Blog Posts

Tax Tips-Increases to Automobile Limits effective January 1, 2025

Fri, 21 Feb 2025 23:15:07 +0000

For passenger vehicles purchased on or after January 1, 2025, the maximum limit for capital cost allowance increased to $38,000. Previously, the maximum limit was $37,000 for passenger vehicles 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 increased to $1,100 per month before GST/HST. Previously, the maximum deductible amount was $1,050 per month for passenger vehicles newly leased 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, 2025 to $0.72 per km for the first 5,000km, and to $0.66 for every km thereafter. In the previous year 2024, it was $0.70 per km for the first 5,000km, and $0.64 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.

Capital Gain Inclusion Rate Change

Fri, 21 Feb 2025 23:14:54 +0000

On January 31, 2025, Department of Finance announced that the proposed increase in capital gains inclusion rate that was to be effective June 25, 2024 is being deferred to January 1, 2026. So, the capital gains inclusion rate continues to be 50% for all individuals, corporations and trusts until December 31, 2025.

Below is the original proposal.

The 2024 Federal Budget proposes to increase the taxable portion of capital gains from the current 50% (or one-half) to 66.67% (or two-thirds) effective June 25, 2024.

For individual taxpayers, 50% of the first $250,000 of capital gains in a year will be taxable income and 66.67% of any capital gains over $250,000 in a year will be taxable income.

For corporations and trusts, 66.67% of all capital gains will be taxable income. Trusts that retain the capital gains in the trust will pay tax on 66.67% of all capital gains.

Where trusts make distributions and allocate the capital gains to beneficiaries, the beneficiaries will pay tax as individuals (as described above).

For corporations, the portion of capital gain that is added to the tax free capital dividend account will also be reduced from 50% to 33.33% as a result to the change.

The capital gain inclusion rate of 66.67% is not something new. Back in 1988 and 1989, it was increased to 66.67%, then further increased to 75% in 1990, before being lowered back to 66.67% in early 2000. In October 2000, it was brought down to 50% and has remained at that rate until now.

Capital losses carried forward from previous years can be fully applied to capital gains. Therefore, it would be advisable to use them against the capital gains that are subject to 66.67% inclusion rate instead of the capital gains that are subject to 50% inclusion rate.

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.

Canada Carbon Rebate for Small Businesses

Fri, 28 Jun 2024 18:21:39 +0000

The Canada Carbon Rebate for Small Businesses is a new refundable tax credit for eligible Canadian-Controlled Private Corporations (CCPC). It was announced in Federal Budget 2024 to return a portion of the federal fuel charge proceeds to small businesses. For CCPCs with employees in Ontario, Manitoba and Saskatchewan, the credit includes payment for up to 5 years retroactive to 2019-2020. CCPCs with employees in Alberta can receive up to 4 years retroactive to 2020-2021. For CCPCs with employees in New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador, the credit is for 2023-2024. There are some conditions that must be met:

- the CCPC must have less than 500 employees in a calendar year.

- the CCPC must have at least one employee in a calendar year.

- the CCPC must have filed or file its tax return for its fiscal year ending in 2023 by July 15, 2024.

The credit for each year is based on the number of employees the CCPC has in a designated province in that calendar year. The rates for each designated province are yet to be determined. Once the rates are available, the credits will be automatically calculated by the Canada Revenue Agency. CCPCs do not have to apply for the credit.

Underused Housing Tax (UHT) effective January 1, 2022

Thu, 23 May 2024 22:28:12 +0000

The Underused Housing Tax (UHT) took effect on January 1, 2022. This tax of 1% of the home value was introduced to discourage foreign ownership of underused (including vacant) residential homes in Canada. The first tax return covering the year 2022 was initially due on April 30, 2023. However, CRA announced that there would be no penalties or interest if the first year return, and taxes, if applicable, were filed and paid by October 31, 2023. Then on October 31, 2023, CRA made another announcement that the grace period was further extended to April 30, 2024 giving us another six months to comply.

