Author: Jeff Kirshen

by Jeff Kirshen

CRA Review of Corporate Travel Expenses

The Canada Revenue Agency (the “CRA”) conducts regular reviews of corporate tax returns. As part of a new group project, the CRA is focusing on corporate travel expenses. What does this mean if you claimed travel expenses on your corporate tax returns?

You may be selected for a review to ensure that you have the correct books and records in order to deduct the travel expenses you have claimed. Once selected, the CRA will ask for documentation to support your deductions and explanations how they relate to your business.

 

Travel Expenses

A taxpayer can deduct travel expenses incurred to earn business and professional income. In other words, you can deduct reasonable travel expenses only for travel that relates to your business. Examples of acceptable travel expenses include public transportation fares, hotel accommodations, and meals.

When claiming travel expenses, it is important that you keep all of the related records. While the CRA may accept bank or credit card statements as proof, they normally require the primary receipt to give you the full amount of your deduction claimed. Best practice is to also keep a travel log so that you are able to explain how the travel furthers your business. Without a log, the CRA will be skeptical that your travel was related to your business.

 

What is the CRA Review Process?

If you have been selected for a review, you will get a letter or telephone call from the CRA. The CRA will ask for information, receipts, or documents to support a claim or deduction you made on your tax return.

If you are registered for online mail, the CRA will send you an email notifying you of a letter on your CRA account. You should promptly go to My Account where you can review the letter and begin working on your response.

It is important that you respond and send all the information requested as soon as possible. This will help the CRA review your file quickly. Keep in mind also that these reviews are not full tax audits.

The type of documentation the CRA may request to support travel expenses include:

• a detailed list of the transactions (or the general ledger entries) related to the expenses;
• an explanation of the reason for the travel;
• a copy of the invoices or receipts for the ten largest transactions included in travel expenses for each tax year; and
• a copy of any travel logs.

If the CRA does not receive the supporting documentation, they will disallow the travel deductions.

Normally the letter provides a 30 day deadline for a response. These letters are typically signed by a specific CRA officer, so if you require an extension, you will need to contact that officer to request more time. If you cannot reach the officer, you can always contact the CRA general business line.

 

If you are being reviewed for your travel expenses, or have questions about whether you are eligible to claim travel expenses, give Rosen Kirshen Tax Law a call today!  We can help you navigate this complicated review process. 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 Kirshen

Canada Emergency Business Account Extension of Repayment Terms

The Canada Emergency Business Account (CEBA) was an application that was open from April 9, 2020, to June 30, 2021. If granted, it provided small businesses in Canada with a loan at a very favourably interest/repayment rate to support small businesses during the COVID-19 Pandemic. More specifically, CEBA provided interest-free loans of up to $60,000 to small businesses to aid in covering their operating costs during a time where their revenues have been reduced. These loans are also partially forgivable.

 

Canada Emergency Business Account Repayment

If a business applied for CEBA, and received the loan, at some point it will have to repay it. The date of repayment will determine how much of the loan’s principal amount, you will have to pay back.

In general, the repayment terms are as follows:

Interest:

• 0% per annum interest until December 31, 2023.
• 5% per annum interest starting on January 1, 2024; interest payment frequency to be determined by your financial institution.

Repayments & Maturity:

• No principal repayment required before December 31, 2023.
• If loan remains outstanding after December 31, 2023, only interest payments required until full principal is due on December 31, 2025.

If, however, the outstanding principal amount, is repaid by December 31, 2022, some of the remaining principal amount will be forgiven, provided that no default under the loan has occurred. In other words, if you pay the loan back on time, the Government will allow you to pay back less of the loan than you originally owed; a clear incentive for early and/or on-time repayment. Payment before this date will allow a loan forgiveness of up to 33 percent or $20,000.

 

Canada Emergency Business Account Repayment Update

Considering the latest Omicron variant and subsequent lockdown have once again limited a small business’s ability to earn income, the government announced on January 12, that the repayment deadline for CEBA loans to qualify for partial loan forgiveness is being extended from December 31, 2022, to December 31, 2023, for all eligible borrowers in good standing.

