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 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.
by Jeff KirshenWho Can be Claimed as a Dependent?
Eligible dependents are normally your closest relatives. As much as we love to care for our loved ones, it can be expensive, so it’s nice to know that there are a number of credits and deductions that you can claim for your qualifying dependants in order to help you out.
When thinking of who qualifies as a dependant, people usually think of children, but other relatives can also qualify! In general, if a person lives with you and relies on you for either physical or financial support you may be able to claim them as a dependant for income tax purposes.
Who is an Eligible Dependent?
Whoever qualifies as a dependant will vary based on the credit or deduction that you wish to claim. Different people can qualify as dependants, and someone who qualifies as a dependant for one credit may not always qualify as a dependant for another credit, so you need to know the rules.
The most common types of dependants are:
- Children and grandchildren (either biological, adopted or stepchildren);
- Parents and grandparents;
- Brothers or sisters (including brothers-in-law and sisters-in-law); and
- Nieces, nephews, aunts or uncles.
How Does Claiming an Eligible Dependent Work?
If you claim a qualifying dependant on your tax return, you will have access to tax credits and deductions that can reduce what you owe to the Canada Revenue Agency. Different credits are based on different things, some are based on the age of the dependant or their relationship with you, while some are based on the dependant’s health or even income level. That is why it is important to know all the ways that you can claim a dependant, and to make sure that you are doing it correctly.
Eligible Dependent Credit
This credit is designed for single parents who are not claiming spousal/ common-law partner credits and are responsible for the financial care of a relative. Single or separated parents who are not supported by or living with the other parent of the child may also claim this credit. It is important to know the rules for when you can and when you cannot claim this credit.
To claim this credit, the dependant must live in your home and you must maintain this home yourself. For example, if you have a dependant but you live in a home maintained by your parents you cannot claim this credit. You also cannot claim this credit for someone who is merely visiting you. Only one person per household is permitted to take this credit, regardless of the number of dependants living in the house. If you and your partner share custody of the child, you must agree on who should take this credit. If you cannot agree, then neither of you are permitted to claim it.
Can Children Over 18 Still be Claimed as Eligible Dependents?
Despite the reality that many parents continue to financially support their children after they turn 18, you are generally are not allowed to claim them as a dependant. However, there are still some ways you may be able to claim your children on your taxes. The following are helpful rules to remember to save some money on your next return:
- If your child was 17 at some point during the tax year, they are considered dependants and can be claimed for the entire year;
- Mental or Physical Impairment – if your child is unwell and older than 18, you’ll require a letter from a doctor describing their condition before you will be permitted to claim them as a dependant;
- If you’re a single parent and claiming the amount for an eligible dependant, you need to deduct the income that your child earned from the amount that you are claiming;
- Although most post-secondary students are over 18 and therefore cannot be claimed as dependants, it is important to know that they can transfer up to $5000 in tuition and education credits to you if they do not use all of them on their own tax return; and
- If your child is over 18 but you continue to pay for their medical expenses you may be able to claim these depending on your child’s net income.
The Canada Caregiver Amount
The Canada Caregiver Amount helps people that care for family members who are elderly or are impaired. You may qualify for this credit if you support a relative who Is over the age of 18 and who at some point during the year in question was dependant on you due to a physical or mental impairment.
So if you have people in your life that rely on you for support, make sure that you know if they qualify as a dependant for your taxes. If you want help with that, contact our firm for a free consultation so that 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 T1135 Tax Form: Foreign Income Verification
A T1135 Tax Form: Foreign Income Verification Statement reports all required foreign property owned by a Canadian resident taxpayer. If a taxpayer in Canada owns specified foreign property with a total cost of more than $100,000, they must fill out Form T1135, the Foreign Income Verification Statement in addition to their annual income tax return.
Presently, the T1135 Form has been redesigned to have the following two-tier information reporting structure for specific foreign property:
- Part A – Simplified Reporting method
- Part B – Detailed Reporting method
T1135: Do I Fill Out the Simplified or Detailed Reporting Method?
Taxpayers can fill out the Simplified Reporting method if they own specified foreign property which collectively costs $100,000, but less than $250,000 at any time of the year. Alternatively, if the foreign specified property is valued at more than $250,000, then the taxpayer must fill out the Detailed Reporting Method.
The distinguishing factor between the two forms is that the Simplified Reporting method allows the taxpayer to report the gross income from all specified foreign property they held during the year. For the Detailed Reporting Method, the taxpayer must provide the gross income from each type of foreign property. In other words, as the name says, the Detailed Reporting Method requires the taxpayer to give a more detailed response regarding the quantum and type of specified foreign property held. Categories in the Detailed Reporting method include:
- Funds held outside of Canada;
- Shares of non-resident corporations;
- Indebtedness owed by non-resident;
- Interests in non-resident trusts;
- Real property outside Canada;
- Other property outside Canada; and
- Property held in an account with a Canadian registered securities dealer or a Canadian trust company.
T1135: What is Specified Foreign Property?
When the term “foreign property” is used, rental property owned outside of Canada immediately comes to mind. However, the categories in the Foreign Reporting Method show that specified foreign property encapsulates a much broader term. For instance, a common mistake made by taxpayers is failing to realize that foreign stocks held in Canadian registered securities dealers must be reported. As such, if you invest in classic blue-chip stocks such as Apple, Disney, Microsoft or any other companies based in American stock exchanges, they must be reported (Over $100,000).
Regarding “specified foreign property” the term also includes but are not limited to the following:
- Foreign bank account balances;
- Shares of Canadian corporations on deposit with a foreign broker;
- Shares of foreign corporations;
- Foreign land and buildings;
- Interests in foreign mutual funds;
- Debts owed by non-residents and
- Interests or rights in specified foreign property.
T1135 Penalties
Failure to file T1135 forms can result in harsh penalties for the taxpayer. Specifically, taxpayers are charged a penalty of $25 per day for up to 100 days for failing to file the T1135 Form. The minimum penalty for failure to file is $100 and the maximum is capped at $2,500 per year. So if you have missed multiple years the penalty and interest amounts can be steep!
What if I have not Filed my T1135 Form?
Taxpayers who have not filed the T1135 form or otherwise have provided inadequate information can file a Voluntary Disclosure. The CRA encourages taxpayers who have provided incomplete information, omitted information, or who have not filled Form T1135 to come forward and correct their tax affairs through the program.
It is important to note that the period within which the CRA can reassess a taxpayer’s tax return is extended by three years if both of the following conditions have been satisfied:
- The taxpayer has failed to report income form a specified foreign property on their income tax return; and
- Form T1135 was not filed, was not filed on time, or was filed inaccurately.
Taxes involving foreign property always involve an added layer of complexity. If you have any questions about how to file a T1135 form or apply for a voluntary disclosure, 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 T2202A Tuition and Enrolment Certificate?
A T2202A Tuition and Enrolment Certificate is a document that allows taxpayers to claim tax credits for amounts paid to certain schools, colleges, universities, etc.
During tax season, one of the most important inclusions for Canadian post-secondary students when filing their income tax returns is the T2202A. Issued by the post-secondary institution to the student, the T2202A provides the student and Canada Revenue Agency with a detailed snapshot of the student’s financial expenditure at the university for the taxation year in question and is pivotal in determining the student’s present and future access to tuition tax credits.
What Expenses are Covered by the T2202A?
A T2202A is a certificate issued to students of Canadian universities that provides the Canada Revenue Agency with salient information about the student’s post-secondary expenses. Among other things, the T2202A provides proof as to the enrolment of the student, the number of months spent at the post-secondary institution by the student, and the amount of eligible tuition money spent. The university also indicates whether the student was enrolled for full-time or part-time study. The T2202A may also include any charitable donations that the student contributed through the institution during the taxation year.
Who Gets a T2202A
T2202A forms are issued to all students who have expended in excess of $100 on post-secondary studies during a taxation year. Only amounts paid to institutions that are tax deductible will be listed on the T2202A. Fees such as health insurance, residence fees, meal plans, and books may not be eligible for the tuition credit and consequently, not listed by the post-secondary institution on the T2202A.
How does a Student File a T2202A?
The T2202A is used in conjunction with “Schedule 11” forms that indicate the maximum amounts of federal tuition, education and textbook amounts that can be transferred to a designated individual and that can be carried forward to a future year.
The T2202A is used in conjunction with the “Schedule (S11)” for students who lived outside the province of Quebec on December 31st of the taxation year to calculate the provincial or territorial amount that can be claimed and the maximum amount that can be transferred to a designated individual with respect to the personal education amounts incurred by the student during the taxation year.
Students living in Québec on December 31st receive “RL-8: Amount for post-secondary studies” slips that allow for the students to transfer tuition expenditures to their parents and also allow for the student to apply for the province of Québec’s tuition tax credit.
Is the T2202A Used to Transfer Tuition Credits?
Despite the fact that parents are eligible to have the tuition amounts apply as a tuition credit on their returns, the T2202A must be filed by the student. The student must complete and sign the transfer section of their T2202A certificate before giving it to their parent, grandparent or spouse. The recipient fills in the credit amount on line 324 their Schedule 1 in order to apply the credit to their income.
Tuition Tax Credits and T2202A
As of January 1st, 2017, Canadian students were no longer eligible for education and textbook tax credits, though still eligible for tuition tax credits. Any unused education and textbook tax credits incurred on or before December 31st, 2016 are still eligible for the education and textbook tax credit. For more detailed information on the new tuition tax credit deductions available to Canadian post-secondary students, click here.
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**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.