TAX TIPS
Automobiles – The rates defined by CRA for Alberta for 2011 are 52 cents for the first 5,000 kilometers and 46 cents for kilometers in excess.
Capital costs remains at $30,000 as does the monthly lease costs of $800 per month.
Public Transit Passes – This covers public transit costs. It covers the taxpayer, their spouse and the dependents less than 19 years of age. Keep the passes and receipts — CRA may ask for them.
Universal Child Care Benefit – This is payable to every family regardless of income — it is separate from the Child Tax Benefit (which is determined by the family income) — if you get the Child Tax Benefit this will be sent automatically to you — if you do not receive the benefit then file form RC66.
Construction Contractors – CRA requires that you file T5018 for all amount paid to subcontractors greater than $500. Initially CRA requested that contractors voluntarily submit this document — now CRA may impose a $ 2,500 penalty for non-filers. CRA is now conducting audits on these reportings. Non-filings are resulting in serious penalties.
Scholarships and Bursaries – Reportable but generally non-taxable.
Pension Deduction – It is $2,000.
Textbooks – These can now be claimed to the amount of $65 for each month of full time attendance.
Logbooks – CRA is increasingly asking for these. If you are claiming auto costs then keep some record of tracking the vehicle mileage. If questioned you have to be able to show that you had some method of recording the business and personal usage. Complimentary logbooks are available at our office.
Simplified Logbooks – Keep a log for one year and then a three-month period thereafter – variance cannot be more than 10%. This is for self-employed individuals only.
Children's Fitness Tax Credit – The government is promoting the fitness of children and provides a $500 tax credit for all child under 16 who are involved in programs promoting physical fitness. Receipts must be available for CRA if so requested.
Children's Arts Tax Credit – Eligible Arts program — at least five (5) consecutive days or weekly lasting eight (8) consecutive weeks (eg. Guides, Scouts, music, painting, etc.).
Dividends – There were major changes to the structuring of dividends in 2006. A new category of dividends termed "eligible" dividends has been created which when used will result in reduced personal taxes on these monies.
Seniors however, may not want to receive such dividends as they will also result in a higher income in the calculation of the amount subject to clawback of the OAS.
Fort McMurray and Grand Prairie – The 100% deduction allowed as these locations were categorized as worksites will likely disappear this year as there is a Federal Census underway. Both locations are greater than the 40,000 person qualifying criteria. In future all meals will be subject to the 50% add back.
Special Work Site Per Diem Allowances – Going rate for Per Diem non-taxable allowances where you are at least 80 km away from principal residence for at least 36 hours is $140 per day.
Contractors – All who work as an independent contractor should have a formal contract agreement for all assignments undertaken. Recent court cases have stressed the importance of this document to the recognition of the contractor arrangement.
Truckers Meal Allowances – Long-haul truckers have a higher meal allowance, however owners should consider incorporating their operations and having the corporation pay a reasonable allowance.
Life Insurance – If it is a requirement of the loan agreement that life insurance must be maintained then the premiums are deductible to the corporation.
Bonuses – Any bonus payable should be supported by a written corporate resolution made before the year end. CRA has been asking to see minute books to establish whether these have been made.
Liquor Expenses – A recent court case confirmed that liquor expenses related to a business are considered eligible expenses subject to the 50% add back rule.
Special Worksite – Board, travel to and from and lodging are non-taxable if the taxpayer is gone for at least 36 hours.
Cellular telephones used primarily for business are non-taxable however personal usage should be included in taxpayers' income.
Educational Allowances paid to employees for their children are non-taxable.
Gifts & Awards – Two gifts and awards up to $500 each (inclusive of GST) are allowed to employees each year.
Moving – CRA allows a allowance of up to $650 for incidental expenses to be non-accountable allowance and is therefore not taxable.
Recreational Club Fees are non-taxable if the purpose for the use is for the employer's advantage.
Overtime meals when the employee works more than three hours are not taxable.
Travel Allowances that are reasonable are not taxable for salespersons or when the employee travels away from the municipality where the employee regularly reports to work.
Medical Travel — If you have to travel more than 80 km from home for medical services, the CRA allows accommodation, meals and parking expenses.
Cohabitation and Common Law Partners — In April 2011 CRA issued clarification that couples are considered common law if they had cohabited for a period of at least one year.
Lunches at Training Courses — Courses in which lunch/breakfast are supplied do not have a 50% add back for the lunch/breakfast.