The Government did so to support short-term economic recovery and offer greater repayment flexibility to small businesses and not-for-profit organizations, many of which are facing continued challenges due to the pandemic. The terms of the loan repayment remain the exact same as listed above, the only change is the final date when repayment is due (now being December 31, 2023).

Any outstanding loans would subsequently convert to two-year term loans with interest of 5 per cent per annum commencing on January 1, 2024, with the loans fully due by December 31, 2025.

As an example: If you borrowed $40,000: Repaying the outstanding balance of the loan (other than the amount available to be forgiven) on or before December 31, 2023, will result in loan forgiveness of 25 percent (up to $10,000).

As can be seen from the above examples, in order to qualify for the loan forgiveness, you must repay the outstanding balance in full (other than the amount that will be forgiven) by the updated December 31, 2023 deadline.

 

Overall, CEBA has been a great way for the Government to assist small businesses with the financial impact of COVID-19. The repayment terms are rather straightforward, but if they are not complied with, it can have a serious negative impact on a small business. If you have any questions or need any assistance regarding CEBA, or any other government program, or other tax matter, please feel free to 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 Kirshen

The Tax Benefits of a Canadian Controlled Private Corporation

There are many tax incentives available to a taxpayer that is a Canadian-controlled private corporation (“CCPC“), including the small business deduction (“SBD“), which reduces the tax rate on a corporation’s first $500,000 of active business income. To take advantage of these tax benefits, your corporation needs to create, maintain, or retain CCPC status.

The Income Tax Act (“ITA“) defines a Canadian-controlled private corporation as a private corporation that is Canadian and not controlled by non-residents or public corporations. If we were to breakdown the definition, three crucial components make up a CCPC:

1. The corporation needs to be private, meaning that none of its shares are listed on a designated stock exchange within or outside Canada;
2. The corporation needs to be a Canadian corporation, meaning that it was incorporated in Canada and is deemed a resident of Canada; and
3. The corporation cannot be controlled by non-residents or public corporations, meaning that non-residents or public corporations cannot directly or indirectly control the company or own more than 50% of its voting power.

As long as your corporation fits within this definition, it will maintain its CCPC status and continue to reap the tax benefits available to it.

 

Small Business Deduction – how can a business qualify for it?

The ITA sets out the basic federal corporate tax rate in Canada. Currently, the corporate rate is 38% of the corporation’s taxable income. Additionally, federal tax abatement is applied, which reduces the rate to 28%. However, there are more favourable tax rates for certain corporations and types of income. 

The ITA provides a small business deduction for Canadian-controlled private corporations. For CCPC’s claiming the SBD, the federal net tax is 9% on the corporation’s active business income up to $500,000. Canadian provinces and territories also offer a small business deduction. For instance, the Ontario general corporate income tax rate is currently 11.5%. The Ontario small business deduction reduces the corporate income-tax rate to 3.2 percent on a Canadian-controlled private corporation’s active business income.

The SBD works more as a tax credit than a deduction. The corporation’s income is reduced by claiming a deduction, and credit is claimed against tax payable to reduce tax liability. A qualifying corporation is entitled to the full small business deduction until its taxable capital employed in Canada exceeds $10 million. At this point, the corporation’s SBD is reduced on a straight-line basis. Once the corporation’s taxable capital reaches $15 million, the CCPC no longer qualifies for the SBD. Associated corporations must share the small business deduction.

To qualify for the small business deduction, a corporation must be a Canadian-controlled private corporation earning active business income.

 

Active Business Income

The SBD does not apply to all income but only active business income. The ITA defines active business income as income from any business carried on by the corporation other than a specified investment business or personal services business and includes an adventure or concern in the nature of trade. In other words, the ITA presumes that a corporation earns active business income unless it carries on either a specified investment business or a personal service business.

 

If you are thinking about starting a business, give Rosen Kirshen Tax Law a call today! We have the corporate, and tax experience necessary to ensure you choose the best business structure that suits your individual needs. We can even assist you with a tax plan to minimize your taxes moving forward!

