Accounting

by Jeff Kirshen

What is Capital Cost Allowance?

Capital expenditures are distinct from current expenses. While both may be incurred for the purpose of earning income, only the latter is immediately deductible under the Income Tax Act. The former is only deductible pursuant to an exception under paragraph 20(1)(a), which allows for regulations to determine the amount of a capital expenditure that is deductible in a given tax year. This amount is called the “capital cost allowance” (CCA).

 

What is Depreciable Property?

The property for which capital cost allowance may be claimed is called “depreciable property”. The idea behind this is that the property may be used year after year, while slightly declining in value.

There are prescribed classes of depreciable property listed in Schedule II to the Income Tax Act, the most common of which are listed here. Examples include motor vehicles, tools, or goodwill.

 

What is Undepreciated Capital Cost?

Regulation 1100(1) sets out the percentage amount of CCA that applies to the “undepreciated capital cost” (UCC) of a class of depreciable property. UCC can be thought of as the cost that a taxpayer estimates to incur in acquiring and keeping depreciable property, which includes not only the purchase price, but also maintenance, legal, accounting, and/or other similar fees. The legal definition of UCC is found under subsection 13(21).

The CCA system allows for taxpayers to recover UCC by deducting it from their income. For example, a professional carpenter who purchases a new power saw for his business can expect for the saw to have the highest possible UCC at the moment of purchase, but he can expect for its UCC to be increasingly used up as it approaches the end of its life. This is because he has been using the depreciation yearly, which continues to lower the UCC of the saw eventually getting down to zero.

 

Capital Cost Allowance Calculation

The CCA that may be deducted for a class of depreciable property is calculated as follows under Regulation 1100(1):

CCA = CCA % amount x UCC at the end of the tax year

 

Capital Cost Allowance – Limitations

CCA deductibility may be limited. For instance, since Regulation 1100(1) mandates a determination of the UCC of a class of property at the end of the tax year, no CCA amount, subject to certain exceptions, may be deducted in a tax year if the class of depreciable property has no UCC left over at the end of that tax year and even if UCC was outstanding prior to the end of that tax year. Similarly, for depreciable property acquired during a tax year, only half of the CCA amount is deductible. This is known as the “half year rule”.

 

The Sale of Capital Assets

If a depreciable property is sold for more than its UCC, the value of the property according to the price for which it is sold will be greater than the value of the property according to its UCC. Under these circumstances, subsection 13(1) provides for a “recapture” by adding the difference in value to the seller’s income. This means that the provision effectively looks back to prior tax years in which too great a CCA amount was deducted, and then reduces the deduction. This ensures that the seller does not deduct from income any CCA that exceeds the actual decline in value of the property.

If a depreciable property is sold for less than its UCC, the value of the property according to the price for which it is sold will be less than the value of the property according to its UCC. Under these circumstances, subsection 20(16) provides for a “terminal loss” by allowing the seller to deduct from income the difference in value.

The possibility of claiming a “terminal loss” does not mean that taxpayers are free to create losses that shelter income but that do not reflect the economic reality of their circumstances. Rental property investments, for example, may present an attractive means of using the CCA system to shelter income, but the Act’s “stop-loss rules” restrict such use. For our blog post further discussing the relationship between rental properties and the CCA system, click here.

 

If you have questions regarding the capital cost allowance system, or if you are interested in learning how to use it to your advantage, 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

The GST/HST Self-Assessment Rules

To self-assess for GST/HST means calculating how much GST/HST should be paid on a good or service where no actual sale has been completed, and to charge yourself that GST/HST. The GST/HST self assessment rules are extremely complex and can lead to a good amount of trouble with the CRA.

 

The GST/HST Self-Assessment Rules

Generally, the self-assessment rules apply to consumers and persons engaged in non-commercial activities who have not been billed for GST/HST by the supplier. Where a person is not a GST/HST registrant, self-assessment for GST/HST will apply in certain circumstances. Goods purchased in a non-HST province or territory and brought into an HST province will require the person to self-assess at the applicable rate for the provincial component of the HST.

Self-assessment is also required for non-registrants where goods are purchased in a province with a lower HST rate and then brought into a province with a higher HST rate. Commercial goods imported into an HST participating province will also require the non-registrant to self-assess. Where a non-resident that is also a non-registrant delivers goods to a person who is also a non-registrant in a participating HST province, the person receiving the goods will also be required to self-assess for HST.

