Phone: 780.814.7474
* Toll free: 1.877.814.7474
* Fax: 780.814.7409
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Deverdenne Davis Cyr LLP Welcomes Melanie Kimble
Deverdenne Davis Cyr LLP is pleased to welcome Melanie Kimble, CA to our firm. Melanie graduated with a Bachelor of Commerce degree from Athabasca University at the Grande Prairie Regional College in 2013. She completed her degree studying part-time while working at a local accounting firm. Melanie articled with a Grande Prairie firm and earned her Chartered Accountant designation in 2015 under the legacy program.
Melanie has called Grande Prairie home most of her life and currently resides in the County of Grande Prairie with her husband and two children. She enjoys golfing, gardening, cooking and traveling with her family as much as possible. She has also contributed her time to volunteering for various positions within her children's interests, such as coaching and treasurer positions. Melanie has also served as a board member for local community organizations.
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In Our Community
During the past few months DDC has been a supporter of several local events and organizations including the 3D Charity Hockey Tournament, Young at Art, Valleyview Agricultural Society, HIV North Drags and Bags and the Compassion House Golf Event.
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TAX TICKLERS... some quick points to consider...
- CRA has required PayPal to disclose sales and other transaction records for Business Account Holders from January 1, 2014 to November 10, 2017. It is expected CRA will review records for unreported sales.
- Employers can now provide a tax-free party or social event to employees where the cost per person is $150 or less (the limit was previously $100).
- Although such cases are rarely successful, two taxpayers were awarded nearly $1.7 million in relation to CRA's malicious prosecution.
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DIGITAL CURRENCY:Basics And Tax Implications
What is Digital Currency (DC)?
DC is essentially electronic money. It's not available as bills or coins. Cryptocurrency is a type of DC created using computer algorithms with the most popular being bitcoin.
No single organization, such as a central bank, creates DC. DC is based on a decentralized, peer-to-peer network. The "peers" in this network are the people that take part in DC transactions, and their computers make up the network.
DC can be used to
buy goods and services, whether in store or online. DC may also be
bought and sold on
open exchanges (similar to a stock market).
DC is often
created through a complex process known as "
mining" and then monitored by a global network of computers. About
3,600 new bitcoins are
created each day, with about
16.5 million now in circulation. Like all currencies, its
value is determined by how much people are
willing to buy and sell it for.
Tax - Buying and Selling Digital Currency
Gains or losses from selling or buying DCs must be reported on one's tax return. These may be on account of
capital (taxed at half rates)
or ordinary income (full rate) depending on the context. It is not clear whether purchases and sales of bitcoins and other DC are subject to GST/HST.
There are no special tax rules directed specifically towards DC. Like any property, where DC is acquired with the
primary intention of
selling it
for a profit, any gains would be on an
account of income, rather than capital. Where property is acquired for some other purpose, such as generating ongoing income (like a rental property), the gain or loss on disposition is likely on account of capital.
When evaluating a taxpayer's intention, CRA will generally consider factors such as: frequency of transactions; period of ownership; knowledge of industry; time spent on the activities; financing; and the nature and quantity of the property held.
It is also important to note that some DC do not produce income (
generating neither dividends like a share,
nor interest like a loan). With no plausible purpose other than resale, it becomes easier for CRA to take the position that the DC must have been purchased with the intention of selling it at a profit and therefore any gain or loss on disposition is on account of income. This may override the other factors noted above.
That said, CRA has administratively allowed gains on certain commodity investments to be on account of capital, even though they typically appear to be on account of income based on the factors above. One condition of this policy is that all such transactions are treated the same. In other words, one could not simply classify it to be on account of capital in "gain" years, and then income in "loss" years. It is uncertain whether CRA would adopt the same policy for sales of DC.
Tax - Buying and Selling Goods Using Digital Currency
Similar to sales using traditional currency,
DC received in exchange for goods or services must be included in the seller's
income for tax purposes.
GST/HST would also apply on the fair market value (FMV) of goods or services bought or sold for DC (subject to the same rules as traditional currency). It is not clear whether the DC itself would be subject to GST/HST, meaning that the person using DC to pay for the goods or services would be required to collect GST/HST on the value of the DC.
CRA considers DC to be a
commodity rather than a currency and, therefore, transactions involving DC are considered
barter transactions. This means that the sale price to be recorded in income would be determined as the FMV of the goods or services provided. If that FMV is
less readily available than the
FMV of the DC, the value of the DC would be used to determine the sale price.
