by Marrie ShirzadaCanada’s New Anti-Flipping Tax
The housing market in Canada has skyrocketed over the years. The average Canadian finds themselves renting because of high housing prices. In an attempt to cool off the market, the Federal government is proposing an anti-flipping measure. This would mean that Canadians selling a home or rental residential property that they’ve held for less than 12 months will be considered flipping and consequentially, the profits from the sale will be considered business income.
This forms a significant change where taxpayers used to be able to sell homes quickly claiming capital gains and/or the Principal Residence Exemption.
New Anti-Flipping Rules
The proposed anti-flipping measure would apply to residential properties sold on or after January 1, 2023. This new measure was announced in the federal budget released on April 7th, 2022. In the document, the federal government attributes the high housing prices partly to property flipping – buying a house and selling it within a short period for much more than what was paid for originally. The proposed measure attempts to ensure that the profits from flipping residential real estate are subject to full taxation, thus leading to a fairer outcome for all Canadians.
Generally, when an individual sells a property, the profits from the sale are considered capital gains and thus, only 50% of the gains from the sale are taxed. Additionally, there is a principal residence exemption for individuals selling their primary residence. However, profits from flipping properties are fully taxed and not eligible for either capital gains inclusion or the principal residence exemption.
Currently, to categorize the proceeds of the sale of a residential property as business income the Canada Revenue Agency (the “CRA”) needs to show that the taxpayer intends to flip the property in the pursuit of profit. However, the proposed anti-flipping measure eliminates the CRA’s burden to prove this intention.
Exceptions to the New Anti-Flipping Rules
There are exceptions to the proposed anti-flipping rules that would apply to taxpayers who sell their homes within 12 months due to certain life circumstances. The government added, that where the property being sold is because of certain changes in circumstances, the sale would not automatically result in business income. A non-exhaustive list is as follows:
- Changes in life circumstances;
- Births of children;
- New Job;
- Divorce;
- Death;
- Disability; or
- Other circumstances not yet known (the new legislation may or may not contain a detailed list).
Where any of the above apply, it would be a question of fact as to whether the property sale resulted in business income, a capital gain, or a capital gain that was eligible for the Principal Residence Exemption. This question of fact will be reviewed by an auditor in a property sale audit. These have been going on for years and because of the exceptions provided, they will likely continue for many years to come.
If you have any questions or need any assistance regarding the new proposed anti-flipping measure, or any tax matter, please feel free to contact us today! 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 Marrie ShirzadaAn Update to the Non-Resident Speculation Tax
We previously wrote about the Non-Resident Speculation Tax (NRST), explaining what it is, what it is applied to, and any refunds or rebates that may be available. In short, the NRST is the addition of extra taxation to the purchases of real property by foreign nationals.
Updates to the Non-Resident Speculation Tax
As of March 30, 2022, the Non-Resident Speculation Tax rate was increased to 20 percent and expanded province-wide. As a result, the NRST may apply on the purchase or acquisition of an interest in residential property located anywhere in Ontario by individuals who are foreign nationals or by foreign corporations or taxable trustees.
The NRST applies to:
- A semi-detached house;
- A detached house;
- Condominium unit;
- Townhouse; and
- Duplexes, triplexes, fourplexes, fiveplexes, sixplexes.
However, the NRST does not apply to land which contains rental multi-residential apartments buildings, commercial land, agricultural land, and industrial land.
The NRST applies to the value of the consideration of the residential property, meaning the purchase price of the transactions. For more information, visit the Ontario Government website.
Exemptions from the Non-Resident Speculation Tax
An exemption from NRST may be available in these situations:
- If the foreign national’s spouse is a permanent resident of Canada, he or she can jointly purchase a residence with the spouse. The spouse can also be a nominee or protected person.
- A nominated foreign national under the Ontario Immigrant Nominee Program at the time of purchase can be exempted from the NRST. In this case, the foreign national has certified they will apply or have already applied to become a permanent resident of Canada.
