by Jeff KirshenWhat is a Defacto Director’s Liability Assessment?
A Defacto Director is someone who acts as a director, but is not a director on paper.
Directors of a corporation can be found jointly and severally liable for certain tax debts of a corporation under section 227.1 of the Income Tax Act and 323 of the Excise Tax Act. Directors’ liability arises in one of two ways, either in fact or in law. For more background material on this distinction, and on director’s liability, feel free to consult our blog post that discusses the topic at greater length.
It is possible to become a de facto director by accident, without knowing or recognizing this designation at the time of dealing with the corporation. Officers, employees, and those whom are not legally appointed or elected but who perform the functions that directors would perform, may be liable. It is imperative that individuals are vigilant and careful in their dealings with struggling corporations, as well as, those that are known to be failing to remit GST/HST or their payroll source deductions.
Defending Against a CRA Director’s Liability Assessment
All directors whether deemed such or those validly elected to the position can use procedural defences to protect against the assessment of liability. Furthermore, de facto directors can use the due diligence defence to prove that they acted responsibly and with due diligence, allowing the director to avoid liability. As well, there is a statutory limitation under section 227.1(3) of the Income Tax Act. This limitation on assessment protects any individual from being assessed on the basis of directors’ liability if they ceased to be a “de facto director” more than two years prior to assessment. The only other way to avoid being deeming such is to prove via the common law that one’s actions should not deem them a director.
Defacto Director Tax Court Cases
There is a test established by jurisprudence to determine whether one’s actions arise to the level of de facto director. As well, the Tax Court of Canada found for a Taxpayer not being de facto director on the grounds of documentary evidence alone.
In Mosier v. The Queen, 2002 GTC 28, a case where the taxpayer was deemed not to be a de facto director, the Tax Court of Canada Court heavily weighed documentary evidence. Specifically, the court relied on evidence which indicated that the powers and duties of the taxpayer were very extensive. The Court ultimately held that the taxpayer was not a de facto director as only the power and responsibility of running the day-to-day operation of the corporation were conferred to the taxpayer, but the power to participate in pure directorial acts was not.
As well, there is not a single factor which determines whether someone is a de facto director. Instead, the courts consider, as in Soper v. The Queen, a number of different non-exhaustive indicators to determine whether an individual is a de facto director:
- Whether the individual has been signing documents as a director;
- Whether the individual has been signing tax returns;
- Whether the individual has been attending director’s meetings;
- Whether the individual introduces themselves to third parties as a director;
- Whether the individual signs directors’ resolutions; and
- Whether the individual plays a significant role in supervising the management of the company or otherwise controlling the company.
If you have received a pre assessment letter threatening de facto director’s liability, or an assessment for Director’s Liability, we strongly recommend giving us a call. If found to be a director, you may be held liable for enormous amounts of money due to unpaid GST/HST or source deductions even when it was not your fault. The process can be quite complicated, with many moving parts that are time sensitive, so it is best to have legal counsel helping you navigate through it. Don’t delay, contact us for a free consultation today!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer.
by Jeff KirshenAssigning Property and the Income Tax Implications
Assignment is when you purchase a pre-construction home or property, and sell the property before it is built and before you gain title to it. In other words, you are assigning your purchased rights to a home to another person.
Property Assignment and the Income Tax Implications
When you assign a property, you typically earn a profit from the difference in the amount that you originally purchased the property for and the amount that you sold your rights to the property for. This profit needs to be reported to the Canada Revenue Agency (CRA). This is done by including the profit as income for the year in which the assignment occurred.
Property Assignment – Income or Capital Gains?
Most people assume that the income earned from property assignment should be reported as capital gains and therefore only 50% of the profit is taxable. However, there are circumstances under which the CRA considers the profits as business income and therefore 100% of the profit is taxable.
It is the intent of the buyer, and not the nature of the property the determines whether the property was capital or inventory. If the CRA concludes that the property is capital, then its assignment (or disposition) would result in a capital gain. If the CRA concludes that the property is inventory, then the disposition of that inventory would result in business income.