The non-registrant of an HST province is also required to self-assess for HST where the non-registrant uses or consumes or is supplied by significantly (more than 10$%), services and intangible personal property (IPP) (i.e. intellectual property) from a non-HST province or an HST province with a lower HST rate than that person’s province. Although special HST rules apply for imported motor vehicles, generally persons importing motor vehicles from outside Canada are also required to self-assess for HST when those vehicles are brought into an HST province and provincial laws do not require the registration of the vehicle. Non-registrants who are required to self-assess on the provincial part of the HST on goods, services and IPP must declare by filing a Return for Self-assessment of the Provincial Part of the HST.

For HST registrants, self-assessment is required where the provincial component of the HST has not been billed by the supplier for property or services that are not for consumption or use or supply exclusively in the course of their commercial activities. The threshold for a supply to be considered exclusively used in the course of commercial activity is 90% or more. Registrants who self-assess should account for the tax on their GST return for the reporting period in which the tax was payable. Registrants using certain accounting methods are also required to self-assess.

 

The GST/HST Self-Assessment Rules and Real Estate

In the real estate context, a builder where the self-supply rules apply (who is deemed to have sold and repurchased the property), is required to calculate the GST/HST collected on the fair market value of the property. In the case of a multiple unit residential complex (MURC), the builder must account for tax on the fair market value of the entire building and not the individual unit that was deemed to be sold and repurchased.

Certain supplies do not require self-assessment. These include zero-rated goods, services or IPP. No GST or HST applies for zero-rated supplies. No HST is assessable if the supply is exempt from HST. Furthermore, self-assessment is not required when HST has already been paid at the same or higher rate in the province of acquisition. Prizes won abroad, personal and household effects of a deceased, transportation or telecommunication services, and property donated to a charity or a public institution are other circumstances where no self-assessment is required for non-registrants.

 

The GST/HST Self-Assessment Rules – Calculating the GST/HST

In declaring and paying the required HST, the registrant or non-registrant must determine the type of supply and place of supply of the goods or service. Once the type of supply and place of supply are determined, HST can be calculated. The CRA has provided an GST/HST calculator for determining the amount of tax applicable to sales in Canada.

 

The GST/HST Self-Assessment Rules – Type of Supply 

As a value-added sales tax, HST applies to a supply of nearly all goods and services consumed in Canada. For provinces and territories that participate, HST is imposed on a taxable supply of goods and services. A supply is taxable if it is made in the course of commercial activity. However, a supply that is zero-rated (i.e. groceries) will not have HST. A supply of goods or services that are exempt will also not have HST. One difference between zero-rated and exempt supplies is that Input Tax Credits (ITCs) can be claimed for the former but not the later.

 

The GST/HST Self-Assessment Rules – Place of Supply

The HST rates depend on the place of supply. HST applies at the rate of 13% in Ontario, New Brunswick, and Newfoundland and Labrador, 15% in Nova Scotia, and 12% in British Columbia.

 

The GST/HST consequences surrounding any transaction depend on the unique circumstances of each case. It is recommended to speak with a qualified tax lawyer given the complexity of the HST rules and how they can affect a person’s income tax position. If you have questions regarding the Self-Assessment rules, 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

Input Tax Credits – What are they, and Am I Eligible?

Through the help of e-commerce assistance platforms such as Shopify, the barriers to entering and starting a small business have dramatically decreased in recent years.  As a result, more and more Canadians are deciding to open up independent businesses. In order for a business to run its operations smoothly, business owners must ensure that they fulfil their sales tax obligations correctly to prevent intervention from the CRA. Below is a brief summary that provides some mechanics and considerations of the Canadian Sales Tax System.

 

Design of the GST/HST Sales Tax

The HST (for Ontario) Sales Tax is administered and legislated through the Excise Tax Act. Moreover, it is a multi-stage value added tax, imposed on a broad range of goods and services at each stage of the manufacturing and distribution process. Each recipient in the production chain recovers the HST that they paid for the expenses related to their “commercial activities” by claiming input tax credits (ITCs). This ensures that there is no double taxation and that only the final consumer holds the burden of paying the HST tax.

Typically, many businesses incur a lot of expenses related to their commercial activities. For example, a business focusing on producing and selling furniture may pay a lot of HST on the tools they bought to create that furniture. Therefore, it is important that businesses properly redeem their ITCs.