 

**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 Kirshen

Ontario’s 2022 Staycation Tax Credit

In light of the many COVID-19 travel restrictions implemented by Ontario, the provincial government has introduced a new temporary Staycation Tax Credit for 2022. The tax credit aims to promote tourism within the province and encourage economic activity for hard-hit businesses in Ontario’s hospitality sector.

The tax credit allows residents to claim 20% of the total cost of eligible accommodation booked between January 1^st and December 31, 2022. The maximum amount that can be claimed as a personal income tax credit is 20% of up to $1,000 for individuals and $2,000 for each family. Thus, residents can claim a maximum tax credit of either $200 as an individual or $400 as a family unit.

 

Eligibility

For you to be eligible to claim the Staycation Tax Credit, you must:

• Be an Ontario resident as of December 31, 2022; and
• Must claim the tax credit as an individual or as the only individual claiming on behalf of a family. Only one person per family can claim the credit for the year, however, their claim can include the expenses of their common-law partner, spouse, or eligible children.

Eligible expenses include:

• Accommodation expenses for a leisure stay of less than a month in Ontario between January 1, 2022, and December 31, 2022;
• Single trip or multiple trips cumulatively;
• The portion of a tour package expense that relates only to accommodation;
• The portion of an expense that is necessary to have access to the accommodation;
• The accommodation can be at a short-term accommodation or camping accommodation such as a hotel, motel, bed and breakfast, resort, lodge, cottage, or campground; and
• The accommodation can be booked either directly or through an online accommodation platform provider.

Additionally, the accommodation expense must be paid by you, your spouse, common law partner, or eligible child (note that eligible children cannot claim the credit on their personal income tax return). The accommodation expense must also be subject to GST/HST on a receipt, and must not have been reimbursed to the payor by any person including a friend or employer.

The accommodation expense does not apply to business travel, timeshare agreements, or stays on a boat, train or other self-propelled vehicles.

 

Claiming the Credit

Residents may claim the credit on their personal income tax and benefit return for 2022, regardless of whether they owe taxes for 2022.

To claim the credit, you must ensure that you have detailed receipts for the expenses being claimed. The receipts should include information such as the location of the accommodation, the GST/HST paid, date of the stay, and name of the payor.

 

For individuals who have been contacted by the CRA and are looking for assistance with their tax matter or for other tax law questions specific to you, book a consultation with one of our experienced tax lawyers 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 the articles. If you have specific legal questions, you should consult a lawyer.

by Jeff Kirshen

The Tax Court of Canada – What is a Notice of Appeal?

When a Taxpayer files their income tax return, the Canada Revenue Agency (the “CRA”) review the returns and issues a Notice of Assessment. The CRA may reassess your returns and issue a Notice of Reassessment. If you disagree with your Notice of Assessment, or Reassessment, you have the option to object to it.

A Notice of Objection can be filed 90 days from the date of the Notice of Reassessment. The CRA appeals division will notify you when your objection has been received and an appeals officer will review your objection. Once your objection has been reviewed, the CRA appeals branch will contact you to either confirm that your objection is valid, to change the Notice of Assessment or Reassessment, or confirm the original assessment or reassessment. If you disagree with the decision, you have the option to file a Notice of Appeal.

Essentially, a Notice of Appeal is a document challenging the CRA decision in court. A taxpayer has 90 days from the date stamped on the response to their objection to file a Notice of Appeal with the Tax Court of Canada. However, it is possible to extend the deadline.

 

What is a Notice of Appeal?

The Notice of Appeal is an essential document required to begin an appeal against the CRA’s assessment or reassessment. The Notice of Appeal is an extremely detailed document that contains a great deal of parts, such as:

• The date of the notice;
• The individual’s home address or the Corporation’s principal place of business in the province in which the appeal is being sought;
• The (re)assessment(s) under appeal, including the date of the assessment(s) and the taxation years. If the appeal is under the Excise Tax Act, it must also contain the periods under appeal;
• Provide a detailed description of the facts relied on;
• Specify the legal issues at stake;
• Reference the specific statutory provisions relied upon;
• Detail the reasons the appellant intends to rely on; and
• Indicate the specific relief that is sought.