Also, being a commodity means that these assets are
not eligible to be directly held in tax preferred
registered accounts (e.g. RRSPs, TFSAs, RRIFs, etc.).
Government Access to Records
The IRS has been successful in issuing an Order compelling one of the world's largest bitcoin virtual currency exchanges, Coinbase, to disclose certain transaction and user information for the 2013-2015 period. It is very possible that the CRA may obtain such types of information as well.
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FAMILY MEMBERS: Can I Pay Them a Salary?
For a small business, whether operated as a corporation, proprietorship or partnership, it is quite possible that relatives of the owners or partners may be engaged as employees. Due to the closer familial relationship between employer and employee, CRA pays particular attention to ensure that the salary is truly an eligible deduction to the business.
According to CRA, salaries to children and spouses are deductible as long as all of these conditions are met:
- the salary is actually paid;
- the work the family member does is necessary for earning business or professional income; and
- the salary is reasonable when considering the family member's age and the amount one would pay someone else.
CRA also states that T4s are required for all employees, including family members, and subject to payroll deductions, as appropriate. Payment in the form of
room and board is
not accepted by CRA.
CRA suggests that the
average salary for an arm's length person providing similar services under similar conditions would provide
guidance as to reasonableness.
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CORPORATE PASSIVE INVESTMENT INCOME: Proposed Changes
A new
passive investment tax regime for
Canadian Controlled Private Corporations (CCPCs) is proposed to
apply to taxation
years commencing after 2018. Passive income may include
interest, rental, royalties, dividends from
portfolio investments and
taxable capital gains.
Two significant changes are proposed. First, a
limit to the
small business deduction for CCPCs generating significant income from passive assets, and second, a new regime to
stream the
recovery of refundable tax to the payment of specific types of dividends (eligible versus non-eligible).
Access to the Small Business Deduction (SBD)
The first prong of the proposals will
reduce access to the
SBD for
CCPCs having
more than
$50,000 of passive income. CCPCs with passive income in excess of the threshold will incrementally lose access to their SBD, until $150,000 of passive income is reached, at which point the entire SBD will be lost. The prior year's passive income will determine the current year's SBD limit.
For purposes of these new rules,
capital gains on
certain types of property will be
excluded from being considered passive income. These are as follows:
- Capital gains realized on the disposition of property used principally in an active business carried on in Canada. The active business could be carried on by the owner of the asset, or by a related party. Examples include gains on the sale of the goodwill of an active business, and gains on the real estate from which the active business operates.
- Capital gains realized on shares of another CCPC all or substantially all of whose assets are used in an active business carried on in Canada, provided the seller has a significant interest (generally over 10%) in that corporation.
- Similarly, capital gains realized on an interest in a partnership all or substantially all of whose assets are used in an active business carried on in Canada will generally be excluded where the seller has a significant interest (generally over 10%) in the partnership.
Capital losses realized in a different taxation year that are applied to offset capital gains realized in the current year will not reduce passive income for these new rules.
Consistent with the existing SBD rules, the sum of passive income of
all associated corporations will determine the reduced business limit available to the associated group.
The
total advantage or
disadvantage of earning passive investment income in a corporation, after considering personal and corporate tax costs, will
depend on a
number of factors such as the
individual's marginal tax rate, rate of return on the investment and the
province or territory of residence.
Recovering Refundable Taxes
Passive income is subject to a
high corporate tax rate. However, a portion of these taxes are
refunded when the
CCPC pays taxable dividends.
The second prong of the passive income proposals will add a
new restriction.
Recovering refundable taxes will
generally require the CCPC to pay out
non-eligible dividends. These carry a higher personal tax cost than eligible dividends. The
exception will be where
refundable taxes arise from the CCPC's receipt of
eligible dividends. Dividends received from most Canadian public corporations are eligible. This portion of the refundable tax can then be recovered when the CCPC pays out eligible dividends.
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REASONABLE AUTOMOBILE ALLOWANCES: GST/HST Claim
A travel allowance paid to an employee for the
use of their
personal vehicle for
business purposes will be
non-taxable if it is
reasonable.
Where such
reasonable allowances are paid, an
input tax credit (ITC) may be
claimed by the employer. The ITC is computed as the imputed GST/HST in the allowance, without adjustment for the fact that some costs likely did not attract GST/HST. In non-harmonized provinces/territories (such as Alberta and B.C.), the ITC would be 5/105 of the allowance. The ITC in a harmonized province is different. For example, in Ontario, with 13% HST, the ITC would be 13/113 of the allowance. Other HST provinces would apply this formula to their respective rate.
