Phone:  780.814.7474 | Fax: 780.814.7409  

Season's Greetings

Cheryl, Trevor, Pat and the staff at Deverdenne Davis Cyr LLP wish you and your family a Merry Christmas and a happy and successful New Year.

Holiday Season Office Hours

Our office will be closed on December 24th at noon through January 1st. We will resume our regular hours on Thursday, January 2nd. Please not this closure if you have a December 31st tax filing or payment deadline to consider.

Tax Tidbits

Some Quick Points to Consider:

• All eligible Canadian resident seniors (over age 65), children under 18 and individuals eligible for the disability tax credit can now apply for the Canadian Dental Care Plan. Other eligible individuals will be invited to participate in 2025. To qualify, the applicant must not have access to dental insurance and the applicant’s family income must be below $90,000.
• All GST/HST returns (except for those of charities and selected financial institutions) must now be filed electronically using methods such as NETFILE, internet file transfer through a third-party accounting software, CRA’s My Business Account, electronic data interchange (EDI) through a financial institution or TELEFILE through a toll-free phone number. Registrants who paper file improperly will be charged a penalty.
• Starting in 2024, digital platform operators (such as Airbnb and Etsy) are required to provide information to CRA on the sellers who use their platform, including the seller’s identification and details of their financial transactions.

Business Receipts: What is Sufficient?

In a recent Tax Tip, CRA stated that an acceptable receipt for income tax purposes must contain all of the following:

• the date of the purchase;
• the name and address of the seller;
• the name and address of the buyer;
• the full description of the goods or services purchased; and
• the vendor’s business number if the vendor is a GST/HST registrant.

Credit card statements are not generally acceptable unless they contain all the above information.

Crypto-Assets: Reviews and Audits

A recent communication from CRA indicated that they have roughly 400 ongoing audits or examinations related to crypto-assets, including 125 “intent to audit” letters sent to taxpayers that they believe did not report income obtained through cryptocurrency trading on Coinsquare. In 2021, CRA required Coinsquare, via an unnamed persons requirement (UPR), to provide information on its 16,500 top users from 2014 to 2020. These letters provided the taxpayer with 45 days to voluntarily contact CRA to declare any missing crypto-related income, in which case CRA would waive any penalties and interest. CRA noted that failure to respond may lead to a full audit of the taxpayer.

While CRA only reassessed $54 million in undeclared income last fiscal year, a director general at CRA has noted that CRA’s activity is evolving rapidly and that CRA will adjust their compliance measures as the risk of non-compliance changes.

In addition, CRA commissioned a poll in 2023 that found one third of respondents did not have a “firm grasp” of their tax responsibilities surrounding crypto-assets. On a knowledge test of the tax rules surrounding crypto-assets, cryptocurrency users tested just over 50%.

CRA has stated that they are considering issuing additional UPRs to other exchanges until the government implements the crypto-asset reporting framework proposed in Budget 2024. The proposals would require crypto-asset service providers to file an annual report that includes customer and transaction information with CRA commencing in 2026.

Canada Pension Plan: Changes to Certain Benefits

Several changes have been introduced to targeted measures and benefits under the Canada Pension Plan (CPP). None of the below changes are expected to impact contribution rates.

Death benefit

The CPP death benefit is increased to $5,000 (from $2,500) where all of the following criteria are met:

• the estate would otherwise be eligible for the regular death benefit;
• the deceased had not received any retirement or disability benefits, or similar benefits under a provincial pension plan; and
• no survivor’s benefit is payable as a result of the individual’s death.

The increased benefit applies to deaths after December 31, 2024.

Children’s benefits

Prior to the change, the CPP surviving child benefit was only payable to children of a deceased parent if the child was under 18 or between the ages of 18 and 25 and was a full-time student. While this benefit is still available, a similar benefit has now been introduced for part-time students, equal to 50% of the amount payable to full-time students.

In addition, eligibility for the disabled contributor’s child benefit is extended such that it continues to be available even when the disabled parent reaches age 65. Previously, the benefit ended when the disabled parent reached age 65.