The Notice of Appeal requires significant time and attention to produce. It requires a large amount of time for lawyers to analyze the facts, interpreting the situation in a favourable manner to support your position. The more detail  you are able to provide, the greater the likelihood of your appeal being successful. Furthermore, the lawyer must spend significant time studying the statutory provisions relied upon and ensuring that a proper remedy is available.

Any errors made on the Notice of Appeal may be fatal, as it can greatly affect your chance for a successful appeal. Not only will it hurt your case moving forward, but amendments to your Notice of Appeal can cause the courts to doubt your version of the facts, which greatly weakens your case.

The Notice of Appeal is the first step of the appeals process that will end up in the Tax Court of Canada. The CRA and the Department of Justice can be extremely difficult to deal with, especially when the tax law is one of the most difficult areas of law to navigate, even for lawyers.

 

Our team of experts at Rosen Kirshen Tax Law have significant experience with appeals to the Tax Court of Canada and beyond. If you are seeking to appeal an assessment, reassessment, or notice of confirmation, contact us today to schedule a free consultation with one of our expert tax lawyers.

 

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 Kirshen

The Tax Court of Canada – How to Start the Process

What is a Notice of Appeal?

A Notice of Appeal is a document that is filed with the Tax Court of Canada (or whatever court the taxpayer is appealing to), to provide that court with notice that you are appealing a decision, of either a lower court, or in our case, a Canada Revenue Agency decision (“CRA”).

A Notice of Appeal is rather straightforward in its purpose, but can be rather complex to draft, and file.

 

What is the Purpose of the Notice of Appeal?

The purpose of filing a Notice of Appeal in the Tax Court of Canada is to continue fighting a CRA decision. You cannot appeal an assessment under the Income Tax Act (“ITA”) or Excise Tax Act (“ETA”), unless you have already filed a Notice of Objection. Generally, that objection will result in a reassessment, redetermination or confirmation. However, if the CRA takes too long in responding to your objection, you may file an appeal directly to the Tax Court without having first received a decision.

 

Informal versus General Procedure

There are two types of procedures at the Tax Court of Canada (and your choice of procedure must be identified in your notice of appeal): the Informal Procedure and the General Procedure.

The informal procedure is designed for smaller disputes, to help minimize the length of time of a proceeding and to simplify what is required. For starters, in the informal procedure, there is no filing fee associated with filing your appeal. To qualify for the informal procedure, your amount in dispute per year (federal tax and penalties) must not be greater than $25,000. If the matter relates to GST, then this limit is set at $50,000.

The general procedure on the other hand, is more formal and rigid than the informal procedure. There is a filing fee associated with the appeal and it will vary depending on the dollar value of the appeal. The different classes are as follows:

• Class A
  • Where the amount in issue is less than $50,000
  • Filing fee is $250
• Class B
  • Where the amount in issue is between $50,000 and $150,000
  • Filing fee is $400
• Class C
  • Where the amount in issue is over $150,000
  • Filing fee is $550

The General Procedure is governed by the Tax Court of Canada Rules and, deviation from the rules, is strictly prohibited unless a court order is obtained stating otherwise.

When appealing under the General Procedure, you may represent yourself or be represented by a lawyer. However, corporations must be represented by a lawyer.

In most situations, once you file a Notice of Appeal, the debt you owe is uncollectible by the Canada Revenue Agency’s Collections Department until your file is over and a decision has been rendered. However, it is important to remember that interest will continue to accumulate on this amount during this time frame. Furthermore, if your appeal involves trust funds, those funds remain collectible. So it is very important to be in touch with CRA Collections to ensure that they do not take legal action against you while you are fighting in the Tax Court.

The Department of Justice (the lawyers for the CRA), then have 60 days from the date a taxpayer files a Notice of Appeal to submit a Reply (their response).