There are 2 requirements – a declaration filing requirement and a tax liability payment requirement for those individuals and entities that own a residential property in Canada.

Full exemption from declaration filing & tax liability payment:

Canadian citizens and permanent residents of Canada are fully exempt and do not have to do anything. However, some might still be affected if they owned a residential home through a Canadian private corporation, a partnership, a trust or as a bare trustee. This applies for the year 2022 only as exclusions were later expanded for 2023 onwards.

Declaration filing requirement (whether or not there is a tax liability):

Individuals who are not Canadian citizens or permanent residents and own a residential property in Canada are required to file.
Canadian private corporations that own a residential property in Canada are required to file for 2022 only. If more than 90% of the shareholders are either Canadian citizens or permanent residents, then the corporation is exempt from filing for 2023 and onwards.
Individuals who are in a partnership that owns a residential property in Canada are required to file for 2022 only. If all the partners are either Canadian citizens or permanent residents, then the partners are exempt from filing for 2023 and onwards.
Individuals who are trustees of a trust that owns a residential property in Canada are required to file for 2022 only. If all the beneficiaries of the trust are either Canadian citizens or permanent residents, then the trustees are exempt from filing for 2023 and onwards.
Individuals who are on the ownership titles but are not the beneficial owners of the property are considered to be acting as bare trustees and therefore, required to file for 2022 only.

Tax liability exemptions:

If the residential property is the principal residence of the owner.
If the individual owner’s non-resident spouse resides in the property for more than 180 days in the year.
If the individual owner’s Canadian spouse, child or parent reside in the property for more than 180 days in the year.
If the residential property is rented to unrelated parties for more than 180 days in the year (at least a month for each unrelated party, if applicable).
If the residential property is rented to related parties at fair market value rent for more than 180 days in the year (at least a month for each related party, if applicable).
If the Canadian private corporation is more than 90% owned by Canadian citizens or permanent residents of Canada.
If all the partners in the partnership are Canadian citizens or permanent residents of Canada.
If all the beneficiaries of the trust are Canadian citizens or permanent residents of Canada.
If the property is not suitable for year-round use.
If the property is acquired in the year, tax exemption for that calendar year.
If the owner died in the year, tax exemption for that year and the following year.

Tax Liability

Tax is calculated at 1% of the specified value of the property, which is the higher of the assessed value for property tax or the most recent sale price. An alternative to that would to be get a fair market value appraisal of the property at any time between January 1 of the year to April 30 of the following year.

Filing & Tax Payment Due Dates

The due dates for both are April 30 of the following year. For the first year 2022, CRA has announced that it will not assess penalties or interest if the return is filed and taxes (if applicable) are paid by April 30, 2024.

Penalties for late filing

The penalty for not filing by the due date is the greater of:

$1,000 for individuals, $2,000 for others

5% of UHT + (3% of UHT x no. of months late in filing)

For those who do not have to pay UHT tax but are required to file, and the return is not filed by December 31 of the following year, the penalty is calculated as if UHT taxes are payable.

Impact on Section 116 Compliance Certificate

An application for Section 116 Compliance Certificate by a non-resident will prompt a compliance review by CRA in terms of UHT. The CRA will not issue a certificate of compliance to an applicant until it is satisfied that the applicant is in compliance with any applicable obligations under the UHT. Therefore, for non-residents (who are not Canadian citizens), failure to file their UHT declarations can prevent them from obtaining the compliance certificate required when selling their Canadian property.

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

Canada Carbon Rebate

Thu, 16 May 2024 21:22:10 +0000

The Canada Carbon Rebate (CCR) started off as the Climate Action Incentive (CAI) Credit in 2018 as a refundable tax credit that had to be applied for on the income tax return. Since 2021, it is no longer claimed on the tax returns. Instead, it was received as a Climate Action Incentive Payment (CAIP) on a quarterly basis that started in July 2022. For the 2023 year (payments starting in April 2024), the CCR payments are available to residents of Alberta, Manitoba, Ontario, Saskatchewan, New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island.

