Tax Tip: You should also check to see if you qualify to file GST/HST using the “Quick Method”, which could save you significant GST/HST tax dollars in the year. You would still charge the provincial GST/HST rate on your invoices, however would be allowed to remit using a lower set percentage rate based on sales for the period. This works out better for those businesses qualifying and having many expenses that do not have ITCs, such as salaries, insurance and so on.

Renting Your Principal Residence

Tue, 28 Nov 2023 22:37:44 +0000

Certain circumstances, such as converting your home into a rental, may lead to all or some of the principal residence exemption to be disqualified.

This blog focuses on the rules related to renting out only part of your home, may it be just 1 room or your basement.

Tax payers who rent out space in their home while still maintaining it as their primary home are allowed to claim the principal residence exemption on capital gains upon disposition, as long as all 3 conditions set forth by the CRA are met as listed below.

The rental use of the home is “relatively small” in relation to its use as your principal residence;
There have not been any structural changes to the property to make it more suitable for rental purposes; and
You do not deduct any Capital Cost Allowance (CCA) on the part of the home used as a rental.

If you do not meet all the above then the CRA may consider your property is ineligible for the 100% principal residence exemption, and therefore you would owe taxes on future disposition of the home.

The CRA will deem that there has been a change in use of the home and that you have “sold” that portion of your home and immediately reacquired it. You will be required to take the principal residence exemption when you dispose of the property the price of your home will be divided between space used as your residence versus that which was used as rental space years of rental usage against the years of ownership. The CRA allows the rental portion split to be determined using square meters or the number of rooms, but must be considered reasonable.

The capital gains on the portion you rented out must be reported and you can take the principle residence exemption for the portion that was not used for rental income. The same also applies if you stop renting the space out and convert it all back to residential use.

Don’t forget, you are required to report your rental income and expenses on your tax return annually!

Sale of Principal Residence in Canada

Wed, 15 Oct 2025 19:12:56 +0000

In 2016, in an effort to track compliance of the Principle Residence Exemption, the CRA changed the rules regarding the sale of your principle residence. This change did not affect the full tax free exemption itself, but rather it requires taxpayers to report sale information on their T1 personal tax return. In the years before 2016 there was no requirement to report the sale of your home, provided the home was your main residence for all the years you owned it. For tax year 2017 and going forward you are now required to report the sale, designate the property, and complete Form T2091 in order to claim the principle residence exemption. Failure to report the sale of your home could trigger penalties from the CRA.

A principle residence can be any of the following:
- House
- Condominium
- Apartment in an apartment building or duplex
- Cottage
- Mobile home, trailer, or a houseboat

For taxpayers who only own one property the new reporting process is fairly simple and just entails providing a description of the property on your tax return; including the address, date acquired and the amount of disposition proceeds. However, if you own two or more properties, the reporting requirements become more in depth and require more consideration on your part. If you are selling one, or more, of the properties in the year with a profit then you will have to designate which property you want to qualify as your principle residence on Form T2091. In doing so you then disqualify the other residence and you may be subject to tax on the capital gains upon sale, therefore it is important to consider the different scenarios of selling each of the homes. If your property was used a source of income, then additional information is required on the form T2091 to advise of the years used for residence vs earning income.

CRA Family Payroll Audit Of Your Small Business

Tue, 28 Nov 2023 21:54:36 +0000

If your small business comes under audit by the CRA for salaries paid to your spouse and/or children, it is pertinent that you have well-kept records showing that the income they have earned is reasonable and justified. Not having the proper documentation and being unable to prove that the related employees earned their pay can lead to additional taxes, and possibly penalties, owed to the CRA.

The CRA will compare the duties performed and pay received by your family member to that of someone at arm’s length to you, or a non-related employee. For example, a large red flag for the CRA would be full-time salary paid to your spouse for work that be completed by a part-time employee, or payments made to children who are away at school full-time. Review of detailed records showing the duties performed by the family member, timesheets itemizing the amount of time worked, and copies of type and amount of payment made should provide adequate support that income earned is considered reasonable and justified by the CRA. The key to getting through a payroll audit by the CRA is well-kept, organized, and detailed records of payment and jobs held by the family member-employees.