- A protected person can be exempted. A protected person refers to a foreign national who has refugee protection at the time of purchase.
To qualify for an exemption, the foreign national (and if applicable their spouse) must certify they will occupy the property as their principal residence.
The exemption applies if the Canadian citizen, permanent resident of Canada, nominee or protected person and his or her foreign national spouse purchased the property with other individuals who are Canadian citizens, permanent residents of Canada, nominees, or protected persons.
All transferees in the conveyance must also certify that they will occupy the property as their principal residence.
However, keep in mind that the exemption does not apply if the Canadian citizen, permanent resident of Canada, nominee, or protected person and his or her foreign national spouse purchased the property with another foreign national who is not a nominee or protected person.
Rebates available for the Non-Resident Speculation Tax
A rebate of NRST may be available for a foreign national who becomes a permanent resident of Canada. To qualify for this rebate, the foreign national must have paid the NRST and:
- become a permanent resident of Canada within four years from the date of the purchase or acquisition,
- hold the property alone or with their spouse (as defined above) only, and
- occupy the property, along with their spouse, if applicable, as their principal residence for the duration of the period that begins within 60 days after the date of purchase and ends when they make an application for the rebate or the rebate conditions have been met, whichever is later.
If the two named transferees are spouses of one another, only one of the spouses must become a permanent resident of Canada for the rebate to apply.
The rebate will not apply if a taxable trustee is a transferee in the conveyance of land.
All rebate applications must be made using the Ontario Land Transfer Tax Refund/Rebate form for NRST.
Supporting documentation will be required to substantiate all applications for rebate.
If you are required to pay NRST, or you’re unsure, we can help! Also, if you’re looking to apply for a rebate from the NRST, then call us today to learn more!
*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 Marrie ShirzadaAllowable Business Investment Loss Claims
An allowable business investment loss (“ABIL”) is a special type of capital loss that is deductible against all sources of income. This is different from capital losses that can only be deducted against capital gains. An ABIL can be carried back 3 years and carried forward 10 years. After 10 years, the unused ABIL will be treated as net capital loss and carried forward to be deductible against taxable gains indefinitely.
Business Investment Loss
An ABIL is 50% of a business investment loss. A business investment loss can be incurred in the following scenarios:
- Actual Disposition
When there is a capital loss from an actual disposition of a share of capital stock of a small business corporation or debt in a Canadian-controlled private corporation (“CCPC”) to an arm’s length individual, a business investment loss occurs. An arms-length person is a party not related to you or does not share a common interest with you.
Debt in a CCPC also includes:
-
- A small business corporation,
- A small business corporation at the time it became bankrupt, or
- An insolvent corporation and a small business corporation at the time winding-up order was made in respect of the corporation.
Under s.125(7) of the Income Tax Act, a CCPC is defined generally as a Canadian private corporation, not controlled by a non-resident or public corporations.
To qualify as a small business corporation, at least 90% of the fair market value of the assets of the CCPC must be attributable to (1) assets primarily used in an active business carried on largely in Canada by the CCPC or a related corporation, or (2) shares or debt obligations of other small business corporations in respect of which the holding corporation owns more than 10% of the shares.
If the corporation meets these criteria at any time in the 12 months preceding the disposition of the shares or debt, it can qualify as a small business corporation.
Another way a business investment loss can occur is if the taxpayer has to repay a corporation debt from a previously made guarantee.
- Deemed Disposition
Under s.50(1) of the Income Tax Act, a deemed disposition can occur when a taxpayer is deemed to have disposed of the share or debt at the end of the taxation year for no proceeds as well as immediately reacquired the property for zero or nil. In other words, a deemed disposition can occur if a debt owing to you at the end of a taxation year is considered “bad debt” (meaning uncollectible) or a share in a corporation owned at the end of the year, where the corporation has become bankrupt, or insolvent, and a winding-up order has been made in the year.
How to Claim ABIL?