Other common purchases and expenses which may be eligible to claim ITCs include:

• Business start-up costs;
• Legal, accounting, and other professional fees;
• Maintenance and repairs; and
• Business-use-of home expenses.

 

Requirements / Eligibility for Input Tax Credits

First, the business/taxpayer must be a GST/HST registrant. However, for most small and medium-sized businesses in Canada, registration for GST/HST purposes is required.

Specifically, if you provide taxable supplies and not a small supplier, then you must be a GST/HST registrant. The CRA generally considers a business to no longer be a small supplier if total revenues from taxable supplies exceed over $30,000 in a single calendar quarter or over 4 consecutive calendar quarters.

Second, registrants are only allowed to claim ITCs for expenses related to “commercial activities.” The CRA states that commercial activities must be a business or adventure or concern in the nature of trade that has a reasonable expectation of profit, and is not the making of exempt supplies. Alternatively, inputs to activities that are neither part of the supply making process, not related to it, or for personal use are not eligible for ITCs.

The exception to the rule above is for the supply of real property, other than an exempt supply. In this case, any supply of real property, whether or not there is a reasonable expectation of profit is included in the definition of commercial activity. Finally, to claim an ITC, the expenses or purchases must be reasonable in quality, nature, and cost in relation to the nature of the business.

 

Potential Issues to Look Out For

As previously mentioned, the responsibility of charging, collecting and remitting HST falls on each business or chain of the manufacturing process. Similarly, claiming appropriate ITCs for expenses incurred by the business fall on the burden of the business. It is the responsibility of the registrant to keep records and documents to validate any claims under a CRA audit.

 

Issues regarding the “nature of the business” and “relation to commercial activity” have particularly been contentious and challenging for taxpayers to understand. If you need assistance in learning more about ITCs or are already in dispute with the CRA, contact us today. Professionals at Rosen Kirshen Tax Law have a proven track record of helping taxpayers successfully prove the eligibility of their ITCs.

 

**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

Home Office Expenses and COVID-19

With almost all businesses adopting a work-from-home policy during the COVID-19 pandemic, employees and independent contractors may be wondering if they can claim home office expenses for their new work environments.

If you have been working remotely, you may be able to claim some expenses related to the business use of the home.

 

Home Office Expenses and COVID-19 – Am I Eligible?

The COVID-19 pandemic has resulted in many unprecedented changes in our lifestyle and workspaces.  The CRA is aware of these changes and recently stated that, in light of COVID-19, they will allow up to $500 in reimbursement for purchases related to setting up technology to work remotely. This means that up to $500 in personal computer equipment expenses will not be considered a taxable benefit. However, employees must have invoices for these purchases and the purchases must be made primarily for the employer’s benefit. Unfortunately, you may not be able to deduct expenses for purchases of equipment that you simply prefer to use versus those that are necessary for you to perform your job.

For an employee or an independent contractor to claim home office expenses, at least one of two requirements must be met. The workspace in your home must be either:

1. Your principal place of business (you work from this space more than 50% of the calendar year); or
2. You use the space only to earn your employment or business income on a regular and continuous basis, and for meeting customers or clients as part of your work duties

While the CRA has not announced whether they will be relaxing these requirements considering the new mandatory work-from-home arrangements put in place because of the COVID-19 lockdown, they may provide some leeway in their interpretation of the rules. This is especially true for employees who were required to work from home and adopted their home office as their principal place of business during the lockdown.

If you are an independent contractor, you must meet one of those two conditions to claim home office expenses. However, if you are working from home during the lockdown as a requirement of your contract for service and it is your principal place of business for the time period, then you may be eligible to claim home office expenses should the CRA relax the rules.

If you are an employee who is now working remotely from your home office and meet one of the two conditions required, you also need:

• A formal work arrangement that outlines that you are required to work from home; and
• A Form T2200 from your employer.

 

Home Office Expenses and COVID-19 – What is a Formal Working Arrangement?

An employee looking to deduct home office expenses must do so only if the employee is “required by the contract of employment” to incur those expenses. While it would be ideal for this requirement to be formalized in a written agreement or as part of the employment contract, it may be unrealistic given the current circumstances. Nevertheless, you may be able to rely on the fact that your work from home arrangement during the lockdown is an implied requirement of your employment. The CRA confirmed that they will accept a non-written contract where the taxpayer can establish that it was “tacitly understood” between the employer and employee that such expenses were to be made by the taxpayer and that they were necessary under the circumstances to fulfill the duties of employment.

 

Home Office Expenses and COVID-19 – What is Form T2200?

Please see our previous blog post found here to learn more about Form T2200.

 

Home Office Expenses and COVID-19 – What Expenses are Allowable?

If you meet the eligibility criteria, you may deduct the part of your costs that relate to your workspace within the home. This can include heat, home insurance, electricity, minor maintenance, and property taxes. However, you cannot claim mortgage interest expense and capital cost allowance. If your workspace within the home is part of a rented house or apartment in which you live, you can deduct the percentage of the rent and maintenance costs related to that space.

You can calculate the amount of home office expenses you can reasonably claim by dividing the total area of your home office or workspace by the total finished area of the home. The amount of maintenance costs that you can deduct in relation to your workspace likewise depends on whether the expenses you paid were used to maintain only the workspace or whether part of the material or work went towards the maintenance of other parts of the home. At all times, the expenses you claim must be reasonable and should be supported by invoices and supporting documentation. The total amount you deduct in home office expenses is also limited to your net income before your deduction. You cannot create or increase a loss from employment using home office expenses.

The CRA’s mandate and approach to taxation during the COVID-19 pandemic continues to evolve rapidly. The information provided here regarding the rules and interpretations regarding home office expenses is subject to change.

 

If you are filing taxes, are being audited for your home office, or you have questions about what home office expenses you are eligible to claim, give Rosen Kirshen Tax Law a call today!  We can help you navigate this complicated 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

Non-Residents of Canada owning Canadian Rental Property

The idea of owning property and generating a rental income is very appealing to most people. This is especially true in major cities across Canada like Toronto and Montreal, where rentals rates are high. As a result, many non-residents look at Canada as a prime place to buy property and generate rental income. 

 

For any non-resident’s interested in taking on such an endeavour in Canada, there are a few things to keep in mind to avoid any unforeseen tax consequences. Most non-residents who own property and earn a rental income in Canada may be unaware of the Canadian non-resident withholding tax requirement and filing obligations. It is important to be aware and properly meet these requirements as there can be significant interest and/or penalties imposed by the CRA for failing to do so.

 

Non-Resident of Canada owning Rental Property – Reporting Requirements

There is a non-resident rental income tax reporting requirement, where the CRA imposes a 25% withholding tax rate on the gross rental revenue non-residents’ receive. The responsibility falls on the payer, such as a tenant, or a property manager to withhold the non-resident tax at the rate of 25%. The payer must remit the withholding tax to CRA on or before the 15th day of the following month the rental income applies. Failing to remit the tax will lead to penalties and interests on the non-resident tax amount. 

 

Another thing to keep in mind is the NR4 slip which is a statement showing the amount paid to a non-resident (gross rental income). The payer needs to provide non-resident NR4 slips including the gross rental income and the tax withheld on a NR4 slip. The NR4 needs to be submitted to CRA by the payer on or before the last day of March of the following year to which the rental income applies.

 

Non-Resident of Canada owning Rental Property – How do I Minimize the Withholding?

There is good news though. The tax withholding amount can be reduced under certain conditions by filing an NR6 form. By doing this, the payer holds 25% on the net amount of monthly rent. Otherwise, the tax would have to be remitted at 25% of the gross rental income. Once the CRA approves the NR6 form, the payer is able to submit monthly withholding taxes on net rent income instead of the gross rental amount. Keep in mind that the NR6 form is due on or before the first day of each tax year or on the first day of rental payment.

Making use of the NR6 requires a taxpayer to elect under Section 216 of the Income Tax Act. What this means is that you need to file a specific tax return, by a specific due date.

 

If you weren’t aware of these deductions, and have remitted 25% withhold tax on your gross rental income, you can file a Section 216 tax return. By doing so you, you can receive a refund of the difference between the total tax payable and the non-resident rental income tax already remitted. You have until June 30th of next year to file the Canadian Income Tax Return for Electing under Section 216.

 

If you are a non-resident of Canada for tax purposes, and own or plan to own, a rental property in Canada, there are many requirements around non-resident rental income. At Rosen Kirshen Tax Law we have the experience and the expertise to help both non-residents and withholding agents with their tax needs and all filing requirements. 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 Jeff Kirshen

What if I use an RRSP as Security for a Loan?

