RECENT TAX UPDATES
Tax Alert – Canada Revenue Agency warns Canadians of mail scam
CICA Federal Budget Commentary
PERSONAL
PERSONAL INCOME TAX RATES
The previously announced federal personal tax brackets for 2011, based on taxable income, were as follows:
- 15% on the first $41,544
- 22% between $41,544 and $83,088
- 26% between $83,088 and $128,800
- 29% over $128,800
CRA fact sheet – 2011 Indexation Adjustment for Personal Income Tax and Benefit Amounts.
WAGE LOSS REPLACEMENT PLAN
Having the appropriate sickness benefits in your health insurance will now allow for a reduction in the premiums paid to Canada Revenue Agency.
Employment Insurance for self employed? – Yes
You now can qualify for maximums of:
Foreign Bank Accounts – Canada Revenue Agency is now working with other taxing authorities to identify accounts non-resident in Canada. Penalties for not reporting these items are severe. Voluntary disclosure with Canada Revenue Agency is permitted provided you contact Canada Revenue Agency before they contact you.
Canada Pension Plan – commencing 2012 individuals between the ages 60 and 65 may opt to claim Canada Pension Plan benefits while still working. There is a pension reduction of .6% for each month that the pension is taken before age 65.
Automobile Deduction Limits and expense rates are the same for 2011 ie 52 cents for the first 5000 kilometers and 46 cents for any additional kilometers. CRA now has a 'simplified' log book.
Prescribed Interest Rate for low interest loans remains at 1 % for the first quarter of 2011 – the general concenus is that it will rise the subsequent quarters. Document any loans made to capture this rate.
Network Seller – GST/HST has now 'simplified' your reporting. GI-052 is available.
(We are not sure they are 'simplified'!!)
Gifts and Awards – this has changed.
Gifts – Total value in excess of $500 annually is taxable.
Awards – A long service/anniversary award of less than $500 is taxable.
RRSP limits for 2011 and 2012 are $22,450 and $22,970 respectively.
Long service is set at 5 years or multiples thereof.
Specifically these awards will not apply to non-arms length employees or persons related to these employees.
CRA now has a site for gift and awards with a series of questions to assist you in determin if the gift/award is a taxable benefit.
Meal Allowance
A “reasonable” non taxable meal allowance up to $17 is permitted if you work two days for more than two hours of overtime per week, as long as, this is infrequent or of an occasional nature. More than 3 times per week because of work load demands may also qualify.
Employee vs Independent Contractor
Guide RC4110 discusses in detail Canada Revenue Agency's position on this matter.
Tax Free Savings Accounts – you can now have a maximum of $15,000 in the account – but be sure you have a successor on file or the payout could go to your estate. Note if you over contribute then Canada Revenue Agency will apply a 1% penalty per month on any over contributions.
Calls to Canada Revenue Agency – get the name and office of whomever you speak to and record the details of your conversation. CRA agents must now give their ID number if asked.
T2200 (Conditions of Employment) – has been changed significantly. The old forms will not work. ( See checklist for the new T2200 form).
HOME BUYERS' PLAN
First Time Home Buyer – a non-refundable tax credit of $5,000 is available.
The maximum eligible withdrawal permitted from an RRSP is now $25,000 for 'qualifying' homes.
REGISTERED RETIREMENT SAVINGS PLANS (RRSP)
In the absence of a spousal or dependant rollover, the fair market value of investments held in an RRSP or Registered Retirement Income Fund (RRIF) at the time of an annuitant's death is included in the income of the deceased for the year of death.
The Budget proposes to allow a deduction for a decrease in value of the investments held in an RRSP or RRIF subsequent to the annuitant's death and upon the final distribution of the property. This deduction would be carried back and deducted against the year-of-death RRSP/RRIF income inclusion. This measure will apply where the final distribution from the RRSP or RRIF occurs after 2008.
GOING SOUTH now published (suggested reading!)
CRA now has an excellent guide, P151, covering their perspective on a number of issues.
BUSINESS
GST/HST
If you have any sales in British Columbia, you have to report these separately. If your revenues are in excess of $1.5 Million then you have to file your returns electronically. HST is determined on the basis of the place of supply that is either the address of the recipient or where the goods are delivered.
SMALL BUSINESS DEDUCTION (SBD)
The SBD reduces the federal corporate income tax rate to 11% on the first $500,000 of qualifying active business income earned by a group of associated companies in a year.
Partnerships allocate their income eligible for the SBD to corporate partners based on the percentage of income allocated times the annual business limit.
COMPLIANCE
ELECTRONIC FILING OF CORPORATE INCOME TAX RETURNS
Corporations with gross revenue exceeding $1 million (other than atypical situations, such as non-resident corporations and corporations reporting in a functional currency) must file their T2 corporate income tax returns electronically for taxation years ending after 2009. Failure to comply with these rules will make offending corporations liable for penalties depending on the corporation's year-end. The penalties will be $250 in 2011, $500 in 2012, and $1,000 in subsequent years. These penalties will also apply for filing returns in an incorrect format.
INFORMATION RETURNS
The threshold requiring taxpayers to file information returns (such as T4s) electronically is 50. Failure to comply with these rules makes a taxpayer liable for a penalty, based on the number of information slips. Similarly, taxpayers may be liable for penalties for filing information returns in the incorrect format. The penalties will be:
| Number of Slips or Information Returns | Penalty |
| More than 50 but less than 251 | $250 |
| More than 250 but less than 501 | $500 |
| More than 500 but less than 2,501 | $1,500 |
| More than 2,500 | $2,500 |
Where a taxpayer is required to file a number of similar returns, under the current rules it may be liable for late filing penalties with respect to each return. This can be very punitive. Subject to a minimum of $100, the proposed penalties will be based on the number of returns, and will be:
| Number of Slips or Information Returns | Penalty per day |
| Less than 51 | $10 |
| More than 50 but less than 501 | $15 |
| More than 500 but less than 2,501 | $25 |
| More than 2,500 | $50 |
| More than 10,000 | $75 |
The maximum penalty will be 100 days times the applicable rate.
Filing Deadlines (especially the T1135 required for holding in excess of $100,000 in foreign jurisdictions) even though no tax may be payable on returns, late filing of any disclosure forms can attract significant penalties. CRA is now actively applying these penalties.
Refunds – Canada Revenue Agency is now prohibited from releasing any refunds until all of taxpayers' filings for income tax and GST are current.
Missing Slips – Canada Revenue Agency matches slips sent in to slips reported on your tax return. Unreported slips are being penalized and the penalty procedure is severe and very costly. If you have any unreported slips file an adjustment with Canada Revenue Agency promptly. Penalties (10% of the unreported amount) for missing slips (regardless of the amount) are increased for subsequent occurances.
Corporate Returns – Corporations that have not filed a return within three (3) years and CRA arbitrarily assesses the corporation may find that CRA will keep the assessed amount regardless of whether a return is subsequently filed proving the assessment to be in error.
Individual taxpayers do have some access to a refund under the Taxpayer Releif provisions.