To claim ABIL on your 2021 income tax return, you enter the business investment loss amount on line 21699 of your income tax benefit return. If you claimed a capital gains deduction in a previous year, you have to reduce your business investment loss. To determine the reduction, the Canada Revenue Agency (“CRA”) provided a formula to complete the calculation.
Also, you should include a note on your income tax and benefit return that states the following:
- name of the small business corporation;
- number and class of shares, or the type of debt you disposed of;
- insolvency, bankruptcy, or wind-up date;
- the date you bought the shares or the date you acquired the debt;
- amount of the proceeds of disposition;
- adjusted cost base of the shares or debt;
- outlays and expenses on the disposition; and
- amount of the loss.
The CRA tends to audit ABILs regularly, so it is important to keep supporting documents.
If you have questions about the above, have attempted to claim a business investment loss, or an allowable business investment loss and the CRA is auditing your loss claim, give us a call 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 Marrie ShirzadaCRA 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 Marrie ShirzadaThe 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:
- The corporation needs to be private, meaning that none of its shares are listed on a designated stock exchange within or outside Canada;
- The corporation needs to be a Canadian corporation, meaning that it was incorporated in Canada and is deemed a resident of Canada; and
- 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 Marrie ShirzadaCanada’s Emergency Rent Subsidy
The Canada Emergency Rent Subsidy (“CERS”) was introduced on November 19th, 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 27th, 2020 to October 24th, 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 27th, 2020, it only applies to the eighth qualifying period and beyond.
To qualify for CERS, a claimant must be an eligible entity, meaning:
- A corporation or trust, other than a public institution or tax-exempt corporation or trust;
- An individual;
- A registered charity, other than a public institution;
- Certain tax-exempt entities, other than a public institution; or
- 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:
- Selling goods;
- Rendering services; and
- 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:
- On March 15, 2020, the eligible entity had a payroll account registered with the CRA;
- 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
- 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 Marrie ShirzadaThe New Canada Recovery Hiring Program
The Federal Government recently announced a new program to assist businesses that have been impacted financially by the Covid-19 pandemic. The Canada Recovery Hiring Program (“CRHP”) offers eligible employers who have experienced a declined in revenue as a result of the pandemic, a subsidy of up to 50 per cent of eligible salary or wages. The goal of the new program is to help businesses increase their hiring and employment practices during a financially difficult time.
Eligible Employers can apply for CRHP support through the Canada Revenue Agency (CRA) for June 6, 2021 (retroactively), through to November 20, 2021.The CRHP will overlap with the Canada Emergency Wage Subsidy (“CEWS”) and eligible employers can choose to claim wage support from either program. Employers can choose the subsidy of whichever program provides them with the greater amount, but they will not be able to use both within the same claim period. CEWS will automatically be applied if both amounts are equal.
What is the Difference Between CEWS and CRHP?
The main difference between the two programs is the way that the subsidies are calculated. Please refer to the CRA website for a breakdown of the similarities and differences between the calculation.
Who is Eligible?
Most of the eligibility criteria for CRHP and CEWS are the same, including payroll account requirements and required revenue drops.
Most types of employers who are eligible for the CEWS will also be eligible for the CRHP. However, there are some additional requirements for “for-profit” corporations and partnerships to be eligible for the CRHP.
For-profit corporations are eligible only if they are a Canadian-controlled private corporation, and are also eligible for the small business deduction, or are a partnership where at least 50% of interest are help by employers eligible for the CRHP.
You should note that if your employees are eligible for CEWS, then they are also eligible under CRHP. However, employees who were on paid leave are not eligible to be included in the CRHP calculation.
How Claim Periods Work
The claim periods for the hiring subsidy match the claim periods for CEWS. Each claim period is a specific period of 4 weeks, beginning on a Sunday.
The subsidy does not renew automatically. Each period, you must confirm that you’re eligible and calculate your amount according to that period’s rules before you apply.
There is a deadline to apply or increase your claim for each period.
