News

by Jeff Kirshen

What is the Departure Tax?

COVID-19 has grounded many Canadians from international travel and has created unforeseen tax issues related to residency. As winter approaches, many will find themselves dreaming of relocating to a sunnier destination with fewer confirmed cases. What you should know is that up-and-moving out of the country may have significant tax consequences, one of which is the little-known “departure tax”.

 

What is the Departure Tax?

The departure tax”is a tax levied on the assets of emigrants ceasing to be Canadian residents. For the purposes of section 219.1 of the Income Tax Act, the departure tax can also apply to corporations leaving Canada, usually enlisted to levy a 25% tax on funds that could have been distributed as dividends during the year the corporation ceased to be resident in Canada.

For the individual taxpayer, departure taxes capture gains on the emigrants’ taxable Canadian property that may or may not have been sold prior to emigration. Paragraph 128.1(1)(b) of the Income Tax Act notes the requisite criteria for the application of the departure tax with respect to individuals.

The application of the tax involves the deemed disposition of the assets at their fair market value (FMV). The asset is then deemed by Canada Revenue Agency (CRA) to have been reacquired by the taxpayer at FMV. The result of these artificial transactions is to trigger capital gains payment on the part of the taxpayer, theoretically to protect the Canadian tax base from erosion.

 

Who does the Departure Tax Apply to?

The Departure Tax applies to individuals who CRA deems to be emigrants. To be considered an emigrant for taxation purposes, a taxpayer must meet both of the following criteria:

1. The taxpayer leaves Canada to live in another country; and
2. The taxpayer has severed “residential ties” with Canada, which include
   • a principal residence in Canada;
   • a spouse or common-law partner in Canada;
   • dependants in Canada;
   • membership in social organizations;
   • personal property such as bank accounts, a car or furniture; and
   • documents of Canadian citizenship (driver’s license, passport, health cards, etc.).

If a non-resident Canadian keeps some residential ties to Canada, the non-resident may still be considered an emigrant pursuant to the tax treaty of the non-resident’s new jurisdiction with Canada.

What Kind of Property does the Departure Tax Apply to?

Departure Taxes can capture a wide variety of personal property, such as shares in a corporation, jewellery, artwork and many others. Personal property is a broad category that encompasses many kinds of “personal-use property” as defined by section 54 of the Income Tax Act.

In short, if you are emigrating out of the country, it would be prudent to consider broadly all items of significant value as personal-use property and then identify which of these assets may be captured by the departure tax.

 

Departure Tax – Tips and Tricks

Emigrants with property that had an FMV greater than $25,000 on the date the taxpayer ceased to be a resident of Canada must file a T1161. This form outlines several exclusions to this $25,000 amount, including cash, registered saving plans, certain personal property, and certain real property.

Pursuant to subsections 220(4.5) to 220(4.54) of the Income Tax Act, taxpayers may be eligible to defer payment of departure tax, so long as “adequate security” is provided by using a Form T1244. The Income Tax Act does not define “adequate security” but does provide a formula for calculating the requisite value a security must hold before being considered “adequate”. Deferral may be the best option for taxpayers who do not wish to emigrate from Canada permanently, as when subsection 220(4.5) is used in conjunction with subsection 128.1(6), a taxpayer can retrieve the security intact upon the emigrant’s return to Canada.

Subsection 128.1(6) of the Income Tax Act may also allow emigrated taxpayers who return to Canada to be treated as never having accrued gains, so long as they meet all eligibility requirements of the provision.

 

The Departure Tax and Tax Planning

Taxpayers with significant assets that could be subject to departure tax should ensure compliance with all reporting requirements during the year in which they cease to be Canadian residents. If this cannot be confidently or competently done without assistance, it may be prudent to seek tax planning advice from a legal professional. Subsection 128.1(6) does not insulate a taxpayer from penalties and interest stemming from non-compliance with the departure tax. Since interest is calculated at the compound rate of 5% per annum, this could result in serious debt obligations to CRA upon returning to Canada.

