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2020 Automobile Deduction Limits and Rates
Leave a CommentOn December 19, 2019, the Department of Finance Canada announced the new automobile deduction limits and benefit rates for 2020. The majority of limits and rates that applied in 2019 are still in effect for 2020.
One important change to note relates to the calculation of a reasonable vehicle allowance employers can pay to their employees. For 2020, the tax-exempt allowance rises to $0.59 per kilometre for the first 5,000 kilometres, and $0.53 per kilometer for each additional kilometre.
The prescribed amounts for passenger vehicles that remained the same are the following:
- For purchases of passenger vehicles after 2019, the maximum capital cost amount allowed remains at $30,000 (plus applicable taxes less any GST or HST input tax credits claimed). For zero-emission vehicles, the maximum capital cost amount is $55,000 (plus applicable taxes less any GST or HST input tax credits claimed). Automobiles need to meet certain criteria to be considered zero-emission.
- The maximum deduction allowed for monthly lease costs per passenger vehicle remains at $800 plus GST or HST and any applicable PST, less any GST or HST input tax credits claimed. The deductible lease costs are prorated if the value of the vehicle exceeds the capital cost limit of $30,000.
- The maximum amount of deductible interest incurred relating to purchasing an automobile also remains at $300 per month for financing beginning after 2019.
- The prescribed rate for calculating taxable benefits for employees for personal usage of company vehicles remains at $0.28 per kilometre.
Be sure to contact Ritchie Shortt & Tully LLP if you have any questions!
Personal Real Estate Corporations (PREC)
Leave a CommentOn November 19, 2019 the government introduced the Trust in Real Estate Services Act, 2019 in the Ontario legislature. If passed by the legislature, it would update the Real Estate and Business Brokers Act, 2002, the legislation that sets out rules that govern Ontario’s real estate salespersons, brokers and brokerages.
The new provisions (if passed) would allow real estate agents to incorporate and to be paid through a corporation. Future regulations will outline the conditions and restrictions under which this might take place, but it is expected that the ownership of 100 percent or at a minimum a majority of shares be owned by the real estate professional.
The changes will not come into force for some time, which means that until the law is changed and brought into force, real estate brokerages will continue to have to pay remuneration to only individual brokers and salespeople. The new laws are not likely to come into effect until 2021.
If the law is passed, the biggest advantage that real estate professionals can expect from incorporation in Ontario is a tax deferral opportunity. In Ontario, the corporate small business tax rate in 2019 is 12.5% (on the first $500,000). When you compare this rate to the 50%+ rate for earners in the top personal tax bracket, there is a deferral of tax.
If you would like our assistance in deciding whether you would benefit from incorporating your real estate practice, be sure to contact us!
Life events that are important to share with your Accountant and CRA
Leave a CommentA lot can happen in a year. Some changes in your life may have tax benefits or tax consequences. Below is a list of common life events that you should communicate to your Accountant and CRA:
Marital Status Change
Your marital status, and at what point during the year it changed, can directly affect your tax return and eligibility for certain benefits and credits.
New Baby
Starting a family is a beautiful thing, but can also be very expensive. You are going to want to make sure you are claiming the benefits and credits you may be eligible for as a new parent.
Acting Caregiver
Do you have an elderly parent or grandparent that has recently moved in with you? Are you caring for a loved one with a disability that is unable to care for themselves? There are benefits and credits available to you that you could be claiming.
Health Changes
If you or a dependent have had health changes during the year, this may mean you could claim some additional medical expenses. Discussing this with your Accountant will allow you to discover claims you may not have known were possible. If you have recently become disabled, there is a non-refundable Disability Tax Credit that can be claimed. You must receive approval from the CRA regarding your eligibility for the Disability Tax Credit before making a claim for the credit on your tax return. We can provide you with the form.
Sale of a Property or Principal Residence
If you sold a cottage or an investment property, it is important to communicate this to your Accountant as you are required to report this transaction on your personal income tax return and pay tax on the capital gains from the sale (if applicable). There are tax planning strategies your Accountant can assist you with to ensure you take advantage of any potential tax saving opportunities.
Although you are not taxed on the capital gains from the sale of your principal residence, you are required to report the sale of your principal residence on your personal income tax return. This has been a requirement since filing the 2016 tax year. The designation of “principal residence” years can be assigned to your house or your cottage, depending on whether the property meets set criteria. While there are no tax consequences to the sale of the property you may fully designate as your principal residence, the CRA now requires that we provide basic information regarding the sale in order to take advantage of the full principal residence exemption.
Foreign Investments
If you own foreign investments/properties with a combined cost amount of $100,000 CAD, at any time in the year, that are not held primarily for personal use and enjoyment, you most likely have a reporting responsibility to CRA and should file Form T1135 – Foreign Income Verification Statement (can occur if exercise stock options in the year). Significant penalties apply for failing to file Form T1135 by the reporting deadline and for making a false statement or omission about the required information.