For Ontario residents for the base year 2023, the annual CCR amount for a single adult is $560. For couples, the annual amount is $560 for the first spouse and $280 for the other spouse. The spouse whose tax return is processed first by CRA will receive the CCR payments on a quarterly basis. The amounts for the other seven provinces listed above are different.

For a couple with children, the annual amount for each child, who is under 19 years of age as of the payment date, is $140. For children of a single person, the annual amount for the first child is $280 and $140 for the rest of the children.

If you reside is rural communities outside specified metropolitan areas, you are eligible for 20% additional supplement starting in April 2024 (previously, it was 10%).

The amounts for residents of the other seven provinces listed above are different.

Toronto Vacant Home Tax

Fri, 01 Dec 2023 22:17:45 +0000

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 2023 is February 29, 2024.

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 is 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 at the end of March.

Late declaration submissions will be charged a fee of $21.24.

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 2023, the buyer has to submit the declaration for 2023 by Feb.29, 2024.

If property transfer occurs between Jan.1, 2024 to Feb.29, 2024, the seller has to submit the declaration for 2023 by Feb.29, 2024.

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?

Tue, 28 Nov 2023 21:49:24 +0000

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 2023 is $6,500 and will be $7,000 for 2024. 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 $88,000 available for contribution in 2023 and $95,000 in 2024 provided you were 18 years or older and a 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 $30,780 for 2023. 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 2, 2023 to February 29, 2024 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.

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.

2023-2024 Employment Tax Changes

Thu, 14 Dec 2023 21:52:25 +0000

Canada Pension Plan Contributions - 2024

The 2024 Canada Pension Plan (CPP) contributions rate remains at 5.95% (same as previous year). However, the Maximum Pensionable Earnings (MPE) will increase to $68,500 from $66,600 in 2023. Also, new for 2024, there will be additional CPP contributions (CPP2) of 4% of earnings between $68,500 and $73,200. Therefore, the combined MPE for 2024 will be $73,200 and the combined maximum CPP + CPP2 contributions will increase to $4,055.50 from $3,754.45 in 2023.

Employment Insurance Premiums - 2024

The 2024 Employment Insurance (EI) premium rate is set at 1.66% of insurable earnings for employees and 2.32% for employers who pay 1.4 times the employee rate, which has increased from 2023 rates of 1.63% and 2.28% respectively.

The Maximum Insurable Earnings (MIE) for 2024 will increase to $63,200 from $61,500 in 2023. The MIE is indexed on an annual basis and represents the ceiling up to which EI premiums are collected and the maximum amount considered in applications for EI benefits. The maximum annual EI contribution for a worker will increase by $46.67 to $1,049.12 (up $65.34 for employers to $1,468.77 per employee).

Ontario WSIB Premium Rates - 2024

The WSIB Maximum Insurable Earnings Ceiling for 2024 is $112,500, compared to $110,000 in 2023. Changes to the Maximum Insurable Earnings Ceiling are directly linked to changes in average earnings in Ontario as measured by Statistics Canada, and provisions under the Workplace Safety and Insurance Act.

Meal Allowance - 2023

The Canada Revenue Agency (CRA) has not increased the amount of meal allowance under the simplified method (flat rate per person). It remains at $23 per meal since January 1, 2020. When claiming meal expenses on a personal income tax and benefit return, the CRA allows transport employees, and individuals claiming moving expenses, medical expenses, or the northern residents deduction, to calculate their meal expenses claim using the simplified method.

Ontario Minimum Wage Increase - Oct.1, 2023

The general minimum wage rates in Ontario increased on October 1, 2023. The increase to the general minimum wage is $1.05, which brings the new rate up from $15.50 per hour to $16.55 per hour.

The student minimum wage increased from $14.60 per hour to $15.60 per hour. This rate applies to students under the age of 18 who work 28 hours a week or less when school is in session, or work during a school break or summer holidays.