 

Overall, while the Notice of Appeal seems rather straightforward, the process for drafting and filing of the appeal can be rather complex. More importantly, if the process is not executed correctly, it can prevent you from having your day in court. If you have any questions or need any assistance regarding the preparation and filing of a Notice of Appeal, or any Tax Court matter, please feel free to call 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 Kirshen

Withholding Tax for Non-Residents on Real Estate Sales

Over the years, Canada has been seen as an attractive place for foreign investors to purchase real estate due to its history of lucrative price appreciations. Unfortunately, Non-Residents are often unaware of the additional tax compliance rules that applies to them under the Canadian Income Tax Regime.

An individual’s residency status in Canada can have profound impacts on his or her tax obligations due to the differential treatment of Residents and Non-Residents under the Canadian Income Tax Regime. Canadian Residents must pay tax on worldwide sources of income, while Non-Residents are only liable to pay tax on Canadian Sources of income. Canadian sources of income for Non-Residents may include employment income, business income, and income earned through disposition of Canadian real estate.

 

What is a Taxable Canadian Property?

Non-Residents of Canada who plan on disposing certain Taxable Canadian Property (“TCP”) should understand the filing requirements and potential tax consequences upon sale of their property.

Under Subsection 248(1) of the Income Tax Act (“ITA”), RSC, 1985, c.1 (5^th Supp.), TCPs may include:

• Real property situated in Canada;
• Property used to carry on a business in Canada;
• Shares of private corporations if, at any time in the last 60 months, more than 50% of the fair market value (the “FMV”) of the shares were derived directly or indirectly from Canadian real property;
• Shares of public corporations if at any time in the last 60 months, the taxpayer-owned at least 25% of the shares of any class; and more than 50% of the FMV of the shares were derived directly or indirectly from Canadian real property; and
• An interest in a partnership or an interest in a trust (other than a unit of a mutual fund trust or an income interest in a trust resident in Canada) if, at any time in the last 60 months more than 50% of the FMV of the interest was derived directly or indirectly from Canadian real property.

Although TCPs can encompass a large scope of properties, the disposition of real estate located in Canada are one of the most common TCP dispositions. Accordingly, it is essential for Non-Residents to understand the implications of Non-Resident Withholding Taxes when selling their Canadian properties.

For the purposes of this article, we will be discussing the tax considerations between a Resident Buyer and a Non-Resident Seller in a real estate transaction.

 

Residency

For tax purposes, an individual’s residency is generally based on the location where you spend most of your time, where you work, and where your immediate family lives. However, individuals who have significant ties to another country or spends a significant amount of time in more than one country may require a more detailed assessment to determine their residency status. For more information see our blog post here.

 

What is Non-Resident Withholding Tax?

Withholding Tax is a tax paid by the purchaser of a transaction as opposed to the Non-Resident seller. Under Subsection 116(5) of the ITA, the purchaser must remit 25% (or 50% depending on the TCP) of the purchase price within 30 days after the end of the month in which the property was acquired. Normally, the seller’s lawyer will undertake to provide the Canada Revenue Agency (“CRA“) with the required withholding tax upon completion of the sale. So it is usually the seller’s lawyer who ends up sending the withholding tax to the CRA.

The requirement for purchasers to withhold taxes can deter purchasers from dealing with Non-Residents. However, Non-Residents can relieve the purchaser’s withholding tax burden by obtaining a Clearance Certificate pursuant to subsection 116(2) or 116(4) of the ITA and paying the calculated amount of the tax directly to the CRA.

One notable advantage of obtaining a Clearance Certificate prior to the disposition is that taxes will be calculated as 25% of any net capital gain realized on disposition, as opposed to 25% of the total purchase price (or gross).

 

Consequences of Non-Compliance

The decision to obtain a Clearance Certificate under section 166 of the ITA is optional for the Non-Resident Seller. However, opting out of the Clearance Certificate can have substantial financial consequences.

Mainly, where the CRA does not issue a Clearance Certificate, the purchaser is liable to withhold 25% of the total purchase price (as opposed to 25% of the net capital gains) and remit the total amount to the CRA on behalf of the Non-Resident. This means that Non-Resident Sellers may face significant withholdings when the disposition will produce only a small gain or even a loss.