Home Office for Business or Employment Use

Tue, 28 Nov 2023 22:37:07 +0000

If you are self-employed and using a portion of your home to conduct or run your business, you may be eligible to deduct a portion of your expenses on your tax return. The CRA has strict requirements in place for allowing deductions related to the use of your home for business purposes.

To claim business use of home expenses your home must be:

- the principal place of business;

- "principal place" generally meaning more than 50 percent of the time

- or the workspace is used exclusively for the purpose of earning income; and

- is used on a regular and continuous basis for meeting with clients, patients and/or customers.

Conducting business where you live means those expenses are contributing a percentage to your overall home expenses.

Calculating the "designated home office space" for working in the office or garage requires measuring the square footage to find what the allowable portion and a portion of the entire home/apartment. This percentage is then used to deduct the correct portion of house expenses.

If you own the home you can also deduct portions of:

- mortgage interest

- property taxes

- home insurance

- maintenance and minor repairs (not renovations)

- utilities

- cleaning supplies.

Another contention of claiming these deductions is that there must be income. The expenses cannot be used to create a business-loss. Home office expenses greater than current year net income may be carried over to apply to next year's net income.

Cryptocurrency and How it is Taxed with the CRA

Tue, 28 Nov 2023 21:55:34 +0000

What is cryptocurrency?

It is a digital form of currency that is not legal tender. Cryptocurrencies are not controlled by a central bank, authority or government.

How is cryptocurrency treated for tax purposes?

When you use cryptocurrency to pay for goods or services, CRA considers it to be a barter transaction. The value of cryptocurrency paid is equal to the value of goods or services received at the time. If the value cannot be determined from the goods or services received, then you could convert using the fair market value of the cryptocurrency at the time.

Each cryptocurrency is considered to be a separate digital asset and must be valued separately. For example, Bitcoin must be valued separately from Ethereum.

You are considered to have disposed of cryptocurrency when you sell or give away as a gift, trade or exchange with another type of cryptocurrency, convert to conventional currency such as Canadian or US dollars, or use it to purchase goods or services.

If you regularly and frequently buy and sell cryptocurrency, similar to day trading, the profits could be considered business income and fully taxed. Otherwise, the profits will be considered capital gain and only half the gain will be taxed.

Some common signs that you may be carrying on a business are:

• You carry on the activity for commercial reasons

• You undertake activities in a businesslike manner

• You promote a product or service

• You show that you intend to make a profit

When you trade one cryptocurrency, say “A”, for another, say “B”, the proceeds of disposition of “A” will be the value of “B” at the time. The adjusted cost base will be the original cost of “A” when it was acquired. You will either have a capital gain or loss, or business income or loss, depending on whether you are holding “A” as an investment or carrying on a business.

If you acquired cryptocurrency through mining, you are most likely doing it for business to make profit. In this case, the cryptocurrency is your business inventory. Any disposal of inventory will result in business income and taxed as such.

Taxpayers have to keep records of all cryptocurrency transactions, whether business or capital. If you use cryptocurrency exchanges to obtain rates to calculate values of transactions, CRA recommends that you download the information as support for your calculations. This is because online information could become lost or inaccessible at any time.

Taxation on Gifts & Inheritance

Tue, 28 Nov 2023 22:34:43 +0000

Receiving a gift or inheritance from any source, besides an employer, in any amount will not incur taxes. However, if the gift is capital property, say investments or real estate that is not considered a principal residence, then person who gives the gift will be believed to have “sold” the property at fair market value and will have to pay taxes on any resulting capital gain.

If an employer gives the gift then it is likely considered a taxable benefit to the employee. Gifts include, cash, near-cash, and non-cash. Cash and near-cash (gift cards, securities, stocks) are always taxable while non-cash gifts are not taxable if costs do not exceed $500 annually, any amount over that must be included in the employee’s income and are subject to taxation. This amount excludes trivial items such as trophies, plaques, mugs, etc.