Energy Retrofit for Homes — This grant of up to $5,000 must now be applied for and approved (ie. participants have to be registered) prior to the purchase. There must now also be a post-retrofit evaluation after to confirm eligibility for the grant. Applications must be completed before March 31, 2012.
Interest on Corporate Loans to Shareholders — Prescribed rate on shareholder loans remains at 1%.
SUV-automobile — SUVs are considered to be similar to pickup trucks (ie. if all or substantially all use is for transportation of goods, equipment and passengers) then it is not considered an 'automobile' (ie. full depreciation value).
BEWARE OF TAX SCHEMES
The Canada Customs & Revenue Agency issued a news release, "Beware of Tax Schemes", warning taxpayers against "unscrupulous" financial advisors who offer to lend them money against their Registered Retirement Savings Plan (RRSP), Registered Pension Plan (RPP) or Locked-In Retirement Account (LIRA).CRA is actively prosecuting the orginators and promotors of these schemes.
DO NOT INVEST in any of these schemes as CRA will disallow the investment and will assess taxes on monies taken out of these plans. If you are in doubt about a plan, call us!
PAYING NON-RESIDENTS – Watch out for withholding tax!
Non-residents of Canada are subject to withholding tax on various kinds of income paid to them by Canadian residents. If you are a Canadian resident making such payments to a non-resident, you must withhold the required amount and remit it to the CCRA within a prescribed period. These rules cover, for example:
- Interest
Example: you make payments on a loan you received from a non-resident (whether at arm's length or a family member). - Dividends
Example: dividend payments to a non-resident who invested in your business as a shareholder, whether through common or preferred shares. - Rent for the use of property in Canada
Example: you rent a house from a landlord who lives in Europe and has purchased the property as an investment, and who does not use a rental agent in Canada to collect the rents. - Royalties
Example: you license a software program from a company in Japan. - Estate or Trust Income
Example: you are executor of an estate, and income earned since the deceased's death is payable to a beneficiary in Mexico. - Pension Income and RRSP/RRIF withdrawals commissions or fees in respect of services rendered in Canada.
(While the rest of the non-resident withholding tax rules are in section 212 of the Income Tax Act, this one is buried in Regulation 105 and is often overlooked, even by many accountants.)
Example: a motivational speaker who now lives in the Bahamas returns to Canada to lecture to your employees. Alimony, maintenance and child support were formerly subject to withholding tax. This was eliminated in 1997, and so you do not have to worry about tax on any such payments you make to a spouse or ex-spouse who now lives outside Canada.
The non-resident withholding rules are very complex, and there are many exceptions and qualifications, both in the Income Tax Act and in Canada's 79 tax treaties with other countries.
Amount to be withheld — varies by the nature of the income and the country. The tax treaty reductions often have detailed exceptions and special rules, and so the specific treaty must be consulted in each case.
Can the non-resident get back the tax?
Generally, no. The non-resident withholding tax is normally the actual tax, not a prepayment on a tax to be calculated later. The non-resident normally does not and cannot file a tax return in Canada to report the income.
There are some exceptions, however. The most significant is for rent on real property. The non-resident can elect to file a regular Canadian tax return to report the income, and to pay tax at normal Canadian rates on the net income from the property, rather than having 25% withheld on the gross. Where the expenses of the property are significant (e.g., mortgage interest, utilities, property taxes, property management fees), the non-resident will normally do this. In such cases, arrangements can be made in advance to reduce the amount that has to be withheld from each payment of rent.
What happens if you don't withhold or don't remit?
If you fail to withhold the required percentage from each payment, you are liable for that percentage (or possibly more, if the amount you pay is considered to be a "net" amount). You will also be liable for interest and penalties, which can be quite substantial. Interest compounds daily at a prescribed rate which changes quarterly. The penalty is normally 10%, but can be much higher for repeated violations or intentional failure to withhold. Criminal sanctions can also apply if you know about these rules and your failure to withhold is deliberate.
Similarly, if you withhold but fail to remit the tax to the CCRA by the due date, you will be liable for the tax plus interest and penalties. The funds that you have withheld are considered to be held in trust for the federal government; you must not consider this as your own money.
If you are making any payments to non-residents, it is important to obtain accurate advice as to your possible obligation to withhold and remit tax.
If you are a U.S. citizen and have more than $10,000 in foreign accounts such as Canadian banks, RRSPs, etc., you must make appropriate disclosures on TDF 90-22.1 (FBAR). Failure to do so may inure serious penalties. This has to be filed annually by June 30. There is no extension of this deadline.