 

If you need assistance with non-resident tax planning, or you’re in doubt about whether your departure tax filing meets CRA’s reporting requirements or if you want to be sure your deferral security is in fact “adequate security”, it may be safer to seek guidance from a legally trained tax professional. Call us today!

 

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 Basics of Estate Taxation in Canada

In addition to the emotional consequences of losing a loved one, estate administration can be a difficult undertaking, even for those familiar with the affairs of the deceased. The deceased may have passed away with a will (testate) or without a will (intestate). Either way, the personal representative of the estate has rigid obligations with respect to the tax filings of the deceased. These obligations must be discharged in order to avoid tax consequences stemming from prematurely distributing the estate, exemplifying the maxim that the only certainties in life are death and taxes.

 

Is there an Estate Tax in Canada?

In Canada, unlike other jurisdictions, any inheritances stemming from the estate of the deceased are not subject to estate tax. Officially, the only taxes payable by the estate of the deceased are based on the income earned by the deceased. However, it is not conclusive to say that the only taxes payable by the estate of the deceased are derived from the income of the deceased in the year prior to and the year of passing.

For example, if the testator held property in the United States at his or her time of death, the property may be subject to taxation under American estate tax. The same could be true of any other jurisdiction in which the deceased held property, as property laws vary country to country, and even province to province.

 

What is the Proper Filing Procedure for One’s Estate?

The personal representative of the testator must ensure that income tax returns have been properly filed for the year preceding death and that any income earned between January 1^st and the date of passing of the deceased in the same calendar year is accounted for in the last return filed on behalf of the deceased. This final return is dubbed a “terminal return” in Canadian tax law.

The day after the passing of the testator results in the creation of a “new person” in the eyes of Canada Revenue Agency: the estate. Unlike the filings of the year preceding death and the terminal return, the personal representative of the deceased would not file a T1 tax return for the filings of the estate. Instead, the estate is considered to be a trust for the purposes of taxation and consequently, the administrator of the estate must file a T3 trust return. Furthermore, income is deemed to have accrued on a daily basis for the estate, as opposed to on an annual basis for living taxpayers. This subtle variance in accrual periods has the effect of accelerating the taxation of the income of the estate.

 

What are the Consequences for Failure to File?

For personal representatives, planning circumspect compliance with the taxation rules surrounding the administration of estates can be an onerous task. There are various filing deadlines for the respective returns, specific documentation that must be included in the filing, and distinct accrual periods to consider. Personal representatives can also be held personally liable for failing to adequately discharge their obligations with respect to the income tax filings of the estate.

Canada Revenue Agency (CRA) is also statutorily permitted to pursue beneficiaries to recompense any amounts they assess to be owing where disbursements of the estates are deemed to have been made prior to satisfying requisite filing criteria.

 

How can a Personal Representative Protect Himself or Herself from Liability?

Prior to distributing any of the estate property to potential beneficiaries, it would be prudent for a personal representative to determine whether it is necessary to obtain a “clearance certificate”. If a personal representative is required to have a clearance certificate, any disbursement of an estate asset without having first obtained a clearance certificate could put the personal representative at risk of personal liability. Click here to learn more about the requirements and application of clearance certificates.

It is harder than one might think for a personal representative to ensure compliance with each of the CRA’s filing requirements. The obvious answer is to meet every filing deadline, to accurately compile all returns correctly (including any “deemed realizations” pertinent to the estate asset pool), and to retain all requisite documentation. Practically speaking, it is very difficult to ensure compliance with respect to CRA filing requirements and the personal representative and beneficiaries may collectively choose a different path.

There are alternatives available depending on the circumstances of the personal representatives and beneficiaries of the estate. For example, beneficiaries may wish to agree to indemnify the personal representative of an estate from tax liability in order to receive assets from the estate prior to the personal representative receiving a clearance certificate. Similarly, where the personal representative is the sole beneficiary of the estate, the personal representative would be liable regardless of having obtained a clearance certificate. The appropriate method of mitigating tax liability depends on the circumstances of the estate.