Retention of Past Tax Returns

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After filing your tax return make sure you keep your actual return in soft copy or paper copy with the supporting documents for six years. Even if you do not have to attach certain supporting documents to your return on e-file, Canada Revenue Agency still requires you to keep them in case your return is selected for audit. Whether you are a self employed taxpayer, commissions sales persion, landlord, sold property or other events occurred in the year, CRA will request documents other than official receipts as proof of any deduction or credit you claimed, such as cancelled cheques or bank statements. Often the credit card statements as proof of payment for gas and other deductions are not adequate proof without the original gas receipts at the stations.

Shareholder loan account taxation

Tue, 28 Nov 2023 22:34:22 +0000

You need to be continuously aware of your shareholder loan balance (personal money you contributed less repayments back to yourself).

Canadian controlled private corporations often pay tax at preferred rates on their active business income, therefore CRA is concerned that owners could take money out of their company without paying the higher personal income taxes on their drawings.

CRA specifies that if a shareholder owes money to the company on two consecutive year-end balance sheets, the principal portion of the loan must be included in the shareholder’s income tax return. Note a series of loans and repayments will be viewed as one continuous loan. This prevents the shareholder from paying the loan off just prior to year-end and then re-borrowing the money just after year-end so the loan does not show up on the balance sheet.

From a tax perspective, it is often advantageous to eliminate the amount that you owe the company by issuing a bonus or declaring a dividend to the shareholder rather than having the amount included on your personal income tax return by CRA.

Buy or Lease?

Tue, 28 Nov 2023 22:34:13 +0000

When looking to acquire new equipment, it is necessary to weigh the costs and benefits of each contract separately from both a quantitative and qualitative analysis. If you lease, you can preserve the cash flow within your business in the short-term. On the other hand, purchasing could save you money in the long-run because the interest rate for a loan is usually lower than that in a lease contract.

It may be more convenient to lease equipment that requires frequent mechanical or digital updates every few years. Purchasing may be more beneficial to you if the equipment has a longer useful life. In addition, owning the equipment gives you more control over the repairs and maintenance, and you can determine the time to sell the equipment with a more negotiable price in an open market. With leasing, one has to abide by the strict contract.

Another downside of leasing is that under a lease contract, there are generally financial penalties for terminating the lease, as well as late payment penalties and maintenance contracts. With a loan agreement with a financial institution, your costs may also increase due to increased financial reporting requirements, personal guarantees and the requirement to meet financial covenants.

Depending on certain conditions, your lease will be either an operating lease or a capital lease for accounting purposes. For operating leases, you record monthly lease payment as expense. For capital leases, the equipment is capitalized as an asset and it depreciates as an expense over its estimated useful life. If the equipment is purchased, it is capitalized as an asset and the loan is recorded as a liability on the balance sheet.

If you lease, you are entitled to deduct the monthly lease payments from your income.

If you purchase and finance your equipment, you are entitled to capitalize your equipment and claim a deduction for capital cost allowance each year, as well as a deduction for any interest paid.

When trying to figure out whether to lease or buy, one has to carefully analyze the situation to figure out which would be the best decision to make.

Withdrawing Cash From Your Corporation

Tue, 28 Nov 2023 22:14:22 +0000

As a sole proprietor, a person can withdraw cash from the business bank account for personal use without tax consequence. However, once the business has been incorporated any withdrawals from the corporate bank account by the shareholder (or any person connected to the shareholder) for personal use DOES have a tax consequence – the amounts withdrawn are generally taxable (usually as a dividend or employment income).

Subsection 15(2) of the Income Tax Act states that when a shareholder borrows money from a corporation that the amount is included in computing the income of the shareholder in the year the funds are withdrawn (“one year repayment” exception). Basically allows for the shareholder to repay the borrowed amount within one year after the end of the taxation year of the corporation in which the funds were withdrawn.

In order for the amount to be deductible to the company, the company must pay a salary to the shareholder. The result of which is that the proper employment source withholdings must be made and paid to Canada Revenue Agency (“CRA”) by the appropriate deadline.

Caution must be taken to ensure that the net salary paid is properly offset against the shareholder loan. CRA does not necessarily consider a shareholder loan repaid if only a journal entry is made.

The fact that there is a deduction available on a future repayment does, in certain situations, provide for potential income splitting or income averaging possibilities.

