Tax Tips & Traps – Spring 2015Brian Jang ON February 18, 2015
IN THIS EDITION
Quick points to consider
FEDERAL NOT-FOR-PROFIT CORPORATIONS ACT
Did You Miss the Transition?
FAMILY TAX CUT
Income Splitting and Other benefits
DISABILITY TAX CREDIT
Make sure to Apply!
DISTRIBUTING ESTATE PROPERTY
An Executor may be Personally Liable
CANADA JOB GRANT
Government Funds Available
Are You Eligible?
GST/HST AND TAXABLE BENEFITS
Impact on Employee and Employer
GOVERNMENT COLLECTION POLICIES
When You Owe Money Other than Taxes
RESOURCE FOR AMERICANS ABROAD
Check this Website
GIFTING TAX SHELTER
Settlement Letters Offered by CRA
TAX TICKLERS: some quick points to consider
- An individual may go back, up to 10 years to access Disability Tax Credits, as well as certain other items, if not previously claimed.
- Scientific Research & Experimental Development credits may be available where a business invests funds to improve manufacturing efficiency.
- The Federal Government has proposed changes which may make the sale of goodwill more costly in the future.
Contact us if you have questions or wish to discuss!
CORPORATIONS ACT : Did You Miss the Transition?
Industry Canada published a list of Frequently Asked Questions to assist corporations incorporated under Part II of the Canada Corporations Act who were required to continue under the new Act (Canada Not-For-Profit Corporations Act) but have not yet done so. Continuation under the new Act was to be done by October 17, 2014.
The website noted that a corporation can still transition after the deadline as long as the corporation has not been dissolved. A Transition Guide is available on the website.
Action Item: Federally incorporated NPOs should ensure, if appropriate, that they correctly continued under the new Act.
FAMILY TAX CUT: Income Splitting and Other Benefits for Families with Children
On October 30, 2014, Prime Minister Stephen Harper announced personal tax changes with respect to families. These changes were passed into law on December 16, 2014.
- The Family Tax Cut is a new non-refundable credit. Essentially, you get a Federal tax credit intended to simulate the annual Federal tax benefit of income splitting with a lower income spouse to a maximum transfer of $50,000 and a maximum tax benefit of $2,000.This will start on 2014 personal tax returns.To be eligible for the credit, you must meet all of the following criteria:
- be married (including common-law partners) to a Canadian resident at the end of the year;
- have a child under age 18 who resides with you;
- not make a pension splitting election (either spouse);
- file a return (both spouses);
- be resident in Canada;
- not become bankrupt in the year; and
- not be incarcerated for a 90 plus day period in the year.
- Universal Child Care Benefit (UCCB) payments will be increased by $60 per month for all children under age 18 (so you get $160 per month for children under age 6 and $60 per child age 6 to 17). This is effective January, 2015 but payments will not begin until July, 2015. A Canada Child Benefits Application Form will be required for parents who have not previously completed such a Form to get other benefits, or for those whose situation has changed.
- The Child Tax Credit (worth $338 per child under age 18 in 2014) will be eliminated in 2015. Instead of a $338 Federal tax credit, the taxpayer will receive $720 ($60 per month as indicated above) in new UCCB payments to be reported by the lower income spouse. Even at a 50% tax rate, the taxpayer will still be ahead. The enhanced portion of the credit for an infirm child will remain available, despite the base credit being eliminated.
- The annual limit on Child Care Expenses will increase to $8,000 per child under age 7, $5,000 per child age 7 to 16, and $11,000 per disabled child, a bump of $1,000 per child in each category. This will also be effective in 2015.
- The Fitness Tax Credit doubles in 2014. For eligible expenses of $1,000, a Federal credit of $150 is obtained ($1,000 @ 15% = $150). This credit will become refundable in 2015. “Refundable” means that in situations where less than $150 in tax is assessed, federal taxes will be reduced to $0 and the unused portion of the credit will be refunded to the taxpayer. The Arts Tax Credit remained unchanged.