The intent of the buyer is the key factor because if the CRA determines that the intention of the taxpayer at the time of purchase was to resell the property for a profit (or “flip it”), then they will classify the transaction as a business transaction and the profit as business income.
Property Assignment – What Factors does the CRA Consider?
There is no specific provision in the Income Tax Act that outlines the circumstances under which the proceeds from a sale of property must be reported as either business income or capital gain.
However, a review of court decisions shows that the courts have historically focused on several key factors in determining how to classify sales of property.
These are some of the factors that the courts have looked at:
- Individuals’ stated or deduced intention with respect to the property at the time of purchase and the feasibility of those intentions;
- Extent to which this intention was actively carried out by the seller;
- Geographical location and zoning restrictions of the property;
- Nature of the business/profession that the seller is involved in;
- The extent to which borrowed money was used to finance the real estate acquisition, including the terms of the financing;
- The length of time the property was held by the seller;
- Whether or not there were other individuals who shared an interest in the property;
- The factors involved in the sale of the property; and
- Evidence that the individual and/or their associates have previously dealt with real estate.
Taken together, these factors are used by the courts to determine whether the intention at the time of purchase was to resell the property for a profit.
Property Assignment and Other Tax Implications
Property assignment can also result in GST/HST implications. For more information on those implications, please review this article.
The principle residence exemption can also result in tax implications upon the purchase or sale of property.
The CRA has been actively pursuing and investigating real estate transactions due to the fact that this is a significant area of non-compliance.
If you have recently assigned a property, or have been assessed for the assignment or sale of a home/property in the course of a business, contact our firm for a free consultation. We are here to help!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
by Jeff KirshenPossible Taxes on the Sale of a Principal Residence
When you sell your home, you may realize a capital gain. A capital gain is a profit earned on the sale of property. However, there is an exception to this rule if your home is a principal residence which would allow you to pay no taxes on the sale.
What is the Principal Residence Exemption
The principal residence exemption allows homeowners to avoid paying taxes on the capital gains realized from the sale of their primary residence. If a property qualifies as a taxpayer’s principal residence, he or she can use the principal residence exemption to reduce or eliminate any capital gain otherwise occurring, for income tax purposes, on the disposition (or deemed disposition) of the property.
The Principal Residence Exemption and the 2016 Changes
Prior to 2016, for every year you have owned your property, it was your sole residence, you did not have to report any income tax on the profits from the sale of your home, or to report the sale of a principal residence at all. However, in an effort to ensure only eligible homeowners benefit from the exemption, the federal government now requires that taxpayers report information such as the proceeds of sale, and details of the transaction to claim the principal residence exemption. See our other article regarding designating your property here: How do I designate a Property as my Principal Residence – T2091 Form
For 2016 and onwards, this information is provided by the taxpayer on Schedule 3 of their income tax return, and by filing Form T2091, Designation of a Property as a Principal Residence by an Individual, for the year the property is sold. It is important to note that only one home is eligible for a principal tax exemption for any given tax year.
If you have sold your home and not reported it in your income tax return, it may be appropriate to submit an application through the Voluntary Disclosures Program to avoid significant penalties.
The Principal Residence Exemption and Possible Taxes
If you sell your principal residence, normally the profits are tax free. However, the Canada Revenue Agency (CRA) may claim that you are in the business of buying and selling homes. If this is the case, then your profit could actually be termed business income. You would have to include 100% of the profit as income, and you don’t even get to claim it as a capital gain which would have cut the taxes in half.
Additionally, if you are found to be in the business of buying and selling homes, the CRA may come in and say you should have charged GST/HST on the sale of the property. If this occurs, all of a sudden 13% (in Ontario) of the total purchase price actually counts as GST/HST. Which means you might owe hundreds of thousands of dollars in GST/HST which may remove your entire profit margin.
If either of the above happen to you, it is likely that the CRA will charge you their worst possible penalty known as gross negligence. This adds 50% of the amount owing as a penalty. So if you now owe $100,000, you will actually owe $150,000 before they even start calculating any interest charges.