Furthermore, under subsection 162(7) of the ITA, Non-Residents will be subject to a penalty of $25 per day to a maximum of $2,500 for failing to notify the CRA of the disposition within the prescribed deadline (10 days after the disposition).

 

If you are interested in your tax obligations for purchasing or selling a property or would like assistance to determine your residency status, our team of experts can help! Contact us today for a free consultation to speak with one of our team of expert tax lawyers!

 

**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 Kirshen

The Home Buyers’ Plan and the CRA

The Home Buyers’ Plan (“HBP”) is a program that allows qualified first-time home buyers (the definition for which can be found below) to withdraw up to $35,000 from their RRSP on a tax-free basis, to buy or build a qualifying home for themselves or a related person with a disability.

Under the HBP program, an individual can pay back the withdrawn funds over 15 years. The program is great for those looking to use the funds towards a down payment on a home. However, there are strict conditions to meet to be eligible for the HBP program. If all of the conditions are not met, taxpayers risk having the amount of money withdrawn added to their income for the year.

The withdrawal can be made in a single amount or a series of withdrawals in the same calendar year. Only the person who is entitled to receive payments from the RRSP can withdraw the funds from the account. Individuals are also allowed to withdraw funds from more than one RRSP as long as they are the owner of each one. The RRSP contributions must also have been in the RRSP for at least 90 days before they are withdrawn under the HBP program. In addition to these requirements, there are more conditions that must be met, which is discussed below.

 

First-time Home Buyer

To qualify for the HBP program, a taxpayer needs to meet the definition of “first-time home buyer”. This includes those who are purchasing a home for the first time in their life. However, individuals who have withdrawn money from their RRSP under the HBP, or otherwise, can still be considered a first-time home buyer for the program, if all the following conditions are met:

1. An individual is a first-time home buyer if, within four years, they did not occupy a home that they, or their current spouse or common-law partner owned. If the individual’s spouse or common-law partner owned a home previously, they can still be considered a first-time home buyer but some additional conditions need to be met; and
2. The four-year period begins on January 1^st of the fourth year before they withdraw the funds.

 

Additional Requirements for the Home Buyers’ Plan

According to the CRA’s publication How to participate in the Home Buyers’ Plan (HBP), the following conditions are required for eligibility under the HBP program.

1. The taxpayer must be considered a first-time home buyer;
2. The taxpayer must have a written agreement to buy or build a qualifying home, either for themselves or for a related person with a disability; a qualifying home is a housing unit located in Canada. It includes single-unit dwelling homes, apartments, condominium units, mobile homes, townhouses, and semi-detached homes, among others.
3. The taxpayer must be a resident of Canada, for tax purposes, when they withdraw funds from their RRSP under the HBP and up to the time a qualifying home is bought or built; for more information on tax residency, see the
4. The taxpayer must intend to occupy the qualifying home as their principal place of residence within one year after buying or building it. If they buy or build a qualifying home for a person with a disability or help a related person with a disability buy or build a qualifying home, they must intend that the related person with a disability occupies the qualifying home as their principal place of residence; and
5. In all cases, if the taxpayer had previously participated in the HBP, they may be allowed to do so again if their repayable HBP balance on January 1^st of the year the withdrawal is zero and they meet all other HBP eligibility conditions.

CRA’s How to participate in the Home Buyers’ Plan (HBP), also further outlines the following conditions for the RRSP withdrawal to be eligible under the program:

1. Neither the taxpayer nor the spouse or common-law partner or the related person with a disability can own the qualifying home for more than 30 days before the withdrawal is made;
2. Normally, the taxpayer will not be allowed to withdraw funds from a locked-in RRSP or a group RRSP;
3. The taxpayer has to buy or build a qualifying home for themselves, or a related person with a disability, or to help a related person with a disability buy or build a qualifying home before October 1^st of the year after the year of the withdrawal; and
4. The taxpayer must fill out Form T1036, Home Buyers’ Plan (HBP) Request to Withdraw Funds from an RRSP, for each eligible withdrawal.