The liquor servers’ minimum wage rates are equal to the general minimum wage of $16.55 per hour.

The homeworkers minimum wage increased from $17.05 per hour to $18.20 per hour. Homeworkers are employees who do paid work in their own homes. For example, they may sew clothes for a clothing manufacturer, answer telephone calls for a call centre, or write software for a high-tech company. Note that students of any age (including students under the age of 18 years) who are employed as homeworkers must be paid the homeworker’s minimum wage.

Digital News Subscription Tax Credit For $500

Tue, 28 Nov 2023 22:38:36 +0000

For 2020 until 2024, anyone who paid for a digital news subscription with a qualified Canadian journalism organization will be entitled to a non-refundable tax credit equal to 15 per cent of the fees paid. The maximum annual eligible subscription amount is $500, for a maximum credit of $75.

For an eligible subscription that provides access to non-qualifying news content such as a non-digital content portion, you will be able to claim only the stand-alone portion of the digital news content that you have access to as a result of your subscription.

If you cannot determine the stand-alone cost of the digital content portion, then you can use a comparable stand-alone cost and estimate the qualifying subscription expense. In the you cannot determine a stand-alone cost for the digital news or you cannot get a comparable cost, then only half of the total subscription cost is eligible for the tax credit.

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

Tue, 28 Nov 2023 21:51:55 +0000

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 there is a capital loss in the first taxation year, the estate can elect to carryback the loss to the transferor’s year of death to offset the capital gains.

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

Declaring Foreign Income in Canada: Your Tax-Free 10%

Tue, 28 Nov 2023 22:38:16 +0000

Canadian citizens who have incomes from outside the country must navigate a minefield of dense tax code. The rules applying to residents and non-residents are quite different. So, depending on your status, there are various paths you can take.

As a non-resident of Canada, you must file and declare your income earned from Canadian sources. If you have a N4 form for employment income, or have self-employed income or capital gains, you will have to file a Canadian non-resident tax return. If you have Canadian rental income filing of Tax Return Section 216 will be required.

When completing the Canadian Non-Resident Tax Return, you will need to report all Canadian sourced income and report all income earned outside of Canada on Schedule A: “Statement of World Income” filed with your Canadian non-resident tax return. Thereafter, complete Schedule B: “Allowable Amount of Non-Refundable Tax Credits” to calculate if 90 % or more of your income for the year was earned from Canadian sources.

If 90% or more is earned as a non-resident of Canada from Canadian sources, then you will be entitled to your personal exemption. This means you could earn up to $12,069, provided at least 90% of your total income was sourced in Canada. Otherwise, you won’t be able to eligible to earn any tax-free income up to that $12,069 amount plus any of your other non-refundable tax credits that apply. If this amount is less than 90%, you will have reduced non-refundable tax credits to claim being 15% of amounts for the disability tax credit (if applicable), tuition except books, student loan interest and donations.

As a resident, you must declare any income earned outside of Canada on your Canadian tax return. Although it is mandatory to pay these taxes, if you are someone who has already paid tax on this income outside of Canada, you can claim the tax as a foreign tax credit. Because of this, it is recommended that you complete your non-Canadian income tax return before you file in Canada. So, with it being so important to report these incomes properly, you need to make sure you keep records of all your payment documents and copies of your income and tax returns.

If you were an immigrant during the tax year, you will not need to worry about being taxed on your non-Canadian income you earned before becoming a resident. It is still important to report these incomes, because, while there may be no tax, it is still important for properly determining your non-refundable tax credits.

And if you were an emigrant from Canada, you will need to report and pay tax in Canada for all your foreign income earned before the emigration date. After that date, you should not pay tax on any of your non-Canadian income in Canada. It is worth noting that as a non-resident, you may still get some refund for Canada

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

Tue, 28 Nov 2023 22:37:31 +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

Tue, 28 Nov 2023 22:34:31 +0000

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.