If you have recently sold your principal residence, and you are worried about the above, call us today! Or if you are being audited for the sale of your principal residence and you need professional assistance, we are here to help! Contact us today!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
by Jeff KirshenReal Estate Agents and Incorporating a Company
For years, professions have been lobbying the province of Ontario to be permitted to incorporate. After doctors were given the right to incorporate over a decade ago, legislation has been introduced and tabled that would grant the same rights to real estate agents. To date, nothing has passed. However, it appears that Bill 104, the Tax Fairness for Realtors Act, is picking up steam, and soon may finally grant real estate agents the right to incorporate their business.
Tax Benefits for Real Estate Agents who Incorporate
Passing Bill 104 would carry significant tax benefits for real estate agents who decide to incorporate. In the province of Ontario, the highest income tax bracket is 53.53%, for every dollar earned over $220,000. As real estate agents are sole proprietors, their businesses have been subject to the same marginal tax rates as Ontario incomes.
However, as a Personal Real Estate Corporation, real estate agents will be able to enjoy the Ontario small business tax rate, which is 13.5% on the first $500,000 of income earned. Furthermore, as long as the corporation is owned, controlled, and operated in Canada, it can enjoy the Canadian Controlled Private Corporations tax rate of 26.5% on income that exceeds $500,000. The incorporation route promises huge tax savings for real estate agents.
There are also valuable income splitting opportunities with corporations’ income, which would be accessible to real estate agents. Income splitting allows corporations to separate its income among family members, which can be done strategically to stay in lower tax brackets. Corporations can do this by either paying them a “fair salary”, or issuing dividends.
There are also large tax deferral opportunities. Individuals are required to report income to the CRA that they earned during the year. Corporations only have to pay tax on income that is withdrawn. Therefore, they can delay the payment on a share of income by just leaving it in the corporation. This gives corporations significant tax planning advantages, as they can control the amount of income leaving their corporation in a specific tax year to lower their tax obligations.
Reporting Requirements for Real Estate Corporations
Of course, with incorporation comes new challenges. Requirements for filing and record keeping for corporations are far more onerous than for individuals. There are also indirect taxes like employer health tax, WSIB, taxes for payroll and GST/HST on commissions that can add expenses. In essence, while the power to incorporate would give real estate agents far more power to file their income strategically and enjoy small business tax rates, it also requires a far more complicated tax filing process with more costly obligations.
If you are a real estate agent and would like to discuss the implications of incorporating your business in the near future, contact our firm for a free consultation. We are here to help!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
by Jeff KirshenHome Depot and the CRA
In July of 2019, the Canada Revenue Agency used the “unnamed person requirement” to obtain a Federal Court order compelling Home Depot to disclose customer information to the CRA.
The CRA started its application for the information in 2016, but the application was put on hold while Rona disputed a similar application. Rona fought the CRA all the way to the Federal Court of Appeal, where it lost. It attempted to appeal the case to the Supreme Court of Canada, but leave to appeal was denied.
At that point, Home Depot informed the CRA that they would not challenge the application.
In September of 2019, Home Depot sent out letters to the customers affected, notifying them that their information would be provided to the CRA.
Who is Involved in this Request?
This involves customers who used Home Depot’s commercial credit card program between January 1, 2013 and December 31, 2016.
What Information and Documentation is being sent to the CRA?
Home Depot was compelled to disclose the identity, address, and the total annual amount spent by each customer.
What is the “Unnamed Person Requirement”?
The “unnamed person requirement” (UPR) found in the Income Tax Act is often utilized by the CRA to obtain information related to taxpayers from third parties.
As long as there is reasonable evidence that tax evasion is occurring, the CRA will likely succeed in obtaining the information requested.
UPR is often used by the audit division within the CRA in order to obtain information on taxpayers. The CRA has multiple options on how to obtain information during audit.
Why is the CRA doing this?
This is an example of the CRA’s latest attack on the underground economy. The CRA is targeting cash industries to discover businesses engaged in tax evasion. A Statistics Canada report released in 2018 found the underground economy accounted for $51.6 billion in 2016, or 2.5% of gross domestic product. Residential construction accounted for 26.6% of that.
