Tuesday, 6 June 2017

Personal Use Asset in a Corporation: GST/HST and Other Tax Issues

Personal Use Asset in a Corporation: GST/HST and Other Tax Issues

A number of issues may arise if a shareholder uses a corporate asset personally without providing the corporation with fair market value (FMV) consideration. Barring a special relieving provision of the Act, the shareholder may be subject to a shareholder benefit, essentially resulting in double tax. Another issue that may arise relates to GST/HST. This was considered in the below Court case.
In a September 23, 2016 Tax Court of Canada case, at issue was whether the input tax credits (ITCs) for the corporate purchase of a $310,000 recreational vehicle (RV), which was allegedly used for both corporate and personal purposes, would be permitted. For the periods that the taxpayer conceded that the vehicle was used personally, the shareholder paid $2,000 plus GST/HST per week. The Minister provided evidence from a 3rd party that the average rate for such a vehicle would be between $4,500 and $5,000 per week.
Taxpayer loses … the Court determined that the vehicle was acquired exclusively, or at least primarily, for the shareholder's personal use. To be eligible for an ITC, an asset must be acquired "for use primarily in commercial activities of the registrant". As such, the GST/HST paid would not be recoverable as an ITC.
Action Item: Assets acquired for personal use by shareholders should not generally be acquired by the corporation. Significant income tax and GST/HST issues may arise if such assets are held corporately.
This article is for educational purposes only. As it is impossible to include all situations, circumstances, and exceptions, a further review should be done for your situation. No organization or individual involved in either the preparation or distribution of these articles accepts any contractual, tortious, or any other form of liability for its contents. For any questions please give one of our principals a call at 250-370-2191 (Bill ext. 1; James ext. 2; Richard ext. 7).

For more articles see http://www.mycpas.ca

Monday, 29 May 2017

Changes coming to investment management fees


In a November 29, 2016 Technical Interpretation, CRA opined that where investment management fees incurred by an RRSP, RRIF, or TFSA are paid from outside of the plan (such as by the annuitant or holder) the plan’s controlling individual would likely be subject to a tax equal to 100% of the fees paid.

CRA opined that investment management fees represent a liability of the registered plan trust and should, therefore, be paid using funds from the plan. If paid from outside of the plan, the resulting indirect increase in value of the plan assets would likely constitute an advantage. That is, more assets would be retained in the tax-sheltered vehicle.

CRA further noted that it is not commercially reasonable for an arm’s length party to gratuitously pay the expenses of another party. As such, there is a strong inference that a motivating factor of the above is to maximize the savings in the plan so as to benefit from the tax exemption afforded to the plan.

Recognizing that it is common practice for the holder of these accounts to pay the management fees, CRA indicated they will defer the application of this position until January 1, 2018.

Action Item: Be aware of changes in how investment management fees are charged in the near future to avoid this tax.

Tuesday, 23 May 2017

Charities and For-Profits Working Together ...

Charities and For-Profits Working Together:
Receipts for Cause-Related Marketing

registered charity may work with a for-profit entity to promote the sale of the for-profit’s items on the basis that part of the revenues will go to the charity. This is commonly called cause-related marketing. On February 9, 2017, CRA published guidance addressing this.

CRA noted that the benefit that a for-profit receives from this type of arrangement is considered an advantage. The charity must quantify this advantage and reduce it from the amount of the donation to calculate the eligible donation. Where the total value of the advantage cannot be calculated, the charity cannot issue a receipt. That said, CRA noted it may be possible to claim the donation as an advertising expense.

Action Item: Consider this type of arrangement to raise funds for your charity! Or, as a for-profit, to raise your profile in the community.

For more articles like this go to mycpas/articles/articles.html.

Monday, 8 May 2017

Canada Revenue Agency (CRA) Tax Scams

CRA Tax Scams

There's a new tax scam being made-up every day and they can look very realistic. Be wary when you receive any kind of communication from Canada Revenue Agency that wants personal information such as your social insurance number, credit card, or bank account number. CRA will never ask you to go to a link and disclose personal information.

The scam will assert that your personal information is needed so that you can receive a refund or a benefit payment (some may also involve threatening language). Other communications will ask you to visit a fake CRA website where you are asked to verify your identity by entering personal information. These are scams and you should never respond to these fraudulent messages or click on any of the links provided.

The following is taken from the CRA website "Protect Yourself Against Fraud" :

If you receive a call saying you owe money to the CRA, you can call CRA or check your "My Account" on the CRA website to be sure.