 

When to Seek Help?

Many personal representatives seek guidance with respect to estate administration to insulate themselves from personal liability, especially when they are unfamiliar with the affairs of the testator and/or the income tax rules surrounding estate administration. It is also commonplace for testators to seek tax planning advice as tax planning can be an effective means of reducing estate tax liability and passing more of what they have earned onto their loved ones. Depending on the size of the estate, proper tax planning can reduce or delay the amount of taxes payable by the beneficiaries of the estate to better provide for the loved ones of the testator in the short term and long term.

 

If you are considering planning out your affairs to make sure your Estate runs as smoothly as possible, contact us today!

 

**Disclaimer 

This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer. 

by Jeff Kirshen

CRA Cyber Attack – Here’s What You Need to Know

On August 14, 2020, the Canada Revenue Agency (“CRA”) website was temporarily shut down following being hit by three cyber-attacks, potentially compromising the personal information and security of all taxpayers with an account in the country.

The first and largest attack compromised thousands of GCKey accounts, which is responsible for providing Canadians with access to services like Employment Insurance (EI), Immigration and Refugee citizenship accounts and veterans programs. It is noted that this attack may have allowed hackers access to over 5,600 CRA My Accounts.

The second attack took place shortly after the first, which allowed hackers to by-pass all security questions and gain access to thousands more My Accounts. Finally, a third attack occurred over the weekend of August 15-16, which finally prompted the CRA to suspend all online activities in order to address these significant security breaches.

While the CRA Portal has now resumed online services as of August 20, many Canadians may be wondering if their account has been hacked, and what to do in order to ensure the security of their personal tax information

 

CRA Cyber Attack – What Should I do?

The government of Canada has updated the public, stating that those who were impacted by these beaches will be notified by the CRA that their account was breached, and what to do to rectify the situation.

While waiting to hear from the CRA, there are measures you can take independently in order to ensure the privacy and security of your account. First, it is important that you change your password, as the current one being used might be recorded by others who are not authorized to access your “My Account”. As always, passwords which include numbers, and capital letters will help secure your account as the password will be harder to guess. It is recommended that you do not use a similar password from other online accounts with your CRA My Account.

In addition to recreating your password, the CRA also recommends people to add email notifications as an added security measure. Through these notifications, you will be informed if someone has accessed your account, which will help confirm whether you or an unknown party may have accessed it. If you suspect there may be suspicious activity going on with your account, you should notify the CRA immediately in order for them to address the situation promptly, which can prevent the potential for any breaches to your account.

Though not required, some people may also choose to get SIN protection where companies monitor your SIN for any attempts to open lines of credit, bank accounts, etc.

 

If you have any questions or want assistance regarding any of your dealings with the CRA, 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

CRA Audits of COVID-19 Benefit Programs

Globally, COVID-19 has been the greatest upheaval the world has seen since the second World War. Millions infected and countless effected. Government assistance programs such as the Canada Emergency Response Benefit (“CERB”), Canada Emergency Wage Subsidy (“CEWS”), and the Canada Emergency Student Benefit (“CESB”) have all been instituted in order to help the Canadian people through this challenging time. The Canada Revenue Agency has recently updated the public in regard to post-payment validation requirements for its assistance programs. Here’s what you need to know:

 

CERB, CEWS, CESB, and CRA Audits

Between the months of July and August, the CRA has announced that it will launch a pilot CEWS post-payment compliance project through the Trust Exam Program and Employer Compliance Audit. In order to ensure compliance, the CRA will institute a combination of automated queries within its data, follow-up calls to verify certain elements of the taxpayer’s claim (when necessary) and will also begin a more comprehensive post-payment review and audit of all claims made under the CEWS.