The CRA has previously obtained a list of municipal building permits in order to discover unregistered building subcontractors. Their review of 8,396 building permits yielded 2,751 unregistered building contracts.
What Happens Now?
The CRA will use this information to attempt to find Home Depot commercial customers who have avoided filing accurate returns due to the fact that they work in a cash industry.
The CRA will look at the amounts that businesses spent at Home Depot and assess whether the revenue reported to the CRA on tax returns was reasonable in comparison. For example, if a business purchased $100,000 worth of items from Home Depot, but only declared $20,000 in revenue, this would likely be flagged to further review by the CRA audit division.
This will likely result in many businesses involved in construction being audited.
What if I am Affected?
If you are audited by the CRA, you should follow our guide on how to survive an audit.
Businesses or individuals who believe themselves to be at risk from the disclosure of third-party information to the CRA should consider applying to the CRA’s voluntary disclosure program in order to avoid prosecution and gross negligence penalties.
If you are worried about being audited or are considering applying for the voluntary disclosure program, contact our firm for a free consultation. We are here to help!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
by Jeff KirshenThe Power and Limits of CRA Collections
The Income Tax Act grants extensive powers to the Canada Revenue Agency (CRA). The CRA is not your average creditor; they have a variety of tools for collections and their powers are broader. Therefore, if you owe the CRA money, it is important to know the limits of the CRA’s power so you can deal with collections in the most effective way.
90 Day Window
The CRA typically grants a taxpayer a period of 90 days to make good on any debt stemming from an assessment before forwarding the case to a collections officer. This 90-day grace period is enshrined in the Income Tax Act. However, this only applies to debts under the Income Tax Act. If a taxpayer owes GST/HST or source deductions, the 90 days does not apply.
Initial Collections Activity
At this stage, the CRA will initiate phone calls to the taxpayer in an attempt to collect on money owed. These phone calls can often be intimidating as collection officers will often threaten legal action. Further, if the phone calls become ineffective, collections may escalate their efforts by making in-person visits to taxpayer’s homes or registered offices. It is essential for taxpayers to know that they are not required to speak to the CRA directly. According to section 15 of the Taxpayer’s Bill of Rights, taxpayers “have the right to be represented by a person of your choice.” In these types of cases, taxpayers should seek advice from experienced tax experts.
CRA Payment Arrangements
Taxpayers may attempt to get themselves on payment arrangements by negotiating with their collections officers. However, communicating with the CRA can create undue stress. This is just one of the many reasons it is useful to have experienced tax professionals negotiate with the CRA collections officers of your behalf. Tax professionals have a deep understanding of the Income Tax Act and can advocate for a payment arrangement between the CRA and the taxpayer to avoid undue hardship to the taxpayer. While the CRA would rather get paid on time, its ultimate goal is to collect the amount owed. A payment arrangement allows the taxpayer to pay smaller payments, that are affordable based on your financial situation, overtime, until the entire debt is paid off.
CRA Legal Action
If initial collections efforts are ineffective, the CRA has the authority to take legal action against a taxpayer. The CRA does not need to sue the delinquent taxpayer in order to obtain a judgement to garnish wages. This means that the CRA can issue a Requirement to Pay (RTP) to garnish your wages. At this stage, you still have the ability to communicate with your collections officer to attempt to arrange a payment plan that may reduce or remove the garnishment. Your employer is required to pay or will be held liable for amounts not remitted.
The Income Tax Act also gives CRA collections officers the ability to seize bank accounts, RRSP accounts, accounts receivables, put a lien on a taxpayer’s property, including motor vehicles, and forcing the sale of your home. Seizure and lien action can derail the life of the taxpayer and cause undue hardship. If you are currently dealing with a debt that is being enforced, we can help you better understand the various solutions.
Dealing with the CRA collections department can be overwhelming and stressful. If you are having trouble with the CRA, give our team a call to ensure you have the right advice and effective representation. We’re here to help!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
by Jeff KirshenOffshore Bank Accounts and the Voluntary Disclosure Program
If you have an offshore bank account that holds more than $100,000 CDN, or many bank accounts that total $100,000 CDN, the Canada Revenue Agency wants to know.
Choosing to disclose this to the CRA is always hard, especially when you lack understanding of why you’re doing so. This is commonly the case with Taxpayer’s who posses offshore assets and property and need to file the T1135 form. However, even with this confusion on filing, the time to come forward is still as pressing as ever. This is because, the start of action against the Taxpayer with undisclosed offshore accounts and assets invalidates their ability to qualify under the Voluntary Disclosures Program.
As a result of this, Canadian Taxpayers with offshore accounts and assets have a small window of opportunity to start the disclosure process. This disclosure allows the Taxpayer to avoid the risk of gross negligence penalties, and the interest that will accrue on those penalties.
T1135 Offshore Reporting Form
The T1135 is required to be submitted by Taxpayers with foreign property which exceeded either the fair market value of $100,000 in a given taxation year, or the cost base exceeds the same number. Where a taxpayer has failed to file the form previously but was required to do so, it must be filed in conjunction with the above Voluntary Disclosure Program to properly avoid interest and penalties for gross negligence.
The objectives of this reporting requirement are:
- To enhance compliance with tax laws that require reporting of foreign-source income;
- To increase Taxpayers’ awareness of these laws;
- To provide information to the CRA for the purpose of verifying Taxpayers’ compliance with these laws; and
- To better target international tax evasion and aggressive tax avoidance.
T1135 – What Property Must be Reported?
The Taxpayer must report all “specified foreign property”. As well, the main criteria for reporting such property is $100,000 worth of such property in total. However, it should be noted that the $100,000 threshold is based on the cost of the property to the Taxpayer, not the current fair market value. Also, the form was updated as of May 16th, 2016 to incorporate a two-tiered information reporting structure.
The new tier, or “simplified reporting method” will apply to Taxpayers who held specified foreign property with a total cost amount of less than $250,000, throughout the year. This method will allow those individuals to report faster as less detail for each such specified foreign property is required. As well, individuals who want to disclose under this method can take advantage of E-filing their T1135 for the 2014 and subsequent taxation years.
Subsequently individuals who have more than $250,000 worth of specified foreign property must use the original, more detailed approach, and paper file the T1135. Thus, you must either attach it to your paper-filed tax return (or partnership information return), or submit it separately, and send it by the filing-due date.
T1135 – Deadline
For individuals the T1135 is due on the same date as the income tax return. Also, if you require additional space you may attach a schedule to your form. Please note that the schedule must be in the identical format as the tables on Form T1135.
T1135 – What is Specified Property?
In order to avoid penalties, whether in the simplified method or the more detailed reporting approach, the Taxpayer must disclose Specified foreign property. Specified foreign property is defined in subsection 233.3(1) of the Income Tax Act and includes:
- Funds or intangible property (patents, copyrights, etc.) situated, deposited or held outside Canada;
- Tangible property situated outside Canada;
- A share of the capital stock of a non-resident corporation;
- Shares of corporation’s resident in Canada held outside Canada;
- An interest in a non-resident trust that was acquired for consideration;
- An interest in a partnership that holds a specified foreign property unless the partnership is required to file Form T1135;
- A property that is convertible into, exchangeable for, or confers a right to acquire a property that is specified foreign property;
- A debt owed by a non-resident, including government and corporate bonds, debentures, mortgages, and notes receivable;
- An interest in a foreign insurance policy; or
- Precious metals, gold certificates, and futures contracts held outside Canada.
There are significant penalties that may be applicable for failure to file Form T1135 by the reporting deadline, or for making a false statement or omission with respect to the required information. If you are interested in using the Canada Revenue Agency’s Voluntary Disclosures Program to correct past errors or omissions for foreign property in your Canadian tax filings, please contact Rosen Kirsten Tax Law to ensure your privileged disclosure is handled correctly. We are here to help!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
by Jeff KirshenBusiness Use of the Home
Every year, more and more Canadians are opting to work from home. It saves the cost of renting/buying an additional space in an increasingly inaccessible property market, as well as travel costs. Technology has also made it possible to use a workspace at home on a regular basis with access to the same resources as would be provided in an exclusive office space.