In a November 10, 2017 T
ax Court of Canada case, CRA denied ITCs of $4,935 related to
motor vehicle allowances paid to employees that were also
shareholders. CRA argued that the allowances were not reasonable.
Taxpayer Wins
The allowances were based on the
maximum per kilometre rates that the employer could
deduct. The accounting for the allowances was complicated by the use of
fuel cards provided and paid by the
customer of the taxpayer. However, a detailed review of the accounting records demonstrated that:
- detailed logbooks of business and personal driving had been maintained;
- allowances were paid for business kilometres only, with careful tracking of personal use;
- fuel paid by the corporate customer had been charged back to the taxpayer; and
- the allowances paid to the shareholder-employee were effectively reduced by the customer's fuel payments.
Although the
accounting for the allowances was quite complicated, the Court concluded that it
complied with the law and ensured the employees received
reasonable allowances limited to
business driving. The ITCs were, therefore, properly claimed.
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CONSTRUCTION ACTIVITIES: Reporting Obligations for Subcontractors
Where a person or partnership
primarily derives their
business income from
construction activities for a reporting period, a
T5018 should be
filed for any subcontractor payment or credit made relating to goods or
services received in the
course of construction activities. The reporting period may be a
calendar or
fiscal year but cannot be changed once selected (unless authorized by CRA).
The term "
construction activities" is broadly defined. It includes, for example, the erection, excavation, installation, alteration, modification, repair, improvement, demolition, destruction, dismantling or removal of all or any part of a building, structure, surface or sub-surface construction, or any similar property. Such activities are considered to be those normally associated with the on-site fabrication and erection of buildings, roads, bridges, parking lots, driveways, etc. which are intended to be permanently affixed to the land on which they are built.
CRA has also noted that there are
businesses that have a
significant amount of construction done for them or by them,
but the activity is
not their principal business. For example, a natural gas company may do a large amount of construction to install pipelines, however, its principal business is gas transmission, not constructing pipelines. It would not be required to file
T5018s.
Penalties are levied on the payer when T5018s are not timely filed. Penalties range from $100 to $7,500, depending on the number of T5018s and the number of days they are late.
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U.S. CITIZENS: Risks of Tax Non-Compliance
Commencing January 1, 2016, the
U.S. State Department was able to
deny or revoke passports to U.S. citizens having a "
seriously delinquent tax debt" or
no Social Security Number associated with their passport. A "seriously delinquent tax debt" is one where the taxpayer owed more than $51,000, after January 1, 2018 (indexed going forward), in tax, interest and penalties.
An
Alert on the IRS website recently noted that
commencing January 2018 the IRS will
begin certifying tax debts to the State Department. After receiving certification from the IRS, the State Department will not generally
issue a
passport.
In addition to passport denial and revocation, several states impose non-monetary non-criminal sanctions for certain taxpayers who are sufficiently delinquent on their taxes. For example, New York, California, Louisiana and Massachusetts may revoke driving privileges.
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CRA MOBILE PHONE APPS: Tools for Individuals and Businesses
CRA provides a number of mobile phone apps that taxpayers (individuals, corporations, etc.) can use to assist with their tax obligations.
CRA BizApp - An app for
small businesses owners to view and pay
outstanding balances, view
account transactions, view
expected GST/HST returns, and view the
status of filed
GST/HST and
corporate income tax returns.
CRA Business Tax Reminders - An app for
businesses which sends
pop-up notifications and/or calendar
reminders for individual and business
due dates for installments (individual, corporate and GST/HST), returns, and remittances (payroll and GST/HST).
MyBenefits CRA - An app for
individuals which provides a
quick view of an
individual's benefit and credit payment details and eligibility information.
MyCRA - An app for
individuals which provides access to
key tax information such as
notice of assessments,
tax return status,
benefits and credits, and
RRSP and TFSA contribution room. It also allows individuals to request a proof of income, manage online mail, update contact information, and update direct deposit information.
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The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a newsletter such as this, a further review should be done by a qualified professional.
No individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents.
For any questions... give us a call
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Suite 109, 9824 - 97 Avenue Grande Prairie, AB T8V 7K2
Phone 780-814-7474 | Toll free 1-877-814-7474 | Fax 780-814-7409
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Copyright © 2018. All Rights Reserved.
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