Calendar of Important Dates |
Corporations with a November year end, claiming the small business deduction must pay the balance of tax owing by the end of February.
Corporations with a December year end, not claiming the small business deduction must pay the balance of tax owing by the end of February.
St. Valentine's Day - Tuesday, February 14, 2017
Family Day - Monday, February 20, 2017
T4/T5 Filing Deadline - February 28, 2017
Next Issue - March 13, 2017
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PRINCIPAL RESIDENCE EXEMPTION
Escalating real estate prices ...
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On October 3, 2016, Minister of Finance Bill Morneau announced a number of measures to address perceived abuses of the Principal Residence Exemption (PRE). The PRE essentially allows gains experienced upon the sale of a principal residence to be tax free.
Here are some of the major changes;
Reporting the Sale of a Principal Residence
While the legislation has always required that property be designated as a principal residence, CRA has historically waived the requirement for any filings or disclosure where the entire gain was exempt due to the PRE. However, effective for sales of property eligible for the PRE occurring on January 1, 2016 and later,
individuals will be required to report the sale in their personal income tax return.
Basic information
such as the year of acquisition, proceeds of disposition, and the address of the property must be disclosed. This reporting may also be required where the property has not been sold but there is a deemed disposition. A deemed disposition may occur, for example, when a personal home is converted into something else, like a rental property.
Late Designations
If the disposition is not properly and timely reported, the PRE may not be available. However, CRA does have the discretion to accept a late designation. If the late submission is accepted, CRA also has the option to levy a penalty ($100 per month late, up to a maximum of $8,000). The penalty may or may not be issued depending on the circumstances.
Extended Assessment Period
A further proposal would provide CRA with the authority to assess taxpayers beyond the normal assessment limitation period (generally 3 years) when the disposition of real estate is not appropriately reported in the tax return. In other words, there would be no time limit for such an assessment. However, CRA's ability to reassess will be limited to only the unreported disposition of the real property.
Note that this extended reassessment period is not restricted to real estate used as a principal residence - most real estate counts. If the tax return is later amended to report the disposition, CRA's ability to reassess will end approximately three years after the adjustment or amendment is filed.
This amendment applies to taxation years that end on or after October 3, 2016.
Action Item: If disposing of any real estate, discuss with an advisor as to how this should be reported on your tax return.
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QUICK LINKS FOR TAX INFO
Handy tool for tax time...
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FILING T4'S
Proper procedure saves time...
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The deadline for filing T4/T5 forms is the end of February 2017. Proper precautions will avoid costly penalties, interest and wasted time. Foremost among them is to insure that your remittances to Canada Revenue Agency for employee deduction is in agreement with the T4 Summary. Short payments cost penalty and interest, over payments cost time in explaining to CRA.
Now that the final payroll for 2016 has been issued, compute the amount owing to CRA and compare with what has been remitted and
adjust the next payment to compensate for any difference.
Don't forget to include automobile costs paid by your company which could be a taxable benefit.
Next, efile the forms - don't paper file. Efiled forms have the assurance of being on time and mathematically accurate.
Action Item: We can assist you in ensuring accuracy and timely filing!
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PAYROLL ADVANCE
Let's pay more tax...
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In an April 26, 2016
Technical Interpretation
, CRA opined that where an employer provides a
payroll advance
to an employee, the amount is
not generally considered to be a loan
.
A salary advance is a payment for salary, wages or commissions that an employee is expected to earn in the performance of future services.
These amounts are generally included in the
employee's income in the year the advance is received.
If a
repayment
by the employee
is required, a
deduction is available
in the tax year in which the repayment was made. The deduction cannot exceed the advance that was previously included in the employee's income from employment.
Action Item: When providing an advance to an employee, ensure that the employee clearly understands the tax implications
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CRA ANNUAL CAMPAIGN
CRA strikes fear...
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In December, February , May and August, CRA will send letters to selected HST registrants suggesting they review past returns in the event there are errors to rectify. Ostensibly, the letters are issued to
support "the CRA's increased emphasis on helping individuals and small businesses to better understand their tax obligations and encourages them to correct any errors in their past GST/HST returns"
However, the immediate effect is to intimidate the unwary taxpayer by inferring there is something about their past filings that has attracted the attention of the tax department.
Presumably, the 10,500 letters they send out must yield some beneficial results to the CRA as this campaign keeps reappearing.
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Recent CRA Decisions
There is no escape from tax...
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21 YEAR RULE FOR TRUSTS - laywer blames accountant
Whether law firm liable for negligence in tax planning -
The defendant law firm provided tax planning services in respect of changes to be made to the plaintiffs' family trusts.
It admitted that the legal services provided fell below the standard of care of a reasonably prudent tax lawyer, with respect in particular to its failure to address the potential tax consequences of the 21 year deemed disposition rule in the Income Tax Act.
The plaintiffs brought a motion for partial summary judgment, seeking a finding on the issue of the defendants' liability for negligence. The defendants disputed the issue of causality,
arguing that the damages in question were caused by the third party accounting firm which had the responsibility for tracking of the 21 year deemed disposition period and advising on any potential tax mitigation strategies. The Court held that the admissions made by the defendants left only the issue of causation to be determined, and that such issue was to be determined using a "but for" test. Using that test, the Court determined, on the evidence, that there was no genuine issue for trial with respect to the defendants' liability to the plaintiffs, and that it was proper to grant partial summary judgment finding them liable in negligence.
HE WAS REALLY ASKING FOR IT!
Taxpayer taught students Paradigm Theories designed to deprive Government of Canada of tax revenue -
Taxpayer convicted of income tax evasion, GST evasion, and making false statements in tax returns - Whether taxpayer should be sentenced to imprisonment, in addition to being required to pay mandatory minimum fines -
The accused taxpayer L was 46 years old with no previous criminal record. He had finished Grade 12, but had no post secondary education. He was a stay-at-home father whose wife was the family's sole income-earner. He was engaged in teaching students the Paradigm theories which involved strategies directed at depriving the Government of Canada of tax revenue. He was convicted by a judge and jury on the following four counts: (a) Count 1, counseling fraud; (b) Count 2, income tax evasion; (c) Count 3, making false statements in income tax returns; and (d) Count 4, GST evasion. At the sentence hearing before the BCSC the parties agreed that, L having been convicted of income tax evasion under Count 2, Count 3 (involving false statements) should be stayed under the principle in Kienapple v. R, [1975] 1 S.C.R. 729.
Following the hearing, L was sentenced on Counts 2 and 4 to six months' imprisonment concurrent, and on Count 1 of 12 months' consecutive, resulting in a total period of 18 months' incarceration.
On the income tax and GST evasion charges (i.e., Counts 2 and 4) L was also fined the minimum fine of 100% of total tax evaded (i.e., $30,717.60). Count 3 was stayed as agreed. He was also ordered to provide a DNA sample, but the victim surcharge under Count 1 was waived.
The victim surcharge provisions did not apply to ITA and ETA offences. The BCSC's reasoning, in part, was that: (a) the offences were planned and deliberate, L was recalcitrant in his views and continued with his offences even though aware the CRA was pursuing other Paradigm Theory offenders, and he exposed his students to the risk of civil and criminal liability; (b) conversely, by way of mitigation, L had no criminal record, was supportively involved with his family and friends, and had health issues
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Disclaimer |
The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a commentary such as this, a further review should be done. Every effort has been made to ensure the accuracy of the information contained in this commentary. However, because of the nature of the subject, no person or firm involved in the distribution or preparation of this commentary accepts any liability for its contents or use.
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NEW NEWS
All you need to know...
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Life in the Tax Lane - February 2017 (Episode 21) |
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