How to Apply
Unlike CEWS, you only submit one CRHP application for each claim period you are eligible for, even if you have more than one payroll (RP) account. Using the online calculator, you can enter your revenue and employee pay information to see whether your CRHP or CEWS claim would be higher and therefore which subsidy is best to apply for.
There are three ways to apply:
(1) Through your My Business Account, you can find the CRHP application under “Payroll” on the main menu;
(2) Business representatives may apply using the Represent a Client feature. However, note that only representatives authorized at Level 2 or 3 will be able to apply; or
(3) If you are not able to apply with either of the options mentioned, you can use the Web Forms application by using your web access code (WAC).
What Happens After I Apply?
If you are registered for direct deposit, you can expect your payment within 3 to 8 days, and the same for time frame applies for cheques but you also must add mailing time. Each claim period deadline is 180 days after the end of the claim period. There is no availability to change or cancel online yet, however if you need to change from CRHP to CEWS, you can simply submit an application for CEWS that will then replace your CRHP application.
After your application, you will receive a Notice of Determination to know if your claim was accepted, and how much you will receive.
If you have any questions or concerns, speak with a tax lawyer to discuss if the CRHP 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 Marrie ShirzadaBusiness Emergency Subsidies (CEWS, CERS, and CHRP)
The Federal Government announced changes to the Canada Emergency Wage Subsidy (“CEWS”) and Canada Emergency Rent Subsidy (“CERS”) programs and established the new Canada Recovery Hiring Program (“CRHP”).
Canada Emergency Wage Subsidy (“CEWS”)
The Covid-19 pandemic took the world by storm and placed many businesses, especially small ones, in a precarious position of both losing revenue and potential long-term closures. To alleviate some of the pressure on businesses, the government introduced the CEWS to help businesses by covering part of their employee’s wages due to drops in business revenue. The subsidy was designed to help employers re-hire workers, prevent further job loss, and ease their business back into normal operations.
As of July 2021, changes have been introduced to the CEWS. These changes include:
- Extending the eligibility period for the Canada Emergency Wage Subsidy until October 23, 2021, and increasing the rate of support employers and organizations can receive during the period between August 29 and September 25, 2021.
- The rate of CEWS will now remain the same for claim period 20 as for period 19, declining in period 21.
- Eligible employers that were not operating on March 1, 2019, may now choose to use the alternative approach to calculate their revenue drop for claim periods 14 to 17.
The next deadline to apply for CEWS is October 7, 2021.
Canada Emergency Rent Subsidy (“CERS”)
CERS provides support directly to qualifying commercial Tenants and Property owners who are adversely impacted by the Covid-19 pandemic. The subsidy will cover part of qualifying entity’s commercial rent or property expenses, starting on September 27, 2020, until October 23, 2021.
The amount you can claim of your expenses (your rent subsidy rate) is based on the revenue drop you experienced between the claim period you are applying for and a prior reference period. You have options for choosing which prior reference period you will use.
The rate of the subsidy will be calculated as set out in the table below.
| Calculate your rent subsidy rate for periods 1 to 10 | |
| Revenue Decline (%) | Base Subsidy rate |
| 70% or more | 65% subsidy rate |
| 50 to 69.99% | (Your revenue drop – 50%) x 1.25 + 40% |
| Less than 50% | 0.8 x your revenue drop |
Eligible expenses to be subsidized under the program include:
- Gross rent;
- Percentage rent;
- Minimum rent and other amounts required to be paid under a new lease to the Landlord or a third party such as operating expenses; and
- Property taxes.
Eligible entities include individuals, taxable corporations, trusts, non-profit organizations, registered charities, and partnerships that are up to 50% owed by non-eligible members.
Eligible entitles must have a payroll account as of March 15, 2020, or have a CRA business number as of September 27, 2020, and satisfy the Canada Revenue Agency that it is a bona fide rent subsidy claim. The deadline to apply is October 7, 2021.
Similarly, the government is extending the eligibility period for the CERS until October 23, 2021, and increasing the rate of support employers and organizations can receive during the period between August 29 and September 25, 2021.