If you have signed up for online mail (available through My Account, My Business Account, and Represent a Client), the CRA will do the following:
  • send a registration confirmation email to the address you provided for online mail service for an individual or a business; AND
  • send an email to the address you provided to notify you when new online mail is available to view in the CRA’s secure online services portal.
The CRA WILL NOT do the following:
  • send email with a link and ask you to divulge personal or financial information;
If you call the CRA to request a form or a link for specific information, a CRA agent will forward the information you are requesting to your email during the telephone call. This is the only circumstance in which the CRA will send an email containing links.

The CRA will also not
  • ask for personal information of any kind by email or text message.
  • request payments by prepaid credit cards.
  • give taxpayer information to another person, unless formal authorization is provided by the taxpayer.
  • leave personal information on an answering machine.
When in doubt, ask yourself the following:
  • Did I sign up to receive online mail through My Account, My Business Account, or Represent a Client?
  • Did I provide my email address on my income tax and benefit return to receive mail online?
  • Am I expecting more money from the CRA?
  • Does this sound too good to be true?
  • Is the requester asking for information I would not provide in my tax return?
  • Is the requester asking for information I know the CRA already has on file for me?
  • If you do have a debt with the CRA and can’t pay in full, take action right away. For more information, go to When you owe money – collections at the CRA.

Tuesday, 4 April 2017

How do you compare with other Canadian companies?

Canadian Industry Statistics: How Do I Compare?

The Government of Canada provides analysis and detailed information on economic indicators using the most recent data from Statistics Canada on the website, www.ic.gc.ca/eic/site/cis-sic.nsf/eng/home. This website can help small to medium sized businesses understand the dynamics of their industries. Users can focus on a single industry over time or compare one industry against another.
Data is segregated based on the North American Industry Classification System (NAICS) code. Within each specific NAICS code is detailed financial performance data. Such data includes, for example, average gross margins, detailed breakdowns of expenses (e.g. repairs and maintenance, labour, professional and business fees) as a percentage of revenues, and certain financial ratios (e.g. current ratio, return on total assets).
Action Item: Consider using this site to compare your costs as a percentage of revenues to other Canadian companies in your industry.

For more articles like this go to mycpas/articles/articles.html.

This article is for educational purposes only. As it is impossible to include all situations, circumstances, and exceptions, a further review should be done for your situation. No organization or individual involved in either the preparation or distribution of these articles accepts any contractual, tortious, or any other form of liability for its contents. For any questions please give one of our principals a call at 250-370-2191 (Bill ext. 1; James ext. 2; Richard ext. 7).

Sunday, 26 March 2017

Objections to a CRA reassessment

Objections to a CRA Reassessment

When filing an objection to a CRA reassessment, one of the most frequently-posed questions is "How long will it take?". The answer, according to the Auditor General, is "too long".
On November 29, 2016, the Auditor General released a report to Parliament focusing on the effectiveness and timeliness of the objection process.
Length of Process
For the five-year period ending March 31, 2016, CRA took the following numbers of days, on average, to resolve objections from the time they were filed by the taxpayers:
  • 143 days for low-complexity objections (about 61% of total objections for the period);
  • 431 days for medium-complexity objections (about 37% of total objections for tåhe period);
  • 896 days for high-complexity objections (about 2% of total objections for the period).
On average, CRA did not assign an objection to an appeals officer until 150 days after the taxpayer had mailed the notice of objection.
CRA's performance was also compared to six other administrations using 2009 data. Canada took 276 days compared to an average of 70 days for the other six countries.
It was also noted that the tracking system for timing the process was not sufficiently accurate or complete.
Objection Decision Results
Of the objections accepted and processed by CRA, 65% were decided in favour (in whole or part) of the taxpayer. 0.6% of objections resulted in an increase in income tax owed.
Next Steps
In the Fall of 2016, CRA commenced a review of its objections process. As an immediate response, CRA indicated that it will implement the standard to respond to taxpayers on low-complexity objections within 180 days, 80% of the time. Also, beginning in the 2017-2018 year, as part of the initial step when objections are received and screened, taxpayers will be contacted (if necessary) to provide missing information to ensure the file is complete when assigned for resolution.
Action Item: As it will likely take a long time to complete an objection, a significant amount of interest on the tax liability may accumulate. Consider making an earlier payment to reduce the interest cost in the event that the objection is not successful. If it is successful, the CRA will pay interest to the taxpayer, albeit at a lower rate.

For more articles like this go to mycpas/articles/articles.html.

Tuesday, 14 March 2017

CRA Tax Credit for Medical Expenses

CRA Tax Credit for Medical Expenses

CRA allows a tax credit for a surprising variety of medical costs like health-related renos, adult diapers, and gluten-free products.

You can claim only eligible medical expenses on your tax return if you paid for the medical expense in any 12-month period ending in 2016 (and did not claim them in 2015).

The following link lists common medical expenses and if the expense is eligible: http://www.cra-arc.gc.ca/medical/#mdcl_xpns.

For more detailed information about medical expenses go to: