Tuesday, 12 September 2017

Professionals' Work in Progress Exclusion: Changes are Coming

PROFESSIONALS' WORK IN PROGRESS EXCLUSION:
Changes are Coming


In the past, taxpayers in certain designated professions (i.e., accountants, dentists, lawyers, medical doctors, veterinarians and chiropractors) may have elected to exclude the value of work in progress (WIP) in computing their income for tax purposes. This essentially enabled these professionals to defer tax by permitting the costs associated with WIP to be expensed without including the matching revenues.
However, the 2017 Federal Budget proposed to eliminate this election, effective for the first tax year that begins after March 22, 2017. Transitional rules have been introduced to implement the change over two years. Once fully implemented, WIP, which is valued at the lower of cost or fair market value, will need to be included in income each year.
At present, many professionals either do not account for WIP in their financial accounts or account for WIP at its expected billing amount, using staff and partner billing rates rather than cost. These professionals will be required to determine the cost of their WIP in order to comply with these new provisions. There has been some uncertainty expressed regarding how the cost of WIP is properly calculated.
CRA has stated that the proposed changes are not expected to have any impact on bona fide contingency fee arrangements. That said, some practitioners have expressed concern that this concession has little or no basis in law.
Action Item: If you are in one of the industries impacted, and have not previously tracked the cost of your WIP, consider doing so. Also, budget for the possible additional tax liability over the next two years due to catching up the deferral of WIP.


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). Visit our website: mycpas.ca.

Tuesday, 5 September 2017

Major Tax Changes Proposed for Private Corporations


Major Tax Changes Proposed for Private Corporations

On July 18, 2017, Minister of Finance, Bill Morneau announced the release of a Consultation Paper which focused on three tax practices that the Government considers to provide an unfair tax advantage to private corporations and their owners. These include:

Income Sprinkling

The Government is concerned that business owners can direct income to lower income family members who are not involved in the business, gaining a tax advantage unavailable to other Canadians. A common example is dividend sprinkling, where lower income family members own a share of the business and therefore can receive dividends, subject to their lower marginal rate. The Paper suggests taxing the unreasonable portion of dividends received by a family member of the principal of the business at the top marginal tax rate. Reasonability will be based on factors such as labour and capital contributions, and risk assumed. While this reasonableness test will apply on all dividends to family members of the principal, a more stringent criteria will apply for individuals between age 18 and 24.
Similarly, the Paper proposed limits on access to the capital gains exemption (CGE) based on age and reasonableness, with minors not entitled to the CGE at all. The proposals also deny the CGE for most gains accumulated while shares are held by a trust.
The Paper noted that the Government is committed to addressing this issue in some fashion, and that the changes will be effective in 2018.

Passive Investment Income

The Government is concerned that it is unfair to most Canadians to permit the accumulation of passive investments with capital shielded from the higher personal tax rates. No specific proposals were made, but a number of possible approaches were set out which will essentially eliminate the advantage provided by the deferral on funds retained for investment in private corporations.
The new rules will be designed in the coming months. The timing of any changes was not specified.

Capital Gains

The Government is concerned with plans to withdraw corporate funds as capital gains rather than dividends. The overall tax liability on capital gains is generally much lower than that of dividends, in particular for individuals subject to tax at the top marginal tax rate. The Government has proposed some more complicated technical measures which would limit this type of planning.
These changes will apply to amounts received, or becoming receivable, on or after July 18, 2017 (i.e. the date the Paper was released).
Action Item: If you or your corporation utilize one of the above tax planning strategies, be cognizant of any legislated changes, their impact, and the effective date of the change.



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). Visit our website: mycpas.ca.

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). Visit our website: mycpas.ca.

Monday, 29 May 2017

Changes coming to investment management fees



CHANGES COMING TO INVESTMENT MANAGEMENT FEES
FOR RRSPs, RRIFs, & TFSAs


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.



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). Visit our website: mycpas.ca.

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.



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). Visit our website: mycpas.ca.

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;
Exception:
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.


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). Visit our website: mycpas.ca.

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). Visit our website: mycpas.ca.