What to Expect when the Canada Revenue Agency Contacts you

What to Expect when the Canada Revenue Agency Contacts you

AUTHOR: APRIL WHEELER - CPA, CGA

Scammers posing as Canada Revenue Agency (CRA) employees continue to contact Canadians, misleading them into paying false debts. These persistent scammers have created fear among people who now automatically assume that any communication from someone representing the CRA is not genuine.

This article will remind Canadians that the CRA does indeed contact taxpayers by phone, email and mail for legitimate reasons. The following tips will help Canadians identify legitimate communications from the CRA.

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They say the best things in life are free.  That's what Capital Dividends are to ...

They say the best things in life are free. That's what Capital Dividends are to ...

AUTHOR: PAUL SPARE - CPA, CA

They say the best things in life are free. That’s what Capital Dividends are to shareholders of Canadian small businesses.

When a Canadian controlled private corporation generates a capital gain from the sale of investments or the sale of capital assets, such as land or business goodwill, one half of the gain is subject to corporate income tax. So what happens to the other half of the gain?

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Should I Incorporate My Practice?

Should I Incorporate My Practice?

AUTHOR: APRIL WHEELER (CPA, CGA), PAUL SPARE (CPA, CA)

Should I incorporate my practice? This is a common question for medical and dental professionals and it is one that has become increasingly more relevant since the new tax on split income (“TOSI”) rules were introduced in 2017.  Determining whether or not incorporation is right for your practice is not straightforward and can be costly if you make the wrong decision.

To begin the process of determining whether or not you should incorporate, consider the following questions:

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Tips and Traps to Avoid to be an Effective Treasurer

Tips and Traps to Avoid to be an Effective Treasurer

AUTHOR: APRIL WHEELER - CPA, CGA

To be successful a non-profit or charitable organization must earn the trust and respect of its donors and funders.  Due to an organization’s financial management being directly tied to the Treasurer’s responsibilities, their execution of these responsibilities will have an impact on the public’s perception and confidence in the organization as a whole. When an organization is seeking a Treasurer they should keep this top of mind and look for individuals with strong financial literacy skills, attention to detail, timeliness in completing tasks, clear and accurate record keeping and willingness to ask questions .

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Accounts Receivable - Bill early, bill often, be vigilant

Accounts Receivable - Bill early, bill often, be vigilant

AUTHOR: DIANNA LARKIN - CPA, CA

Not every business owner has the luxury of owning a business where customers/clients pay at the same time that the service/product is delivered.

While this may be the case for restaurants, retail stores, auto repair shops and so forth, the majority of businesses have to wait for payment. Managing credit risk and collections is a critical aspect of running their business successfully. A key thing to remember is that a sale is not a sale until you have the money in the bank. When customers do not pay on a timely basis, it can cause serious cash flow issues. This article outlines key considerations for managing credit risk and accounts receivable collections.

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Should you Pay your Personal Expenses from your Business?

Should you Pay your Personal Expenses from your Business?

AUTHOR: APRIL WHEELER - CPA, CGA

Do you ever use your business bank account or credit card to pay personal expenses? Perhaps you are out doing errands for your business and pick up personal items at the same time. Rather than asking the sales clerk to process two transactions, you charge all the items to your business credit card. Is this Ok? Yes, but it’s a bad idea!

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Important Changes Ahead for US Tax Amnesty Programs

Important Changes Ahead for US Tax Amnesty Programs

AUTHOR: PAUL SPARE - CPA, CA

Over the past several years, the IRS has implemented various amnesty programs aimed at reducing the number of delinquent US tax filers.

Earlier this year, the IRS announced that one of these programs – the Offshore Voluntary Disclosure Program (OVDP) – would end on September 28, 2018. More than 56,000 taxpayers have taken advantage of this program under which the IRS has collected more than $11.1 Billion in back taxes, interest and penalties. In the September 4th announcement confirming the ending of the OVDP program, the IRS indicated that a separate program – the Streamlined Filing Compliance Procedures – will continue to be available for now but that program may end too at some point.  

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What is the Right Type of Financial Statement Report for My Business?

What is the Right Type of Financial Statement Report for My Business?

AUTHOR: APRIL WHEELER - CPA, CGA

There are three types of financial statement reports that can be issued for a set of financial statements: Notice to Reader, Independent Practitioner’s Review Engagement Report and Independent Auditors’ Report. The type of report you should select depends not only on what you need, but also on what the other people who rely on your financial statements will require.  The users of your financial statements can include the bank, shareholders who do not take an active role in the business or potential purchaser.  They all want to be assured their interests are protected. If your business has a bank loan, the bank will want to ensure the company will be able to meet its debt payments.  If you are considering selling your business, a potential purchaser will rely on your financial statements to make their decision as to whether they buy or not.  Inactive shareholders may want added comfort that the financial statements adequately reflects the financial results of the company.

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Reasonable Compensation

Reasonable Compensation

AUTHOR:  RICK EVANS - CPA, CA, CFF, ABV, CVA, CFE, CPA (CALIFORNIA)

One of the most subjective and discretionary expenses for many small closely held businesses or professional practices is owner compensation. Reasonable compensation is a key assumption in the valuation model as it can have the most impact on the profits of the closely held business. This is due to the fact that compensation recorded in the Company’s books and records and presented in the financial statements is not always at market rates and it is not required to be. For example, owner compensation may have been established for tax planning purposes.

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When Do You Charge HST?

When Do You Charge HST?

AUTHOR: APRIL WHEELER - CPA, CGA

Whether you are self-employed or your business is incorporated it is your responsibility to ensure you register and collect HST when you meet certain conditions set out by the Canada Revenue Agency (“CRA”). Many small business owners are not aware that whether you are self-employed or incorporated, if your business earns greater than $30,000 in world-wide taxable supplies over any four consecutive calendar quarters you must register for HST, and collect HST, and remit it to CRA.

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Importance of a Shareholder Buy/Sell Agreement

Importance of a Shareholder Buy/Sell Agreement

AUTHOR:  RICK EVANS - CPA, CA, CFF, ABV, CVA, CFE, CPA (CALIFORNIA)

Business partners set up shop with the best of intentions. But no matter how strong a personal or professional relationship is at the outset, shareholder conflicts and other events may occur that can affect the continuity of the business operations. A buy/sell clause in the shareholder agreement that is understood by all the parties is an important tool that provides a mechanism and process to ensure an orderly transfer and the continuity of the business operations.

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Red Flags that will get you Audited

Red Flags that will get you Audited

AUTHOR:  APRIL WHEELER - CPA, CGA

The Canada Revenue Agency (CRA) audits people or companies whose tax returns seem suspicious.  CRA is more likely to audit self-employed individuals and small businesses than employees with a T4 slip.

CRA has significant industry and demographic data that they utilize to analyze a wide range of tax claims. Any real or perceived differences or outliers to this data could lead to an audit.  Often, the first step is not a full audit but a request for further information. However, if full and valid support for the claim is not provided, it could lead to a full audit.  You want to avoid an audit if at all possible.

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Tax Time: Tax Planning Using Private Corporations

Tax Time: Tax Planning Using Private Corporations

AUTHOR:  GREG KAUFFELDT

On July 18, 2017, the Department of Finance released a consultation document and draft legislation containing proposals that, if enacted, will significantly affect many private companies and their shareholders. Here is a brief summary of the proposed changes and how they will impact business owners.

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Changes to Reporting Principal Residence Sales

AUTHOR: Greg kauffeldt, CPA, CA

While the thrust of their proposals was directed towards preventing the use of the principal residence exemption (“PRE”) by non-residents as well as limiting its use for properties owned by certain trusts, all taxpayers who own a residence and use it (or a portion thereof) for their personal use will be affected by these proposals.

Prior to this announcement, the Canada Revenue Agency (“CRA”) had a long-standing administrative position which allowed the majority of home sales to go unreported where there was no capital gains tax owing on the sale.

With this announcement, all principal residence sales must now be reported, regardless of whether they are fully exempt from tax. This applies to sales which occur in the 2016 and subsequent taxation years. Taxpayers will have to report the sale on schedule 3 of their tax return for the year in which the property is sold.  If the property was your principal residence for every year that you owned it, you will make a principal residence designation on schedule 3. The CRA has indicated that you will need to include the following information when reporting the sale of a principal residence:

  • The year that the property was acquired;
  • The proceeds of disposition and related selling costs of the sale;
  • A description of the property that was sold.