Action Item: Ensure your children, aged 17 and under, are registered for UCCB.
DISABILITY TAX CREDIT: Make sure to Apply!
Individuals who have a severe and prolonged impairment in physical or mental functions may apply for the disability tax credit (DTC). The federal tax credit is valued at over $1,100 (15% x 7,766) in 2014, with the possibility of an additional disability supplement for certain individuals under the age of 18 at the end of the year. Provincial tax credits may also be available.
The DTC is a non-refundable tax credit used to reduce income tax payable on an individual’s income tax return. All or part of this amount may be transferred to an individual’s spouse or common-law partner, or another supporting person.
Being eligible for the DTC can open the door to other federal, provincial, or territorial programs such as the registered disability savings plan, the working income tax benefit, and the child disability benefit.
For individuals that may have been eligible for the DTC for a number of years, but have not applied, taxpayer relief may be an option to access these credits for the prior 10 years.
Action Item: If you think you may be eligible for this generous DTC, contact us to discuss.
DISTRIBUTING ESTATE PROPERTY: An Executor may be Personally Liable for the Estate’s Tax Bill!
In an August 8, 2014 Technical Interpretation, CRA reminded taxpayers that an Executor should obtain a Clearance Certificate before distributing property under their control.
The Certificate attests that all amounts payable by the Estate have either been paid or the Minister has accepted security for such amounts. If the Executor distributes the Estate’s property without first obtaining a Clearance Certificate, the Executor may be personally liable for amounts that are outstanding to the Government.
The Clearance Certificate protects the Executor only in the above-noted capacity. CRA can still pursue the beneficiaries of the Estate for any unpaid taxes even where a Clearance Certificate is issued.
Action Item: Executors should consider obtaining a Clearance Certificate to avoid personal liability.
CANADA JOB GRANT: Government Funds Available to Train Employees
This Grant is available to employers to help train new or existing employees for jobs that need to be filled. The program is not restricted to technical training, but is also open to professional and management development. Two-thirds of the cost of the training, to a maximum government contribution of $10,000 per employee application, is available. The Grant must be reported as revenue on the employer’s tax return. This program is available to most sizes of employers. The application, however, must generally be approved prior to engaging in the training program.
As the Grant is administered at the provincial/territorial level, there are differences in administration and eligibility rules across the country. Some of the aspects which may vary include:
- whether the training must result in a credential;
- whether the program must last a minimum number of hours;
- whether salaries paid to participants may count towards the employer’s share;
- whether the training must be incremental to normal training programs;
- the funding limit per organization;
- what costs qualify (tuition, books, travel etc.); and,
- whether the individual has to be an employee before and after the application.
The Grant is available in most provinces and territories across the country (except for Quebec, New Brunswick, and Nunavut, as of the date of publication).
Action Item: As there are limited government funds allocated to the program annually, ensure to apply for funding before the money runs out!
EMPLOYMENT EXPENSES: Are You Eligible?
An individual can deduct certain expenses they paid to earn employment income if they meet certain conditions including:
- their employment contract required them to pay the amount; and,
- they did not receive an allowance for the expenses or the allowance they received is reported as income.
Employees must obtain a signed T2200, Declaration of Conditions of Employment, from their employer to deduct employment expenses from their income.
Eligible employment expenses are quite limited. However, they may include, for example, motor vehicle expenses, supplies, and certain work space in the home if you meet particular criteria. Additional expenses may be available to commissioned salespersons.
Action Item: Obtain a signed Form T2200 from your employer before deducting employment expenses.
GST/HST AND TAXABLE BENEFITS: Impact on Employee and Employer
The provision of some benefits to employees may be subject to GST/HST. Essentially, the CRA wants to ensure that the same amount of GST/HST is paid whether an employee purchases a good or service on his/her own, or whether he/she receives it from his/her employer.