We can assist you with all your personal tax needs. Be sure to contact Ritchie Shortt & Tully LLP if you have any questions or would like our assistance!
Does my small business qualify for the Quick Method for HST?
Leave a CommentThe Quick Method is a simplified way of calculating net tax for HST purposes. When you use the Quick Method, you still charge the GST at the rate of 5% or the HST at the applicable rate on your taxable supplies of service and products. However, this method allows you to calculate the tax that you remit by multiplying the revenue from your supplies (including GST/HST) for the reporting period by the Quick Method remittance rate, or rates that apply to your situation. This eliminates the need for tracking and totalling all the HST actually paid and allowed to be deducted from the HST collected. This HST paid is also known as the “Input Tax Credits” (ITCs) which are subtracted from the HST collected.
This option is only available to your small business if it meets all of the following criteria:
- Total annual revenues (including GST/ HST) of the business, and associated businesses, from worldwide taxable supplies does not exceed $400,000 for either the period consisting of the first four consecutive fiscal quarters out of your last five fiscal quarters, or the period consisting of the last four fiscal quarters out of your last five fiscal quarters.
- If you are an existing registrant, you must have been in business continuously throughout the last 365 days.
- If you are a new registrant and you have not been in business continuously for the past year but you are an eligible type of business, you may be eligible to use the Quick Method. You can elect to use the Quick Method if, in your first full year of business, you can reasonably expect your revenues from worldwide taxable supplies, and those of your associates, to be $400,000 or less.
- You have not revoked a previous election for the Quick Method within the last 365 days.
- Your business is not found on CRA’s list of businesses/persons not eligible to use the Quick Method. (Click here to see CRA’s complete list of exceptions).
What to do if my business qualifies?
An election must be filed in order to use the Quick Method. An election can be done online through CRA’s “My Business Account” or by mailing a completed Form GST74, ‘Election and Revocation of an Election to Use the Quick Method of Accounting’.
If you are an annual filer, this election must be made by the first day of your second fiscal quarter. For instance, if you have a December 31st year-end, you must file the election before April 1st.
If you are a quarterly or monthly filer, you must file the election by the due date of the return for the period in which you have begun to use the Quick Method. For both monthly and quarterly filers, the due date is exactly one month after the reporting period end date. For instance, if the reporting period ended on March 31st, the payment and filing deadline is April 30th.
Should I elect to use the Quick Method?
While the Quick Method offers simplicity, it is always best to consider your business activities to ensure that electing to use the Quick Method is the best option for you and your small business.
Be sure to contact Ritchie Shortt & Tully LLP if you have any questions or would like our assistance!
Pros and Cons to Incorporation
Leave a CommentAt some point, all small business owners need to consider whether or not to incorporate their business. In general, if you are earning more than you are spending personally, incorporating your business will most likely benefit you. However, in order to make the decision that is best suited for you and your business needs, you must understand that there are both advantages and disadvantages to incorporating a business. Below are a few items for consideration:
Advantages
- Limited liability – An advantage to incorporation is that the business becomes a separate legal entity and therefore offers limitations to the owner’s liability over the income and debt of the business.
- Tax planning and income tax deferral – As the business grows, a corporation allows for some earnings to be retained in the corporation and for the owner (shareholder) of the business to decide on the best corporate remuneration strategy to optimize tax savings.
- Raising Capital – Corporations have the ability to raise money more easily than individuals, which makes it easier for your business to reinvest in growth and expansion.
- Tax savings for Canadian controlled private corporations – A qualifying business can take advantage of the Small Business Deduction which reduces your tax rate on the first $500,000 of taxable business income subject to various limitations.
Disadvantages
- Additional costs – Incorporating a business involves additional expenses for registration, legal and ongoing accounting fees.
- Additional paperwork – A corporation is required to file an annual tax return. It is also required to have articles of incorporation and share certificates.
- Limitation on use of business losses – A corporation’s business losses can only be used against income earned in the corporation, while a sole proprietor has the ability to write off these losses against other personal income.
We can help you decide whether or not incorporation is the right choice for you and your business. Contact Ritchie Shortt & Tully LLP if you have any questions or would like our assistance!
CRA’s request for additional information from you
Leave a CommentYour personal income tax return has been filed and you have received your notice of assessment that does not indicate any issues with the information filed. Then, you received a letter from CRA requesting additional information.
Receiving this letter is an indication that your return has been selected for review. Your return may have been selected at random, there may be conflicting information between what was filed and the information they have received from a third-party source, or there may be unusual changes from prior returns filed.
Regardless of the reason, it is important to note that receiving this letter is not an indication that you have been selected for a tax audit. The intent of this letter is to simply obtain evidence to support information included on the filed return. It is crucial to respond to their request for information in a timely manner.
What to do when I receive a request for information letter?
Review the letter in detail and identify what you are being asked to provide. Identify the information and support that you have and what you will need time to obtain. Generally, a response is required within 30 days from the date of the letter. If an extension is required, the CRA is generally willing to give you one. If a response is not received, CRA will adjust the return accordingly and this could result in a balance owing.
The response should be complete, organized, and include explanations for missing or incomplete information, where necessary. Please note that the response should always include the reference number located in the top right corner of the letter you received from the CRA.
Be sure to contact Ritchie Shortt & Tully LLP if you have any questions or would like our assistance!
HST on Disbursements
Leave a CommentIf you are in a business or profession where you charge disbursements or expenses to clients, are you confident that you are properly accounting for the HST on these charges to your customer?
When charging for disbursements on your invoice to your client, you must first determine whether the disbursement was incurred “as agent” of the client. Paying an expense which is really the client’s own expense is a payment made as “agent”.
Expense NOT incurred as “agent”
An expense that is not incurred as agent is considered an input to your services and you should claim any HST input tax credits yourself on such expense. You then bill the pre-HST amount of the expense as a disbursement, added to your fee before charging HST. If you are an HST registrant and you charge HST on your services, you then charge HST on the total including the (pre-HST) disbursement.
Expense incurred as “agent”
If you are billing a client for an expense as “agent”, this expense should be treated like a “pass through” expense. In other words, you include the total amount you paid (including the HST) on your invoice to your client. You do not claim an HST input tax credit for the HST that you were charged on the expense, because you did not incur the expense. When an expense is incurred as “agent”, you are simply paying for the total expense on behalf of your client and the original HST status is preserved as passed through to your client.
As with most HST matters, it is important to understand the commercial terms of the transaction. Identifying whether a disbursement was billed to your client “as agent” is crucial – if you do not do it properly, you are exposing your business to an assessment of past HST, plus interest and penalties on all your disbursements or you could be mistakenly charging HST to your clients.
Be sure to contact Ritchie Shortt & Tully LLP if you have any questions or would like our assistance!
Things to consider after your Personal Tax Return is Filed
Leave a CommentBy now, you are probably relieved that your personal tax returns have been completed. However, there are a few things you should consider even after the return has been filed.
Review your Notice of Assessment
You should ensure that the return was in fact assessed as filed. CRA sometimes reassesses information and will show a different balance owing or refundable than you expected. You can check this amount by reviewing the paper copy you get in the mail, or through the CRA “My Account” online.
If you disagree with your assessment, CRA needs to be notified quickly. We can help you resolve issues with the notices of assessments by submitting a notice of objection with the CRA. The deadline for filing a Notice Objection for an individual (other than a trust) is the later of one year after the tax return is due and 90 days after the date of the Notice of Assessment.
Adjusting your tax return
If you realize you have missed a tax deduction or credit, or that you may have missed including an amount in your taxable income, you should make an adjustment to your tax return. You should wait to receive your Notice of Assessment from CRA before submitting a request to adjust your tax return.
Communications received from CRA
The CRA conducts many types of review programs that can occur at any time during the year. These reviews are communicated to you with a letter from CRA requesting information. It is important that you reply to legitimate CRA requests for information before the deadline, usually 30 days from the date of the letter.
Always watch out for any fraudulent companies or individuals trying to get your information. CRA will never leave any voicemails that are threatening, use aggressive language, ask for payment by e-transfer, bitcoin, prepaid credit cards or gift cards. If you are ever in doubt call CRA directly.
Be sure to contact Ritchie Shortt & Tully LLP if you have any questions or would like our assistance!
2019 Federal Budget
Leave a CommentOn March 19, 2019, the federal government released their 2019 budget which proposed to help younger home-buyers get into the housing market, increased support for skills training as well as for research and development, and introduced steps toward a national pharmacare strategy. The federal government also proposed clean energy vehicle incentives and other changes that will affect individuals and businesses.
There were no changes to the personal or corporate tax rates, nor to the inclusion rate on taxable capital gains.
Please click here for our Federal Budget Commentary 2019.
Staying organized can help you avoid interest and penalties
Leave a CommentBy now, you have most likely received various envelopes in the mail over the last few weeks with tax slips required to file your personal tax return. These tax slips are very important, not only because they are required to file your tax return, but they summarize the income you have earned in 2018.
If you received income from a Trust or Partnership in 2018, it is important you know that you may have not received all your tax slips yet. Trusts and Partnerships have later deadlines to report income to beneficiaries or partners. The deadline for a trust to report income to its beneficiaries on T3 slips is 90 days after the trust’s year end, or March 31, 2019, for trusts with a 2018 calendar-year reporting period.
To help ensure that all of your sources of income are reported, you may find it useful to keep track of your expected slips and identify if you are missing any slips before filing your return. Staying organized with your tax information will prevent erroneous omissions in reporting income, thereby avoiding interest charges on underpaid tax and penalties by the Canada Revenue Agency (CRA).
Be sure to contact Ritchie Shortt & Tully LLP if you have any questions!