For the sale of a principal residence in 2016 or later tax years, the CRA will only allow the PRE if you report the sale and designation of the principal residence in your income tax return. The proposed changes will allow the CRA to reassess a return after the end of the normal reassessment period for a gain on disposal of a property where the taxpayer did not initially report the disposition.  The CRA may accept a late filed principal designation but penalties may apply. These penalties can range from $100 for each month that the designation is late up to a maximum of $8,000. Therefore, accurately reporting the sale of a principal residence is now of utmost importance.

This change also applies to deemed dispositions of property including situations where you change all or part of your principal residence to a rental or business operation or vice versa.

The required schedule 3 reporting of all residence sales will allow the CRA to more easily identify and audit those sales that might not qualify for the PRE, such as;

  • Claiming a PRE on sale of a second residence, such as a seasonal cottage property where those particular years of ownership have already been designated towards another principal residence,
  • Home builders or renovators (“flippers”) who may have taken advantage of the PRE to shelter short-term profits on sale of those residences which should have been reported as business income.

The CRA has provided more information for individuals on this important change on their website.

If you have any questions about how these changes may impact your tax situation, please contact your McCay Duff advisor.

2016 ESTATES AND TRUSTS TAX COMPLIANCE AND POST MORTEM PLANNING — IT’S A NEW WORLD OUT THERE!

AUTHOR: Trevor Smithers, CPA, CMA

Just around the corner a series of new tax rules kick in that will impact the taxation of trusts and estates. These new rules will result in significant changes to existing and future tax planning arrangements. The current rules allow estates, testamentary trusts and grandfathered inter-vivos trusts indefinite access to the same graduated tax rates as an individual taxpayer. This often results in a lower overall tax liability where trust beneficiaries have access to more than one set of graduated rates.

The new rules come into effect January 1, 2016. With the exception of Graduated Rate Estates (GRE) and Qualified Disability Trusts, all testamentary trusts including estates as well as grandfathered inter-vivos trusts will now be taxable at a flat rate equal to the top federal personal tax rate. Additional changes include a mandatory December 31 year-end, quarterly instalment requirements, and no access to the $40,000 AMT exemption. The ability to retain and tax income inside a trust will only be allowed to the extent that losses are realized or carried forward. The loss carry-back provisions of subsection 164(6) of the Income Tax Act, which are widely used to reduce estate taxes, will now be restricted to those estates designated as a GRE. Finally, income and capital gains arising from the deemed disposition of trust assets upon the death of the life tenant of certain life interest trusts will now be included in the income of the deceased individual and taxed in the terminal tax return and not the trust.

Graduated Rate Estates (GRE):

As noted above, these changes will not apply to GRE’s and Qualified Disability Trusts. A GRE is an estate that arose upon the death of an individual. It qualifies as a GRE if no more than 36 months has passed since the date of death. The GRE is considered a testamentary trust for tax purposes. These trusts will have access to graduated tax rates, a $40,000 AMT exemption, and will not have to pay tax instalments for the period it remains as a GRE. If the estate is not wound up within 36 months of death, it loses its GRE status at which point the estate will then be taxed at the top marginal tax rate. Only an estate can qualify as a GRE and it must be designated as such in its first post 2015 year-end income tax filing.

Items to Consider:

  • Trustees will have some additional compliance requirements resulting from the new rules. As noted above, new and existing GREs will need to be designated as such in the first T3 Trust tax filing after December 31, 2015. While GREs will be able to file using a non-calendar year end, non-GREs and other testamentary trusts having non-calendar year-ends will be required to file a stub period tax filing in order to comply with the mandatory calendar year-end.
  • In circumstances where individuals may have set up multiple wills with differing executors and residual beneficiaries, it will be important to review the wills to ensure that the desired tax planning objectives can still be achieved with the ability to name only one estate as a GRE.
  • Going forward, will planning resulting in multiple testamentary trusts being created strictly to access the graduated tax rates will no longer be possible. However a discretionary testamentary trust that is used as an income splitting device still has merits. Furthermore, testamentary trusts still offer a number of non-tax benefits, such as independent control and management over the capital from beneficiaries who may be minors or spend thrifts, or possibly to shield trust assets from the beneficiary creditors.
  • Life Interest Trusts will be impacted by the new changes. Take for example a spousal trust where the life interest beneficiary (the surviving spouse) has subsequently remarried. Under the old rules, the spousal trust was deemed to have disposed of its’ property upon the death of the surviving spouse and the resulting capital gain was taxed inside the spousal trust. The spousal trust would pay the tax and the net assets distributed to the residual beneficiaries, typically being the children from the first marriage. Under the new rules, the deemed capital gain will now be taxed in the deceased individual’s estate. The assets that could be liquidated to pay the deceased’s tax liability are still in the spousal trust. The spousal trust cannot pay the tax of the life beneficiary since this would taint that estate and its GRE status. Difficulties could arise where the spousal trust and deceased estate’s residual beneficiaries are not the same parties.
  • Also, effective January 1, 2016, there are new donation rules for gifts made by will which will provide greater flexibility to the executors in terms of the timing and location of the claim. For non-GREs charitable donations can only be claimed in the first five years of the estate whereas GREs have several different options for claiming the donation including taking the credit as part of the terminal tax filing. Also, only a GRE can take advantage of the zero capital gains inclusion rate for an in-kind donation. All non-GREs will be taxed on the capital gain that arises from the disposition of the in-kind asset.

In light of these significant changes we recommend that you revisit your wills to determine their impact with your current tax planning arrangements. Please don’t hesitate to contact your McCay Duff representative to discuss your particular situation in further detail.

Beware of new telephone scams

AUTHOR: Paul SPare, CPA, CA

The following article appears originally on the CRA website and was posted originally on June 10th, 2015.

The Canada Revenue Agency (CRA) is noting an increase in telephone scams where the caller claims to be from the CRA but is not, and is asking Canadians to beware—these calls are fraudulent and could result in identity and financial theft.

Some recent telephone scams involve threatening taxpayers or using aggressive and forceful language to scare them into paying fictitious debt to the CRA. Victims receive a phone call from a person claiming to work for the CRA and saying that taxes are owed. The caller requests immediate payment by credit card or convinces the victims to purchase a prepaid credit card and to call back immediately with the information. The taxpayer is often threatened with court charges, jail or deportation.

If you get such a call, hang up and report it to the Canadian Anti-Fraud Centre.

These types of communication are not from the CRA. When the CRA calls you, it has established procedures in place to make sure your personal information is protected. If you want to confirm the authenticity of a CRA telephone number, call the CRA by using the numbers on its Telephone numbers page. The number for business-related calls is 1-800-959-5525. The number for calls about individual concerns is 1-800-959-8281.

To help you identify possible scams, use the following guidelines:

The CRA:

  • never requests prepaid credit cards;
  • never asks for information about your passport, health card, or driver's licence;
  • never shares your taxpayer information with another person, unless you have provided the appropriate authorization; and
  • never leaves personal information on your answering machine or asks you to leave a message containing your personal information on an answering machine.

When in doubt, ask yourself the following:

  • Is there a reason that the CRA may be calling? Do I have a tax balance outstanding?
  • Is the requester asking for information I would not include with my tax return?
  • Is the requester asking for information I know the CRA already has on file for me?
  • How did the requester get my email address or telephone number?
  • Am I confident I know who is asking for the information?

The CRA has strong practices to protect the confidentiality of taxpayer information. The confidence and trust that individuals and businesses have in the CRA is a cornerstone of Canada's tax system. For more information about the security of taxpayer information and other examples of fraudulent communications, go to www.cra.gc.ca/security.

Canadian Anti-Fraud Centre

For information on scams or to report deceptive telemarketing contact the Canadian Anti-Fraud Centre online atwww.antifraudcentre-centreantifraude.ca or toll free at 1-888-495-8501.If you believe you may be the victim of fraud or have given personal or financial information unwittingly, contact your local police service.

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