Beginning in September, the federal government of Canada will begin post-payment validation of the new programs introduced as a result of COVID-19. These programs include CERB, and CESB.  Further, the CRA will monitor the initial intake of claims and adjust its queries as necessary. The purpose of post-payment validation for these new programs is the CRA’s attempt to maintain the integrity of the program and deter fraudulent application filings.

If the CRA concludes that a taxpayer is not eligible for the wage subsidy, the taxpayer will then be required to repay amounts paid. It is possible that penalties and interest are applied as well.

 

CRA Audits – What do I need to do?

The CRA expects all taxpayers to maintain adequate books and records to ensure that the claim is accurate and complete, and clearly supports the taxpayer’s eligibility for the wage subsidy for a claim period. This includes ledgers, journals, financial statements, contracts, calculations of other working papers, payroll records, etc. Creating your own “paper trail” can be tedious but is imperative in ensuring your claims are supported and can help you avoid being penalized for fraudulent claims.

For CERB, the CRA is actively monitoring the situation to ensure that compliance with the lax laws is assured. With the same goal in mind, the CRA ensures that, regardless of the assistance program you apply for, they monitor each claim and ensure that the claims are valid, and the claimant is eligible for the support program they have applied for, whether it be CERB, CEWS or CESB.

There is some good news to share. The federal government has extended the CERB payments from 16 weeks to 24 weeks as a result of the ongoing pandemic for those eligible.

 

Penalties and Non-Compliance

Many have wondered whether the federal government will be taking active steps in penalizing those who have applied for an assistance programs they are not qualified for. The answer to this question is, yes. Due to a specific anti-avoidance rule, an employer will not be eligible to claim the wage subsidy for a claim period if the employer participates in a plan that has one of the main purposes of effectively reducing the employer’s qualifying revenues for the current reference period, in order to qualify for the subsidy. As a result, where this anti-avoidance rule applies, the employer will be liable to a penalty equal to 25% of the amount of wage subsidy that is claimed in its application and will have to pay back any wage subsidy that it received.

In addition to this, if an employer knowingly makes a false claim amounting to gross negligence, the employer is liable to a penalty of up to 50% of the difference between the amount of the wage subsidy that it claimed in its application and the amount of wage subsidy to which it is actually entitled.

 

If you have questions about your eligibility for any of these programs, call us today! We’re here to help!

 

**Disclaimer

This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.

by Jeff Kirshen

Offshore Corporations and the Voluntary Disclosures Program

With increasing globalization, it is common for many Canadian residents to be involved with business corporations and companies, both small and large, located outside Canada. If you are a Canadian taxpayer who is involved with a foreign corporation, the Canadian Income Tax Act may require you to file Form T1134 with the Canada Revenue Agency (CRA).

Given the complex reporting requirements of Form T1134, many Canadian taxpayers fail to file the form when required. This failure to meet reporting obligations under the Income Tax Act can result in significant penalties and interests for a taxpayer.

Taxpayers who are required to file a T1134 and have failed to do so, however, may be eligible for relief through the CRA Voluntary Disclosures Program. The disclosure allows taxpayers to avoid prosecution, penalties, and some interest associated with failing to meet their past reporting obligations.

 

Offshore Corporations and Form T1134

The Income Tax Act (s. 233.4(4)) requires resident taxpayers “of which a non-resident corporation is a foreign affiliate at any time in the year” to file a Form T1134. This means that taxpayers in Canada who are an “affiliate” to a foreign, offshore corporation at any time in the year, must file the required Form T1134 at tax year-end.

A corporation outside Canada meets the criteria of being a “foreign affiliate” of a taxpayer if:

1. The taxpayer’s equity percentage in the corporation is 1% or greater; and
2. The equity percentages of the taxpayer and each “person” related to the taxpayer total 10% or greater

These requirements ensure that taxpayers and related taxpayers who, together or separately, own 10% or more equity in a foreign corporation fall into the category of persons required to file a T1134.