The Canada Revenue Agency (CRA) enables Canadians who make business use of a work space in their homes to deduct expenses that flow from that use. However, the CRA often scrutinizes taxpayers for how they may draw the line between business and home expenses. It is important to understand the rules and conditions they set to avoid unnecessary audits and reassessments.
What is Required to Deduct Business Use of the Home Expenses
The CRA says that you can deduct expenses for the business use of a work space in the home, as long as you meet one of the following conditions:
- It is your principal place of business; or
- You use the space only to earn your business income, and you use it on a regular and ongoing basis to meet your clients, customers or patients.
In essence, your home office must be your main office. It must be your home base. Individuals who, say, work from home for a couple days each week, but their work still centres around a workspace outside the home would not be eligible. This is an important distinction because individuals are increasingly working from home, but that does not mean that their home office would be their principal place of business.
Or, you use the space in your home exclusively to produce business income. This is very relevant when it comes to deducting expenses incurred for upkeep and maintaining the work space. For instance, one could not claim their kitchen as their home office, and deduct expenses for buying a new kitchen table they work on. It must be a space used exclusively for deriving business income.
How do I Deduct Home Office Expenses?
If you satisfy one of the conditions mentioned above, you can deduct part of your home costs such as heat, home insurance, and electricity. You can even deduct part of your property taxes, mortgage interest, and CCA. However, you can only deduct the work space’s proportion of the total expenses. This attracts much scrutiny by the CRA: what proportion of the home’s expenses are incurred due to the home office?
The CRA advises that if you use part of your home for both business and personal living, you should calculate how many hours a day you use the rooms for business, and then divide that amount by 24 hours, and then multiply that by your total home expenses.
The amount of expenses you deduct cannot be more than your net income from the business before you deduct these expenses. Basically, the CRA does not allow you to use expenses to increase a business loss.
If you are being audited for your home office, or you have questions about what expenses are eligible, give us a call today! We’re here to help!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
by Jeff KirshenWhat is the Statute of Limitations on CRA Debt?
The statute of limitations or limitation period on Canada Revenue Agency debt is anywhere between 6 to 10 years and it depends on the type of debt that is owing.
What is a Collections Limitation Period?
A collections limitation period is the time in which the Canada Revenue Agency (CRA) can begin actions to collect a tax debt. According to subsection 221(3) of the Income Tax Act, the CRA may not commence or continue to collect a tax debt after the end of the limitations period.
What is the Length of the Collections Limitation Period?
Different types of debt are treated different by the CRA. The length of the limitation period depends on the type of debt and is as follows:
- Individual – 10 years;
- Corporation – 10 years;
- Payroll- 6 years; or
- GST/ HST – 6 years.
When does the Limitation Period Start?
The date that the limitation period starts also depends on the type of debt:
- Individual – 91 days after a Notice of Assessment or Notice of Reassessment is issued;
- Corporation – 91 days after a Notice of Assessment or Notice of Reassessment is issued;
- Payroll – the day after a Notice of Assessment is issued; or
- GST/ HST – the day after a Notice of Assessment is issued.
Restarting the Collections Limitation Period
The limitation period is restarted when either you or the CRA takes certain actions. The following is a non-exhaustive list of actions that will restart the collections limitation period:
The collections limitation period will restart when you:
- Make a voluntary payment;
- Write a letter to the CRA proposing a payment arrangement;
- Offer to provide security instead of paying the amount owed;
- Make a written request for a reassessment of an amount assessed;
- File a Notice of Objection with the CRA;
- File an appeal with the Tax Court of Canada; or
- Ask the CRA if you can make pre-authorized debt payments.