 

If you are interested in participating in the HBP or have had your withdrawal under the program denied, our team of experts can help! Contact us today to make an appointment to speak with one of our experienced tax lawyers.

 

**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 Kirshen

Canada’s Emergency Rent Subsidy

The Canada Emergency Rent Subsidy (“CERS”) was introduced on November 19^th, 2020. The CERS subsidizes commercial real estate expenses incurred by businesses negatively affected by COVID-19. Canadian businesses, non-profits organizations, or charities that experienced a drop in revenue during the pandemic may be eligible for the subsidy to help cover some of their commercial rent or property expenses.

CERS is available as of September 27, 2020. Similar to the Canada Emergency Wage Subsidy (the “CEWS”), CERS payments come in the form of a refundable tax credit under the Income Tax Act (the “ITA”). Qualifying renters and property owners can receive payments directly without the participation of landlords. Eligible businesses may also qualify for lockdown support if the business location is significantly affected by a public health order for a week or more.

CERS is available for expenses paid from September 27, 2020 onwards, and applications can already be made online.

 

Eligibility Requirement

CERS applies to expenses paid in connection with a qualifying property. Generally, a qualifying property includes any commercial real estate in Canada. However, there is an exception for personal dwellings that are used as a residence. Meaning that expenses paid on home offices or other businesses run from the claimant’s home is disqualified.

Similar to CEWS, entitlement to CERS is segregated into periods. The qualifying periods are the same for CEWS and CERS. The first qualifying period which the CERS is available if from September 27^th, 2020 to October 24^th, 2020.

Whether a claimant is entitled to CERS may vary by qualifying period. For instance, an entity may qualify for CERS in one qualifying period but not another, depending on their applicable revenue decline. Since CERS is effective as of September 27^th, 2020, it only applies to the eighth qualifying period and beyond.

To qualify for CERS, a claimant must be an eligible entity, meaning:

1. A corporation or trust, other than a public institution or tax-exempt corporation or trust;
2. An individual;
3. A registered charity, other than a public institution;
4. Certain tax-exempt entities, other than a public institution; or
5. A partnership, all of the members of which are an entity referred to above.

The eligible entity must experience a drop in revenue. Eligible revenue generally includes revenue earned in Canada from:

1. Selling goods;
2. Rendering services; and
3. Others’ use of your resources.

Businesses can use their normal accounting methods to calculate their eligible revenue. The rules for calculating eligible revenue are the same for CEWS.

The eligible entity must also have a qualifying property. Once again, CERS subsidizes a portion of an entity’s qualifying rent expenses. Generally, there are two types of eligible expenses – rent and specified realty costs.

Finally, the eligible entity must meet one of the following conditions:

1. On March 15, 2020, the eligible entity had a payroll account registered with the CRA;
2. On March 15, 2020, the eligible entity had a payroll service provider in place to make remittances on its behalf regarding one or more of its employees (and the payroll service provider continues to make such remittances); or
3. On September 27, 2020, the eligible entity had a CRA business number.

 

Maximum Expense Limit and Affiliated Groups

There is an upper limit of $300,000 for all qualifying rent expenses within a given qualifying period for an eligible entity. This could mean, for example, that an entity using more than four commercial properties may be restricted in their CERS claim.

Additionally, the $300,000 limit must be shared between all affiliated entitles. Consequently, if a qualifying renter is affiliated with another eligible entity claiming CERS, each affiliated entity must enter into an agreement allocating a percentage of that aggregate $300,000 limit amongst themselves.

 

Lockdown Support

Similar to CEWS, there is a top-up concept with CERS, where qualifying entities can receive additional subsidy. Qualifying entities subject to a public health restriction can apply for the lockdown support. Essentially, a public health restriction is a public health order issued in response to COVID-19, resulting in complete cessation of certain business activities.

A qualifying entity under a public health restriction may claim the CERS top-up subsidy even if their overall revenues only minimally declined. However, keep in mind, not all public health orders will trigger access to the CERS top-up.

 

Application

The CRA has already opened applications for CERS. The CRA’s main webpage regarding CERS, with general information and links to the application process, can be found here.