The term “person” includes corporations, as well as individuals.  The definition of “related persons” likewise includes relations with or between corporations, and individuals who control corporations. People related via marriage, blood, common-law relations, and adoption are also included in the definition.

 

Offshore Corporations and Form T1134 – Exceptions

Certain situations may exempt a taxpayer from filing Form T1134. Notable exemptions include:

• The first year in which a person (who is not a corporation) becomes a resident for the first time;
• Where the aggregate cost to the taxpayer, in a year, of its interest in the foreign affiliate is
  • less than $100,000, and
  • the corporation is “dormant” during the reporting period.

The foreign corporation must meet certain definitions to be regarded as “dormant”, such as owning assets worth less than total fair market value of $1,000,000 at all times during the year and having gross receipts of less than $25,000.

 

Offshore Corporations and Form T1134 – Deadline

A Form T1134 – “Information Return Relating to Controlled and Not-Controlled Foreign Affiliates” asks the taxpayer to provide information and documentation about the affiliated foreign corporation, such as the value of all shares the taxpayer owns in the company, assets held by the foreign corporation and taxes paid or payable on the net income, among other requirements.

In the past, each taxpayer had to file Form T1134 within 15 months of the end of the reporting taxpayer’s tax year or in the case of a partnership their fiscal period.

However, the CRA has changed the rules for 2020 and subsequent years. For tax years that begin in 2020, Form T1134 will have to be filed within 12 months of the end of the reporting taxpayer’s tax year or, in the case of a partnership, fiscal period. 

For tax years that begin after 2020, Form T1134 will have to be filed within 10 months of the end of the reporting taxpayer’s tax year or, in the case of a partnership, fiscal period.

Note that you must include all additional information required by the Form on a separate page if there is insufficient space.

 

Offshore Corporations and Form T1134 – Penalties

Penalties for failure to file the required form can be severe. This includes a penalty of $2,500 for every year that a taxpayer failed to file the form, even if they did not intend to and were unaware of their obligation to do so. If a taxpayer knowingly fails to file a T1134, however, gross negligence penalties of up to $12,000 for each failure to file can also be levied after CRA conducts an audit.

 

Offshore Corporations and the Voluntary Disclosures Program

The Voluntary Disclosure Program can provide significant relief to taxpayers who fail to file by allowing penalties, some interest and potential prosecution to be waived upon disclosure. Persons who are associated with foreign affiliates may also need to file a T1135 if they own offshore bank accounts or have foreign income.

 

If you are interested in using the CRA’s Voluntary Disclosures Program to correct past errors or omissions regarding having a foreign affiliate corporation, Rosen Kirshen Tax Law can help you navigate this complex process and ensure that your privileged disclosure is dealt with correctly. We are here to help, call us for a free consultation 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

Claiming CERB but not Eligible?

The Canadian Emergency Response Benefit (CERB) has injected billions of dollars into the pockets of millions of Canadians, to help the country endure the COVID-19 pandemic. In a previous article, we discussed how to determine if you are actually eligible for CERB, and the consequences for those whom are found to be ineligible. More recently, however, news reports have surfaced regarding a proposed bill that is in its early stages in the House of Commons, that clarify how the government and the CRA could proceed following the pandemic.

 

Claiming CERB but not Eligible

The Canadian federal government is considering enacting a bill that would impose severe punishments, including fines and even jail time, for Canadians that have been defrauding the Canadian Emergency Response Benefit (CERB) program. The legislation is current at draft stage and is struggling to gain support from opposition parties, but is revealing of how the Canadian government would like to seek out those they deem to be undeserving of the benefit following the COVID-19 crisis.

The draft bill targets those whom:

1. Made a false or misleading benefit claim
2. Knowingly failed to declare income for the period which they applied for the benefit
3. Received a benefit cheque they were knowingly not eligible for, and
4. Aided someone in committing one of the aforementioned offences.

It appears that, much like the eligibility criteria for CERB, the fraud criteria are quite broad and are a catch-all. They almost seem like four different ways of saying the same thing: if you knew you were not eligible, but accepted CERB anyways, then you engaged in fraud. By framing each criterion in overlapping but technically distinct ways, they ensure that they are encompassing all potentially fraudulent behaviour.

It is important to emphasize that the bill is not a prescribing a punishment for those who accidentally took CERB. At its current stage, the bill seems to go after those that are maliciously accepting support from the government that they do not deserve. However, in practice the CRA will likely extend the boundaries of what would be considered fraudulent behaviour and force taxpayers to prove otherwise, just as they tend to do with gross negligence penalties.

 

Claiming CERB while knowing I am not Eligible

Under normal circumstances, if you are ineligible and received the CERB, the CRA will have grounds to investigate, audit, and assess you. Following an assessment the CRA will attempt to collect on the funds, plus interest and penalties. The interest and penalties accumulate quickly, and can transform into a minor debt into one that is much more substantial. The CRA could also pursue legal action in order to collect on the debt, such as garnishing wages or placing a lien on your property as security until the tax is paid.

If this bill becomes law, individuals accused of any of the above could be fined for up to $5000, plus double the amount of the benefit that was received. It also can incorporate amounts the accused would have received through CERB due to fraud. Most surprisingly, the bill also states that one could be punished with up to six months in jail for fraudulently accepting CERB.

 

May I Repay CERB?

Canada is allowing the repayment of CERB. More information may be found here.  You may repay it if you realized you are actually ineligible, or if you’ve returned to work. CERB is taxable so unless repaid in full in 2020, you will receive a tax slip for the income that must be reported on your 2020 income tax returns. There is no indication whether repaying the CERB will stop the CRA from coming after you if you knowingly received it while ineligible, but we are hopeful that will be the case.

 

If you are a CERB recipient but have doubts regarding your eligibility, please feel free to contact our firm for a consultation. We have extensive experience managing CRA collections, and ensuring that no legal action takes place against you. We can assist in creating a plan of action in order to avoid the worst consequences of owing a debt to the CRA. 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 Emergency Response Benefit – What if CRA wants it back?

The Canada Emergency Response Benefit (CERB) has injected billions of dollars into the pockets of millions of Canadians, to help the country endure the COVID-19 pandemic. It is one of the most ambitious social welfare programs Canada has ever seen, and has certainly been a contributing factor in the country’s success in stopping the spread of the virus. Without the benefit, Canadians would be less likely to be able to pay their rent, stay in their homes and practice social distancing. Many would seek employment despite the virus to support their families. The CERB has provided some stability amidst great uncertainty.

 

Canada Emergency Response Benefit – Eligibility

It seems eligibility for the benefit has expanded every week. At first only those who lost their jobs due to COVID-19 were eligible after meeting other criteria. Then it was expanded to include those with reduced hours and pay. Students and seasonal workers struggling to find work were included after, followed by artists, farmers, and more. It is getting harder to know who is not eligible for the benefit anymore.

This is partly by design. In the current stage, the benefit’s eligibility has been set up as a catch-all system. Following the pandemic the government will take stock and determine who was not actually eligible. Therefore, determining eligibility today based on government statements and reports is difficult; they have not clarified the categories of persons who would be ineligible in recent weeks. Recently there are news reports of individuals that have been claiming the CERB when they are not eligible. While some are doing so intentionally, many are accidental, as the eligibility criteria for the CERB has become increasingly complicated over time.

We would like to help fill the gap. If you match any of the descriptions below, you are almost certainly not eligible for the CERB and may be penalized following the pandemic.

 

Fully Employed

If you are currently employed and are receiving the same salary as before the crisis, you are not eligible. The benefit is intended to help those that do not have a paycheque, or have seen their pay or hours sharply reduced. If you are employed and are making the same salary, then the CERB is not for you.