The CRA takes various actions to collect tax debts when taxpayers don’t make voluntary payments. The collections limitation period will restart when the CRA:
- Issues a garnishment or statutory set-off to collect an outstanding tax debt;
- Applies a refundable credit to your tax debt and notifies you by sending you a letter or statement of account;
- Issues a Notice of Assessment or Reassessment against a third party for amounts you owe;
- Certifies your tax debt in the Federal Court of Canada; or
- Initiates seizure and sale action to collect your outstanding tax debt
Extension of the Collections Limitation Period
There are events that can extend the limitation period. When these events happens, the clock stops running on the date that the event begins and it will not run during the event. When the event is completed, the collections limitation period resumes where it left off.
The following events can extend the collections limitation period:
- You file an assignment (bankruptcy or proposal) under the Bankruptcy and Insolvency Act, Farm Debt Mediation Act, or Companies’ Creditors Arrangement Act;
- The CRA accepts security instead of payment of a tax debt;
- You become a non-resident of Canada after the CRA issues a Notice of Assessment or Reassessment;
- The CRA postpones collection action without accepting security for an objected or appealed GST/HST debt. This applies only to GST/HST tax debts assessed under the Excise Tax Act;
- You file a Notice of Objection with the CRA. This will not apply to payroll or GST/HST debts; or
- You file an appeal with the Tax Court of Canada.
Whether or not the collections limitation period has expired can mean the difference between having to pay back a debt in full, and not having to pay it back at all. If you have a very old tax debt, or if you have a tax debt at all and need assistance with it, contact our firm today for a free consultation. We are here to help!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
by Jeff KirshenWhat is a T2200 Declaration of Conditions of Employment Form?
A T2200 Declaration of Conditions of Employment is a form that allows certain employees to deduct specific expenses that are incurred for the purpose of earning employment income.
Generally, the Canada Revenue Agency (CRA) does not allow employees to claim deductions from their employment related expenses. Most employees cannot claim employment expenses, which means that taxpayers are unable to deduct expenses such as the cost of travel to and from work, or other the purchase of most tools and clothing. Although, there are a variety of employment arrangements that allow for employees to deduct employment costs.
What is a T2200 Declaration of Conditions of Employment Form?
However, in order to be able to claim employment expenses, a T2200 Declaration of Conditions of Employment must be completed by your employer. The purpose of this form is to certify an employee’s eligibility for deductions that can be claimed to reduce your overall income which would reduce the amount of taxes you are required to pay. This T2200 form allows you to deduct certain expenses (including any GST/HST) that you paid to earn employment income. However, this can only be done if your employment contract required you to pay the expenses and you did not receive an allowance for them, or the allowance received was included in your income. A T2200 form helps employees maximize their tax deductions for unreimbursed employment expenses.
What is on a T2200 Form?
The T2200 form details the employee’s day to day conditions of employment. These conditions help determine which deductions the employee may qualify for based on their type of employment. There are different deductions and eligibility requirements based on type of employment. For instance, the Income Tax Act makes a distinction between employees earning a commission and those earning a salary, and provides distinct rules for transportation employees, employees working in forestry operations, tradespeople, and artists.
If you have more than one employer, each employer must complete and sign separate forms for each year the employee intends to claim the deductions. An employer completing this form is required to complete the form truthfully and return it to the employee.
Do I need to keep the T2200 Form and Proof of my Expenses?
Though the CRA does not require the T2200 to be filed with the tax return, it is best practice for both the employee and employer to keep a copy in the event the CRA asks to see it. If you are audited, the CRA will require a copy to determine what expenses you are eligible to deduct, and which you are not.
It is important to remember that while a signed T2200 form enables an employee to claim employment related expenses, it does not guarantee that the expenses will be deducted. In order to maximize the chance of deductions, it is essential to keep detailed records of all expenses incurred. In a recent Tax Court of Canada decision, the Judge reaffirmed the notion that in a self-reporting tax system, “the burden of proof for deductions and claims rests with the taxpayer.” As such, it is imperative that a taxpayer keep detailed documentation in support of all claims being made.
If you are being audited by the Canada Revenue Agency for your T2200 form, or you have been audited and your expenses have been denied, call us today! We can help you get all of your employment expenses to which you are entitled!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.