When providing the benefit, the employer must first determine if it is subject to GST/HST. If so, the tax must be calculated and remitted on the GST/HST tax return that covers the last day of February in the following year.
The GST/HST is then included in the value of the benefit on the T4 for the employee.
Taxpayers can usually claim an input tax credit for the GST/HST paid or payable on goods and services supplied to employees or their relatives as a benefit if it is related to the business’ commercial activities.
Guide T4130 (Chapter 5) – Employers Guide, Taxable Benefits and Allowances is a resource which discusses the GST/HST requirements for employment benefits.
Action Item: Consider GST/HST on taxable employment benefits.
GOVERNMENT COLLECTION POLICIES: When You Owe the Government Money Other than Taxes
CRA collects amounts owed for not just tax programs, but also for other government programs, including, for example:
- defaulted Canada Student Loan;
- Employment Insurance overpayment;
- Canada Pension Plan overpayment;
- Old Age Security overpayment;
- Labour Program receivable; and
- other Employment and Social Development Canada (ESDC) programs.
On November 1, 2014, CRA provided a general overview of the Government Programs Collection Policy for individuals, businesses and organizations that owe money other than taxes to the Crown.
They noted that amounts owed to the Government of Canada are payable in full without delay although, if a taxpayer cannot pay the total amount or the minimum payment owing on their statement of account immediately, they could contact the Revenue Collections and Client Services Division with respect to making payment arrangements.
CRA also noted that if amounts are not paid voluntarily, CRA may take legal action to:
- recover amounts from any benefits or other applicable credits they may receive from ESDC;
- recover from credits the Crown may owe to the taxpayer such as income tax refunds and/or GST/HST credits;
- garnishee income sources and/or bank accounts; or
- use any other means under any applicable statutes or law to collect an amount owing.
Garnishment action allows the Government to intercept funds payable to the taxpayer by a third party, such as a taxpayer’s employer, bank, or other sources of income.
Similarly, if any other Federal Government department owes the taxpayer money, a statutory set-off to that department may be made to have all, or part, of that money sent to the department to which the taxpayer is indebted.
Action Item: If you are struggling to pay your Government debts, contact us sooner, rather than later as options may be available.
RESOURCE FOR AMERICANS ABROAD: Check this Website
American Citizens Abroad is a non-profit organization which aims to represent Americans living abroad. The organization has a network of individuals spanning more than 60 countries.
www.americansabroad.org provides a wide range of information on topics such as taxes, banking, voting, citizenship, social security, FATCA (Foreign Account Tax Compliance Act), the FBAR (Foreign Bank Account Report), Medicare, and healthcare.
Citizenship Requirement FAQs and Table of Transmission Requirements are also available,both of which can assist in determining whether an individual is a U.S. Citizen.
Action Item: Check out this useful resource for Americans in Canada or abroad.
GIFTING TAX SHELTER: Settlement Letters Offered by CRA
CRA has commented on settlement offers granted to certain taxpayers who have filed Objections with respect to denied charitable contributions made through gifting tax shelters.
The settlement offers note that if the terms are accepted:
- the Objection would be resolved, and the return would be reassessed; and,
- acceptance would conclude the dispute process.
If the offer is refused:
- CRA will take further action on the taxpayer’s Objection without advance notice;
- CRA will maintain its position that the taxpayer is not entitled to the donation tax credit in question; and,
- in most cases, the next step would be to pursue the matter before the Tax Court of Canada.
CRA has noted that they are continuing to issue these letters and may contact the taxpayer in writing in the coming months to resolve some of these Objections.
It appears that CRA may allow the cash portion of the claim if it is at least 20% of the total donation amount for which the tax credit was claimed.
Action Item: If you are involved in a gifting tax shelter, inform us as there may be a settlement option available.
The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a newsletter such as this, a further review should be done by a qualified professional. Although every reasonable effort has been made to ensure the accuracy of the information contained in this newsletter, no individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents.For any questions… give me a call.