A Registered Retirement Savings Plan is used to defer taxes on income earned to a later date. The idea behind an RRSP is that while you’re working, you are in a higher tax bracket than you will be later in life. So when you withdraw the funds down the road, it will be taxed at a lower rate. RRSPs are a very useful tax planning tool for your retirement. They are quite different from a TFSA, which is also a retirement tool. Please see here to review the differences between the two.

 

Withdrawal from an RRSP

Once you withdraw funds from an RRSP, the funds taken out are taxed as regular income. But, what happens if you don’t withdraw the funds, but rather pledge the account as security or collateral for a loan?

 

Using an RRSP as Security or Collateral for a Loan

If you want to take a loan from a bank, normally they will ask for some sort of security or collateral in case you cannot pay the loan back. The bank would then seize the security or collateral to satisfy the debt. If you pledge your RRSP as security or collateral, you may be costing yourself quite a large amount of taxes.

The reason for this is because by pledging the RRSP as security or collateral, you are unknowingly including the value of the pledged asset as income in the year of pledge.

 

What happens once the Loan is Repaid?

If you have included the loan amount in income, then once it has been repaid and the security is released, this amount can now be deducted from your income. This provides a good reason to pledge the RRSP as security or collateral rather than withdrawing the amounts. If you withdraw the amounts, you are unable to claim a deduction when the loan is repaid.

 

What happens if the Loan is not Repaid?

Typically, the bank or whoever provided the loan, will seize the pledged security or collateral to satisfy the debt. Since the income inclusion already happened, there is no second income inclusion.

 

If you are considering using your RRSP as security or collateral, please make sure you investigate the tax consequences before moving forward. You may, unknowingly, create a huge income tax liability that must be paid in the year this occurs. Tax planning may be very difficult for those who do not have specific expertise in the area. Should you have any questions regarding any of the above, Rosen Kirshen Tax Law has the skill and experience necessary to guide you. Be sure to contact 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 Jeff Kirshen

Canada Emergency Response Benefit Updates

On Wednesday, April 15, 2020, the Government of Canada announced that a greater number of Canadians will be eligible for the Canadian Emergency Response Benefit (CERB). The CERB provides $500 per week to Canadians for 16 weeks. In most cases, individuals can only apply for the benefit 14 days after their last paycheque. Applicants must re-apply every four weeks.

The government is actively seeking to fill the gaps created by the original eligibility criteria. The original requirements for qualifying for the CERB were the following:

• The applicant must be at least 15 years old;
• The applicant must have stopped working for reasons due to COVID-19;
• The applicant must have earned employment or self-employment income of at least $5,000 in 2019, or in the 12 months prior to the date of their application; and
• The applicant must not have quit their job voluntarily.

The most important expansion of CERB eligibility criteria is to permit those who make under $1000 per month to apply. This is to help those that are still working and making a paycheque, but at reduced hours. This adds some flexibility to the rule that applicants must wait 14 days since their last paycheque to apply. Now, even though an individual is still earning a salary, if it is under $1000 they can be eligible.

The criteria have also been expanded to include Employment Insurance (EI) exhaustees. If you have completed a claim of EI since January 1st, 2020, you will qualify for CERB. This is intended to help individuals who have not necessarily stopped working because of COVID-19, but are now finishing their EI and are unable to find employment because of COVID-19.

The expansion also benefits seasonal workers, who might use their EI in the off-season, and work in the warmer months. Now, as we approach summer, seasonal workers who cannot find employment due to COVID-19 are also eligible for the CERB.

Additionally, essential workers who are working full time but earn less than the CERB provides are going to get a wage boost. The federal and provincial governments are working together across the country to provide a top-up or wage boost for essential workers that are paid less than $500 per week. The details on this are not finalized yet, but it appears that the government is going to reconsider who are truly “essential workers”, and give them a wage supplement as compensation for working during this pandemic. We will provide further details on this as they become available.

The government has stated that if you select to receive the benefit as direct deposit, you should receive it within one business day. If you choose to receive the benefit by cheque, it can take up to five business days.

If a recipient receives a double-payment, there is no reason to worry. The government has stated they are tracking those cases and those individuals will just have to ration the larger benefit amount over a larger period of time. The government will not retrieve the additional funds. They will just stop providing additional payments once that recipient reaches the maximum benefit amount of $8000.

 

If you have any questions about how the taxable benefit above may affect you as a taxpayer, or questions about applying, contact our firm for a free consultation. We are here to help! In the meantime, we will continue to keep you informed and hope you and your families remain safe and healthy in these uncertain times!