Other exceptions that could allow an employee (which a shareholder could also be) to withdrawal funds from a corporation on a tax-free basis are as follows:

- The loan is used to purchase a house.
- The loan is used to purchase shares of the company.
- The loan is used to purchase a vehicle that will be used in the course of the employment duties.

The above information is of a general nature only and should not be relied upon for specific situations. Specifically the above discussion only dealt with Canadian resident individual shareholders borrowing money from Canadian resident corporations. Call Marlies Y Hendricks, CPA at 416-766-3941 or submit email enquiry form below to set up a consultation.

Capital Gains Tax Income Reserve

Tue, 28 Nov 2023 22:16:00 +0000

When filing income tax, if a sale of capital property (i.e. rental property) results in a capital gain and a portion of the proceeds are not due until after the year-end, then you may claim a reasonable reserve for the “unrealized” unpaid portion of the gain as a means of “tax minimization” for taxes owing in the current year.

At least 1/5 of the capital gain must be included in income each year unless proceeds become payable earlier. The exception is for sale of qualified farm, fishing property or shares in a qualified small business corporation to the taxpayer’s child, which permit a 1/10 of gain which must be taken into income. Note, if the gain is an “ordinary income gain” a reserve for the unpaid portion may be taken for up to 36 months from the date of sale if:

-the sale was for land which resulted in ordinary income with proceeds due after the year end;

or -the sale of property, other than land, results in ordinary income gain with proceeds due more than 2 years after the sale date.

A reserve claimed in one year must be taken into income in the next year. A new reserve is set up if proceeds are still unpaid and claimed at the end of that year for the maximum period as noted above.

Foreign Income Verification (CRA Form T1135)

Tue, 28 Nov 2023 22:16:41 +0000

Canadian resident individuals, corporations, trusts and partnerships have to declare on their tax returns whether they owned specified foreign property costing more than $100,000 during their tax year. If so, they have to complete Form T1135: Foreign Income Verification Statement.

Specified foreign property includes:

1. Funds held outside Canada

2. Shares of non-resident corporations (other than foreign affiliates)

3. Indebtedness owed by non-residents

4. Interests in non-resident trusts

5. Real property outside Canada

6. Other property outside Canada

7. Foreign property held in an account with a Canadian registered securities dealer

“Specified Foreign Property” does not include:

• a personal-use property;

• a property used or held exclusively in carrying on an active business;

• a share of the capital stock or indebtedness of a foreign affiliate;

• an interest in an exempt trust, as described in the Income Tax Act;

• an interest in, or a right to acquire, any of the above-noted excluded foreign property.

If the total cost of specified foreign property is between $100,000 and $250,000, you have the option of completing the form using the simplified reporting method where you select the type of foreign property or properties that you owned, the source country, the total income and capital gain earned from them in the year, if any.

It the total cost of specified foreign property is $250,000 or more, you are required to complete the form using the detailed reporting method.

Some of the information required for the detailed reporting method includes:

1. Name of each bank or entity outside Canada holding the funds

2. Name of each non-resident corporation that you owned shares of during the year

3. Description of each indebtedness owed to you by non-residents

4. Name of each non-resident trust in which you hold an interest

5. Description of each real property (other than personal or active business use) outside Canada that you owned during the year

6. Description of other properties outside Canada

7. Name of the Canadian registered securities dealer with whom you had an account that held foreign property during the year

For #1 to #6 above, in addition to the source country, you need the maximum cost of each property at any time in the year as well as the cost of each property at the end of the tax year. You also need to provide any income or capital gain earned during the year for each property.

For #7, for each Canadian registered securities dealer, you can combine the properties by source country. For each source country, you must provide the maximum fair market value of the properties during the year as well as the fair market value of the properties at the end of the tax year. You also need to provide any income or capital gain earned during the year for each source country.

The Form T1135 is due on the same date as the income tax return is due.

• For most individuals, it is due on April 30.

• For individuals who are self-employed or spouse is self-employed, it is due on June 15.

• For deceased individuals (date of death between Nov.1 to Dec.31), it is due 6 months after date of death.

• For corporations, it is due 6 months after their fiscal year end.

• For trusts, it is due 90 days after December 31.

• For estates, it is due 90 days after tax year end.