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 Corporations only have to pay tax on income that is withdrawn.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.
by Jeff KirshenThe Tax Implications of Running a Personal Services Business
A Personal Services Business is a business that is being run by someone who is basically working as an incorporated employee. They would normally be considered an employee of the business that hires them, but they have incorporated and are choosing to provide services through their corporation.
Normally, in Canada, corporations are taxed at a lower tax rate compared with the marginal rates an individual is charged. This allows for a deferral on taxes because the corporation pays less and is able to accumulate money faster. As well, businesses are known for being able to deduct a broad spectrum of expenses. However, one lesser common variant of corporate taxation in Canada, Personal Service Businesses, are not provided the same treatment. These entities, merely because of the nature of the duties undertaken, have a reduced ability to deduct expenses and a significantly higher tax rate than the normal corporate tax rate.
What is a Personal Services Business?
A Personal Service Business is a business that is providing services through a corporation, but the work being done is basically the same as a regular employee. These business entities exist when someone is acting on behalf of a corporation and provides services to another corporation. As well, the services undertaken would normally be performed by an officer or employee of that other entity. That individual providing the services is called an incorporated employee. Once an incorporated employee is established there are two requirements for a personal service business to exist, the following list provides these requirements:
- That the incorporated employee who performs the service or any person related to the incorporated employee is a specified shareholder of the corporation providing the service.
- If not for the existence of the corporation, that incorporated employee would reasonable be considered an officer or employee of the entity receiving the services.
How are Personal Services Businesses Taxed?
Once it is determined that a corporation is running a Personal Service Business, then it will pay higher income tax rates, as well as be limited in its ability to deduct expenses. With regards to higher income tax, compared to the general corporate tax rate in Ontario of 26.5% and the small business rate of 13.5%, a personal service business has a tax rate of 44.5%.
With regards to a limited ability to deduct expenses, most of the common expenses that a business would normally be able to deduct will become prohibited once classified as a personal service business. Ultimately this boils down to the fact that a Personal Service Business may only claim deductions that a normal employee could also claim. For example, a Personal Service Business cannot deduct legal and accounting expenses, supplies and materials, travel and car expenses, and office space costs which a normal business would be able to deduct.
If you are being classified as a Personal Service Business, or you are worried that you might be one, please do not hesitate contact Rosen Kirsten Tax Law. 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 KirshenAssigning Property and the GST/HST Implications
Assigning a property is selling the property before you even own it. So you are just selling the contract which contains the right to close on the property. You purchased a property pre-construction condominium with a builder, signed the contract, gave your deposit cheques, and then sold the property before gaining title. For the assignor (the person selling the property), there can be serious tax implications.
Assigning a Property and the CRA
Upon detecting an assignment, the Canada Revenue Agency (CRA) will decide whether or not you should be considered a “builder” of the property. The test the CRA uses is subjective: they try to determine what your intention were when you purchased the property and why you’re selling. They ask questions like:
- Did the seller ever intend to live there; and
- Was this transaction intended to generate profit?
More often than not, in our experience the CRA considers assignors builders if they never took occupancy of the property. And if you are found to be a builder by the CRA, they hold you liable for HST on the sale.
Assigning a Property and the GST/HST Implications
If the CRA considers you to be a builder, they expect you to charge and remit sales tax (GST/HST) on the full sales price. The problem becomes almost no one does this on the original sale. Only once CRA has come and audited do they determine you to be a builder, and rule that GST/HST should have been charged.
Because this normally happens after the fact, most “builders” are unable to collect the GST/HST from the purchaser, and are now liable for the amount owing plus penalties and interest. This is typically where most people will file notices of objection, arguing that they are not “builders” and should not be responsible for GST/HST.
Additionally, once the CRA comes and audits you for one sale, they will review your entire history of buying and selling properties to see if they can determine that you are selling property as a business, and are therefore running a property selling business. They would further audit you to see if any use of the principal residence exemption was correct, if you are entitled to capital gains, or if you should have been claiming business income. Again, the issue with CRA determining that you should be claiming business income is that there are GST/HST implications as above.
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, call us today! We can 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 Clearance Certificate for an Estate?
A Clearance Certificate is a certificate that is issued by the Canada Revenue Agency (CRA) and confirms that all amounts owing to the CRA by a deceased and/ deceased’s estate have been paid. A clearance certificate ensures that the CRA cannot hold the executor of the estate personally liable for any unpaid taxes from the estate.
The certificate covers a period up to a specified date, and it includes the following debts:
- Income tax of the deceased and/ or the deceased’s estate;
- Penalties and Interest payable by the deceased and/ or the deceased’s estate;
- GST/HST Credits; and
- Canada Pension Plan contributions and Employment Insurance premiums.
Do I need a Clearance Certificate?
A clearance certificate is not mandatory. However, not getting one could have severe risks for the executor of an estate.
Without a clearance certificate, if an executor of an estate distributes part of the estate and it then turns out that there was a tax debt owed, the CRA can hold the executor personally liable for any outstanding amount that should have gone to the CRA but was instead distributed.
If the executor of the estate is the sole beneficiary and is confident that there are no potential tax issues, he or she may decide not to get a clearance certificate.
Before applying for a certificate, you need to determine if it is necessary. The following are scenarios where the certificate is not necessary:
- The estate of trust continues to exist to pay income to the beneficiaries;
- The corporation’s assets and liabilities are being rolled over into another corporation and there is no other tax liability; and
- Enough funds remain in the estate or corporate account to pay amounts owing to the CRA.
How to Apply for a Clearance Certificate?
Before applying for a certificate you need to do all of the following:
- Notify the CRA of the death (individual);
- File the final tax return(s);
- Get the notice(s) of assessment and notice(s) of reassessment that apply; and
- Pay or secure all amounts owed.
Once you have completed the above steps, fill out Form TX19 Asking for a Clearance Certificate, and send it, along with the appropriate documentation, to your local tax service office.
Clearance Certificate Deadlines
The clearance certificate covers the period up to the designated tax wind-up date (the date of the final T3 Trust Income Tax and Information Return form). A certificate can be requested when an estate is ready for final distribution and all tax returns for the deceased and the deceased’s estate have been filed, (re)assessed, and all balances owing paid in full.
If T3 estate tax returns were not required, you can request a date of death certificate. This covers the period up to the date of death. If the final distribution of the estate assets will not occur for several years, it could be beneficial to obtain a date of death certificate or an interim certificate.
If the CRA does not request an audit, you should receive your certificate within 120 days of applying. Once you receive the certificate, then you are cleared to make distributions from the estate.
Who Must Apply for a Clearance Certificate?
An executor, trustee, or administrator of the estate can request a clearance certificate. An executor or a trustee is named in the deceased’s will or trust document. An administrator is appointed by the court if the deceased dies intestate (without a valid will) An authorized representative can also request the certificate on behalf of the executor, trustee, or administrator. To authorize a representative, the executor, trustee, or administrator will need to sign a T1013 Authorizing or Cancelling a Representative form. One form should be completed for the deceased using their Social Insurance Number and a separate form should be completed for the estate using the Trust Account Number.
If you are an Executor of an Estate and need assistance obtaining a Clearance Certificate, 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.