 

*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 Canada Revenue Agency Response to COVID-19

In order to alleviate the burden of the ongoing COVID-19 crisis on Canadians, the Federal Government of Canada has introduced changes to the Canada Revenue Agency (CRA) processes and extended the tax calendar for this upcoming tax season. The changes affect all taxpayers, and hopefully will have the effect of relieving some of the stress of the current circumstances.

 

CRA and COVID-19 Personal Tax Changes

The following changes are relevant for individual taxpayers:

1. The filing due date for 2019 tax returns of individuals have been deferred until June 1^st, 2020. However, the CRA encourages individuals who receive benefits under the GSTC or the Canada Child Benefit not to delay the filing of their return if possible. This is to ensure that their entitlements for the 2020-2021 benefit year are properly calculated.
2. The filing date for Trusts with a taxation year ending of December 31 2019 will be postponed until May 1, 2020.
3. Taxpayers are allowed to defer the payment of any income tax amounts that become payable between March 18 and September 2020 until after August 31, 2020. This applies to all balances due, including any instalments. No interest and penalties will apply.
4. The CRA will recognize electronic signatures as having met the signature requirements of the Income Tax Act, effective immediately. Usually, taxpayers are required to sign their tax returns by hand. In an effort to reduce the amount of person-to-person contact between taxpayers and their tax-preparers or accountants, they are now allowing electronic signatures instead.

 

CRA and COVID-19 Corporate Tax Changes

The following changes are relevant for businesses:

5. Similar to individuals, the CRA is allowing businesses to defer the payment of any income amounts that become payable between March 18 and September 2020 until after August 31, 2020. This applies to all balances due, including any instalments. No interest or penalties will accumulate on these amounts owing during this period.
6. The CRA will not contact any small or medium business to initiate any income tax or GST/HST audit for the next four weeks, starting March 18, 2020. Additionally, for the vast majority of businesses, the CRA will suspend audit interaction between CRA agents and taxpayers.

 

CRA and COVID-19 – Collections

Rosen Kirshen Tax Law has successfully negotiated the removal of the vast majority of the legal action taken against our clients. CRA understands that now is not the time to garnish wages, freeze bank accounts or take additional action against taxpayers. If CRA has taken legal action against you, call us to see if we can help get it removed ASAP.

 

CRA and COVID-19 – Situation Moving Forward

If the situation continues to worsen, we expect the CRA to continue loosening its rules and regulations. More importantly, the CRA will likely begin offering credits and benefits that were not necessarily available before the crisis in order to alleviate the financial burden of the COVID-19 pandemic. We will be sure to keep you updated on any changes that could ultimately lower your amount owing.

If you have any questions about how the changes above may affect you as a taxpayer or small-to-medium size business owner, contact our firm for a free consultation. We are here to help! In the meantime, we want to wish everyone a safe and healthy quarantine / self-isolation period. We are truly fortunate to be in Canada during this crisis, where from our government, to our neighbours, we all take it upon ourselves to ensure the well-being of those around us. Let’s get through this together.

 

**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 are the CRA Requirements for Record Keeping?

The Canada Revenue Agency (CRA) requires individual and corporate taxpayers to keep their records in case they are audited, or if the CRA wants a taxpayer to justify their income and / or expenses in another way.

 

CRA Requirements for Record Keeping – Where do I keep my Records?

Unless you have permission from the CRA, you must keep your records at your place of business or your residence in Canada.

Records that are kept outside of Canada and accessed electronically from inside Canada are not considered to be records kept in Canada.

In order to get permission to keep your records elsewhere, you must write to your  tax services office. If you are granted permission, you must make your records available upon request for review by the CRA in Canada.

The CRA will not give permission to keep records outside of Canada to the following:

• Registered charities;
• Registered Canadian amateur athletic associations;
• Canadian municipalities;
• Public bodies performing a function of government; and
• Housing corporations resident of Canada and exempt from tax under Part 1 of the Income Tax Act.

The CRA could give you permission to store your electronic records outside of Canada. If so, the CRA may accept copies if:

• The CRA is satisfied that the copies of the records are true copies;
• They are made available to CRA officials in Canada in an electronic format readable by CRA software; and
• They show enough details to support the returns filed with the CRA.

 

CRA Requirements for Record Keeping – How Long Do I need to Keep my Records?

In general, you must keep all records and supporting documentation for a period of 6 years from the end of the last tax year they relate to. The tax year will be the fiscal period for corporations and the calendar year for individuals.

The 6 year rule applies to the following legislations:

• The Income Tax Act;
• The Excise Tax Act (includes the GST/HST);
• The Employment Insurance Act;
• The Canada Pension Plan;
• The Excise Act, 2001; and
• The Air Travellers Security Charge Act.

However, there are times when you must keep your record for longer. Some of these include:

• If you file an income tax return late, you must keep your records for 6 years from the date you file that return;
• If you have not filed a GST/HST return for a reporting period that ended more than 6 years ago, you are still required to file the return and retain the records to support the amounts reported on the return;
• If you filed an objection or an appeal, you must keep all necessary records until the latest of the following dates:
  • The date the objection or appeal is resolved;
  • The date for filing any further appeal has passed;
  • The six-year record keeping period has passed;
• When a corporation is dissolved, it must keep the following records for 2 years after the date of its dissolution:
  • All records and supporting documents to verify its tax obligations and entitlements;
  • All other records that corporations have to keep;
• When you are the legal representative of a deceased taxpayer or trust, you can destroy the records after receiving a clearance certificate(s) to distribute property under your control.

 

CRA Requirements for Record Keeping – Am I allowed to Destroy my Records?

In order to destroy your records prior to the expiration of the mandatory period, you must get written permission from the CRA.

To obtain this permission, you or your authorized representative can:

• Complete Form T137, Request for Destruction of Records and;
• Apply in writing to your  tax services office.

It is important to note that the CRA is not authorized to approve the destruction of records that you must keep under other federal, provincial, territories, or municipal laws.

If your records were destroyed due to a disaster, you need to contact the CRA to advise them of this.

 

If you are unsure about how long you are required to keep your records, or if the CRA is reviewing or auditing you or your 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 Kirshen

GST/HST Rebates when Buying Canadian Property

Houses are expensive, so it is important to take advantage of any program that allows you to recover some of your costs. The New Residential Rental Property Rebate (“NRRP”) and the New Housing Rebate (“NHR”) allow you to do this. However, the criteria can be confusing, and people often apply for the wrong one, or their circumstances change and the application that they originally applied for is no longer appropriate. That is why it is important to know the differences.

 

The New Residential Rental Property Rebate

The NRRP allows you to recover some of your costs when you purchase real estate that will be used as residential rental property.

 

The New Home Housing Rebate

The NHR allows you to recover some of your costs when you construct or substantially renovate a home.

 

What are the Criteria for Applying?

The criteria for an NHR are:

1. The home must be used as a principal residence; and
2. The construction must be for a newly built home or for substantial renovations or major additions
   1. Substantial renovation must include gutting the entire home with at least 90% of the dry wall removed; and
   2. A major addition must at least double the size of the home.

The criteria for an NRRP are:

1. First occupants of the new residential rental property must be the tenants;
2. First occupants cannot include the landlord; and
3. The fair market value of the qualifying residential unit at the time the tax was payable must be less than $450,000.
   1. If you are a resident of Ontario and the fair market value exceeds $450,000 you may be eligible to claim the provincial NRRP.

If you receive the NRRP and then sell the residence within 1 year, you may have to repay the entire rebate unless you sell it to a person who occupies it as their principal residence.

 

How to Apply?

You can apply for an NHR by:

1. Within 2 years are the property closes, complete either Form GST191 for owner-built houses or Form GST190 for houses purchased from a builder; and
2. Provide the appropriate supporting documentation.

You can apply for an NRRP by:

1. Within 2 years after the property closes or sells, complete Form GST524; and
2. Provide the appropriate supporting documentation.

 

Change in Circumstances

If you purchase your home with the intention of making it your primary residence, often the builder will apply for the NHR on your behalf, thus lowering your purchase price. However, if your circumstances change, and once the home is built you are no longer the first occupant, you no longer meet the criteria of the NHR. However, if you rent out your new home, you could very likely qualify for the NRRP instead.

When this occurs, it is very possible the CRA audits you to determine if you qualify for the rebate. We see quite a lot of this and can assist with your audit!

 

Other Issues to Note

The principle residence exemption can also result in tax implications upon the purchase or sale of property.

Property assignment can result in GST/HST as well as income tax implications. Assignment is when you purchase a pre-construction home or property, and sell the property before it is built and before you gain title to it. In other words, you are assigning your purchased rights to a home to another person.

 

If you have any questions about the tax consequences that relate to purchasing or selling property, 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.