Canada Recovery Hiring Program (“CRHP”)
This new program is designed to help businesses grow and recover through the hiring of more employees by providing a subsidy. The subsidy will help offset a portion of reopening costs for businesses caused by increased employee wages and hours.
To qualify for the CRHP, there needs to be a revenue decline of more than 0 percent in period 17 and more than 10 percent between periods 18 to 22. Most of the eligibility criteria for the CRHP and CEWS are similar. The maximum eligible remuneration per employee that qualifies for the CRHP is $1,129 per week. The next deadline to apply for CRHP is December 30, 2021.
If you have any questions or concerns, speak with a tax lawyer or tax specialist to discuss if these 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 the articles. If you have specific legal questions you should consult a lawyer.
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by Marrie ShirzadaWhat is a CRA Net Worth Audit?
Has your CRA auditor informed you that your audit will be a Net Worth Audit? Are you wondering what that means? We previously wrote about Net Worth Audits and Assessments which you can find here. This blog provides more information about net worth audits, what they are, why they occur, and what can be done to fight them.
Net Worth Audit
Generally, a standard audit consists of reviewing a taxpayer’s accounting records (i.e., bank statements) as well as other related records. However, in cases where the CRA finds the taxpayer’s records insufficient, the CRA may initiate a Net Worth Audit. Once initiated, the CRA will consider a multitude of factors to arrive at a taxpayer’s taxable income. This can include a review of bank records, assets, and liabilities, along with accounting records. In a way, the CRA is assuming the taxpayer’s unreported income when utilizing a Net Worth Audit. The CRA justifies this type of audit when they claim there is any indication of irregularity or insufficiency in the financial affairs and records of the taxpayer.
The auditor may even increase taxable income if they feel that a taxpayer’s respective tax returns do not support his or her lifestyle (also referred to as a CRA lifestyle audit). This can result in a financial gift from a parent turning into taxable income, or even unidentified bank deposits being termed income. The overall goal of a CRA Net Worth Audit is to increase a taxpayer’s taxable income. If the taxpayer’s books and records are in poor shape, it will be much easier for them to do so.
When will CRA use the Net Worth Audit Method?
The CRA refers to a Net Worth Audit as an indirect verification of income. The CRA may rely on the Net Worth Method, if:
- Your books and records are inadequate and indicate potential errors;
- You mix personal and business income into one bank account. For instance, one account may be used for both personal and business transactions;
- The income you reported does not support your lifestyle;
- If the business you are in is in an industry where tax evasion is common; and/or
- If comparable businesses report higher income then your business.
These are all factors that the CRA may rely on to initiate a Net Worth Audit.
How do you challenge a Net Worth Audit Tax Assessment?
CRA auditors have immense discretion. Additionally, there is a reverse onus in tax law, meaning that it is on the taxpayer to prove his or her income (as the Canadian tax systems is a self-reporting system). In practice, auditors are allowed to assume facts that a taxpayer must then rebut.
A taxpayer can successfully challenge a net worth assessment by preparing detailed responses and explanations to each assumption of the auditor. The taxpayer’s goal is to demolish the auditor’s assumptions. This is normally done with explanations and documentation rebutting each assumption.
If your audit has been concluded, you may continue to fight the assessment by filing a Notice of Objection and/or appealing to the Tax Court of Canada. The best method to dispute the Net Worth Audit is have your books and records reconstructed to show the difference between the CRA auditor’s accounting and factual assumptions. Providing detailed and accurate records of your finances is key.
At Rosen Kirshen Tax Law, we have represented several clients during and after a Net Worth Audit. If a taxpayer wants to appeal a Net Worth Audit tax assessment, we can file a Notice of Objection, challenging the assessment before a CRA Appeals Officer. If you are going through a CRA Net Worth Audit, or have had one completed that you disagre with, and you need assistance, contact us today! 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 the articles. If you have specific legal questions you should consult a lawyer.