Keep in mind that eligible entities have until 180 days after the end of the relevant qualifying period to apply for CERS and/or lockdown support. The last day to apply for claim period 9 (May 9 to June 5, 2021) is December 2, 2021.

 

If you have any questions or concerns, speak with a tax lawyer to discuss if CERS or any other benefits apply to your particular circumstances. 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 Kirshen

What Happens to an RRSP Upon Death?

To put it rather simply, a Registered Retirement Savings Plan (“RRSP”), is a tool created by the Government of Canada designed to help individuals invest and/or save for their inevitable retirement. The RRSP program provides incentives to individuals who contribute to it in the form of tax advantages, in order to encourage individuals to save. For a detailed breakdown of what an RRSP is and all its advantages, please refer to the hyperlink above.

 

What is an RRSP Annuitant?

As defined by the Government of Canada, a registered retirement savings plan (RRSP) annuitant is the person for whom a retirement plan provides retirement income.

 

What happens to the RRSP funds upon death?

The Canada Revenue Agency (“CRA”) has attempted, over the years, to clarify this matter for individuals to adequately prepare for death’s financial consequences. Generally, upon death of the annuitant, the RRSP issuer (usually a bank or trust company) will prepare a slip to describe how the funds from the RRSP account are to be paid out.

There are three distinct periods that matter for our purposes:

1. The day the annuitant died;
2. From the day after death until December 31 of the year after the year of death; and
3. From January 1 of the year after the period described in #2 to the date the RRSP property is distributed.

These periods are used to calculate which individual will be reporting the RRSP value on their tax return and will determine which slip the RRSP issuer issues to the individual.

 

Day the Annuitant Died

The amount of the RRSP for the purpose of this section will be deemed to be the Fair Market Value (“FMV”) of the RRSP account. The CRA considers that the annuitant received the amount at the time of death, so the amount will be reported in box 34 of a T4RSP slip issued by the issuer. The annuitant will be the individual who must report the amount on their final tax return for the purposes of this section.

 

Day after Death until December 31 of the Year after the Year of Death

This section will depend highly on whether the RRSP is matured or unmatured. A matured RRSP is one that is actively paying out income to the annuitant, whereas an unmatured RRSP has not yet started to pay a retirement income. For both matured and unmatured accounts, the amount to claim will be the income earned in the RRSP during the subject period. If the RRSP is unmatured, the income paid to the beneficiary is reported in box 18 of the issuer’s T4RSP slip, whereas if the RRSP is matured, the income is reported in box 28 of the T4RSP issued to the beneficiary.

For the purpose of this section, the beneficiary of the RRSP is the individual who will have to report this amount on their tax return (that being the income earned in the RRSP during the subject period).

 

January 1 of the year after the period described in #2 to the date the RRSP is Distributed

The RRSP amount is calculated the same way as above, that being the income earned in the RRSP during the subject period. Once again, the beneficiary is the individual who will have to report this amount on their tax return.

 

General Rules applying to a deceased annuitant’s RRSP

When the annuitant of an unmatured RRSP dies, the CRA considers that the annuitant received, immediately before death, an amount equal to the fair market value of all the property held in the RRSP at the time of death. This amount and all other amounts the annuitant received from the RRSP in the year must be reported on the annuitant’s income tax and benefit return for the year of death. However, a beneficiary will not have to pay tax on any amount if it can be reasonably regarded as having been included in the deceased annuitant’s income (this is done to avoid double taxation on both the deceased annuitant, and the beneficiary).

However, amounts paid from the RRSP, which represent income earned in the RRSP after the date the annuitant died, must be reported by the beneficiaries (given that these amounts would not have been claimed on the deceased annuitant’s final tax return, someone must pay taxes on that money).

 

Overall, the next steps following the death of an RRSP annuitant are complicated, and if not executed correctly, can bring about unwanted tax consequences. If you have any questions or need any assistance regarding RRSPs, or any tax matter, please feel free to call us toll free at 877-921-8423 or email us at info@rktaxlaw.com.

 

**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.