 

Voluntarily Unemployed

If you quit your job and are unemployed for reasons unrelated to COVID-19, you are not eligible for the CERB. One of the most important criteria for the CERB is that the need for assistance must be as a result of the pandemic. One cannot quit their job to take time off work, rest, take up a hobby, and then claim CERB. It is presumed that those individuals are not suffering from the lack of a paycheque because they already planned to live without earning a salary, and are therefore not in need of assistance.

 

Those who Receive Government Benefits and do not meet the Employment income threshold

Benefits received from the government prior to the pandemic do not count as part of your income calculation for determining if you earned enough to be eligible for the CERB ($5000 since Jan 1, 2019). The income calculation must incorporate employment or self-employment income. For example, someone living solely on disability would not be eligible, as they are already receiving support from the government. That individual’s source of income from the government has not been effected by COVID-19, so they are not eligible for CERB.

 

In essence, in determining your eligibility, the question that must be asked is whether your employment or income has genuinely been affected by the COVID-19 pandemic. If it has not, you are likely not eligible for the CERB.

 

What if I have received the Canada Emergency Response Benefit but I am not entitled to it?

If you are ineligible and received the CERB, the CRA will have grounds to investigate, audit, and assess you. Following an assessment the CRA will attempt to collect on the funds, plus interest and penalties. The interest and penalties accumulate quickly, and can transform into a minor debt into one that is much more substantial. The CRA could also pursue legal action in order to collect on the debt, such as garnishing wages or placing a lien on your property as security until the tax is paid.

 

If you are a CERB recipient but have doubts regarding your eligibility, please feel free to contact our firm for a free consultation. We have extensive experience managing CRA collections, and ensuring that no legal action takes place against you. We can assist in creating a plan of action in order to avoid the worst consequences of owing a debt to the CRA. 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

When Should a Tax Lawyer be Used?

For most, filing taxes and dealing with the Canada Revenue Agency (CRA) can be scary and confusing. Even for those who file their taxes on time and have nothing to hide, the CRA can often make mistakes that lead to unfair enforcement and tax litigation. As such, there may be various times when you may seek legal assistance to navigate your way through a variety of tax issues. We will outline below a non-exhaustive list of when it would be helpful to enlist the expertise of a qualified tax lawyer.

 

Tax Lawyers, Audits, Objections and the Tax Court of Canada

If you are being audited, this is your first chance to prove your filings are correct. Having a tax lawyer right at the start of your tax dispute will ensure your first opportunity to defend the way you’ve filed your tax returns is not wasted.

If you disagree with a CRA assessment or reassessment, you may dispute this through a Notice of Objection. You can do so by writing a letter to the Chief of Appeals at your tax services office, or by filing a T400A Objection form. The success of an Objection often depends on the level of detail and supporting documentation provided. A tax lawyer will be able to assess the validity of your Objection and ensure you follow through with it correctly. If the CRA does not accept the Objection, you may have the option to bring your case to the Tax Court of Canada.

If you are going to tax court, it is a good idea to have a tax lawyer to represent you and may even be necessary. Tax lawyers have been trained in the law and can navigate through the court system to best represent your interests. Similarly, a CRA tax evasion prosecution or prosecution for failure to file tax returns should only be defended by a tax lawyer. It is a tax battle that may end up in the criminal courts, and you want to ensure that you have the right representation. The lawyers at Rosen Kirshen Tax Law understand the ins and outs of the court system as they have litigated a number of cases with both the Tax Court of Canada and criminal court.

 

Tax Lawyers and Tax Residency

Canada taxes based on residency, which is different from the United States where they tax based on citizenship. What this means is that it is possible to pay no Canadian tax. That being said, Canadian taxpayers should ensure that they do this properly to avoid problems with the CRA in future. Tax lawyers are well versed in tax residency, and can best advise you on the proper steps to take to ensure that you are not required to pay Canadian taxes on your worldwide income.

 

Tax Lawyers and the Voluntary Disclosure Program

The Voluntary Disclosures Program (VDP) allows those who have either not filed their taxes, or made mistakes on previous filings, to come forward and correct these errors.

A voluntary disclosure starts with an application to the CRA requesting that you be allowed into the program. If your disclosure is not accepted, your tax returns will still be sent for processing, but you will be hit with major penalties, and interest charges, not to mention possible criminal charges.

Our tax law firm understands the principles of a voluntary disclosure and can assist you with this application, ensuring you meet all of the requirements so that your disclosure is accepted.

 

Tax Lawyers, Tax Debts and Taxpayer Relief Applications

Taxpayers may struggle to meet their tax obligations for a number of reasons beyond their control. Unfortunately, once you have been assessed or reassessed by the CRA, your tax debt may be due immediately and CRA collections may be breathing down your neck. Tax lawyers know the ins and outs of CRA collections, and are in the best position to assist taxpayers who are trying to get themselves on payment plans. Tax debts can also often lead to significant penalties and interest for those who are unable to make timely payments, thereby increasing an already hefty tax debt. Many people find that themselves in this situation and they may apply to the Taxpayer Relief Program to request relief in the form of waiving interest and penalties. An application for relief may be made by completing an RC4288 – Request for Taxpayer Relief.

While the CRA does provide this avenue for relief, relief is often denied to uniformed applicants who fail to meet the confusing CRA policies for relief. This is because each taxpayer relief application is considered on a case by case basis, by different individuals working out of different offices, and as such, there is often a lack of transparency and consistency by the CRA. Therefore, it may be useful to contact a professional who is familiar with the CRA’s administrative policies and procedures to give you the best chance for relief.

 

If you feel overwhelmed with your tax situation, you are not alone. The Toronto tax lawyers at Rosen Kirshen Tax Law have the expertise and experience to assist you in all tax related matters. Call us now for a free consultation!

 

**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 and COVID-19: Rent Relief and Loans for Businesses

Last week the Canadian government took an additional step towards helping small business owners overcome the impact that COVID 19 is having on their enterprises. The latest assistance program announced by the federal government is being billed as a, “Rent Assistance Program for Businesses”. To ensure that the program will have a positive impact on as many Canadian business owners as possible, the announcement of the new scheme was accompanied by attestations from the Prime Minister that the federal government would be easing restrictions that may presently hinder small and medium sized businesses from accessing loans. Please see our tax blog for additional information on last week’s other Emergency Response updates.

 

Rent Relief – The Canada Emergency Commercial Rent Assistance Program

The Canada Emergency Commercial Rent Assistance Program will assist eligible small businesses with their rent payments for April, May, and June. The program will be administered in conjunction with the provinces and territories, who are typically responsible for overseeing the administration of commercial property in their respective locales. The crux of the program involves providing loans to commercial property loans, some of these will be forgivable in the future, to enable them to reduce or forgo the rent they charge to small businesses.

Tenants who have their rent deferred by their landlord may still input a tax credit even if they have not paid their rent. This makes it important for landlords to record deferrals properly, so as to make them legally binding, and thus the owner of the property will not be burdened by a GST/HST liability before they have received the rent for the property.

However, it is also worth noting that short-term accommodations to tenants will likely not impact a landlord’s GST/HST liability as the federal government has deferred the due date for any GST/HST owing until the 30^th of June 2020.

 

Forgivable Loans – The Canada Emergency Business Account

In addition, there will be expanded access to the Canada Emergency Business Account. This program is aimed to provide small and medium sized companies with loans of up to $40,000 in order to assist with keeping their businesses viable during the COVID 19 crises. As an additional method of assistance, if a company can pay the remaining balance of the loan by the end of 2022, up to $10,000 of the loan may be forgiven.

To qualify for a loan under this program, the company must demonstrate that they paid between $50,000 and 1,000,000 in payroll during their 2019 fiscal year. However, as part of the expanded access programs the eligibility is being extended to companies with a 2019 payroll between $20,000 and 1,500,000.

 

If you have any questions about how these programs above may affect you as a business owner, 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

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.