Survivor benefits

Previously, couples who were legally separated but still married or in a common-law relationship could be eligible for CPP survivor pension on their partner’s passing. However, after this change, the survivor pension is not payable after a legal separation where there has been a division of their CPP pensionable earnings following the separation.

Canada Pension Plan: Timing of Starting Payments

Individuals can start collecting Canada Pension Plan (CPP) retirement benefits as early as age 60. However, benefits are decreased by 0.6%/month (7.2% per year) prior to age 65 for a maximum reduction of 36%. They are increased by 0.7%/month (8.4% per year) that CPP is delayed past age 65 to a maximum increase of 42% if collection is deferred to age 70. In other words, monthly retirement benefits are more than 2.2 times as large for someone who waits until age 70 rather than collecting at age 60.

A recent National Institute on Aging report indicated that an individual with median CPP benefits and an average life expectancy loses over $100,000 of CPP benefits, in current dollars, by starting CPP at age 60 instead of 70. The report noted that 9 out of 10 individuals opt to start CPP by age 65 or earlier.

The report also noted that collecting earlier may be a rational decision for individuals with financial hardship or poor health, resulting in reduced life expectancy. However, it suggested that most individuals would be better off drawing on other savings (such as RRSPs) to bridge the gap until reaching age 70. The report indicated that 4 in 5 individuals with RRSPs or RRIFs would receive higher lifetime income using this approach.

TFSA: Caution with Overcontributions

Taxpayers who contribute excess amounts to their TFSA are subject to a penalty tax of 1%/month that the excess contribution remains in the TFSA. If subject to the tax, an individual may apply to have the tax waived. If the individual is unsuccessful after the

CRA's first and second review of the application, the individual may apply for a judicial review of the denial in the Federal Court.

Moving Funds between TFSA Accounts

In an April 9, 2024 French Federal Court case, the taxpayer withdrew $40,000 from a TFSA at one financial institution and deposited it into another TFSA at a different financial institution at a time when he only had a TFSA contribution room of $6,270, leading to an overcontribution. Withdrawals from a TFSA are only added to an individual’s contribution room at the start of the following year. Had the taxpayer directly transferred $40,000 between the two TFSAs, there would have been no overcontribution. CRA held that the overcontributions were not the result of a reasonable error, so they could not waive the penalty tax.

The Court noted past cases that supported CRA’s interpretation that neither ignorance of the tax law nor bad advice constitutes a reasonable error. The taxpayer’s failure to transfer funds by direct transfer between the two TFSA issuers resulted in the penalty tax being properly applied. CRA’s decision to deny relief was reasonable, and the application for judicial review was dismissed.

Relying On CRA Portals

In a March 27, 2024 Federal Court case, the taxpayer made TFSA contributions in line with the available TFSA room listed on CRA’s My Account; however, the balances online did not reflect some contributions, resulting in the taxpayer making excess contributions. CRA alerted the individual after the excess contributions were made. As the individual continued to contribute based on the values posted on My Account, the Court found CRA’s decision to deny relief on the penalty tax reasonable.

Automobile Provided to an Employee

If you make an automobile available to your employee and they use the automobile for both business and personal driving, the personal driving is a taxable benefit that is made up of a standby charge and an operating expense. Please refer to the link below for proper withholdings and how to report this taxable benefit on the employee’s T4 slip.

Automobile provided by the employer - Canada.ca

Use Of Corporate Assets By Shareholder: Taxable Benefits?

An April 16, 2024 French Court of Quebec case considered whether the shareholder of a corporation derived taxable benefits from residing in a corporate property for the 2014 to 2016 years and from allowing his ex-spouse to reside in a second corporate property. The taxpayer was assessed with a benefit of $142,000 per year.

Taxpayer loses

Although the taxpayer argued that any benefits received were offset by the expenditures he made on the properties, he could not demonstrate that the expenditures actually occurred and that he was the one who paid them. The taxpayer argued that he could not support these expenditures due to the loss of documents in a flood; however, the Court noted that some evidence conflicted with these claims.

The taxpayer provided the alternative argument in respect of one property that if there was a benefit, it did not exceed $5,500/month as supported by evaluations done by two different real estate agents. However, the Court found that the more robust assessments completed by Revenu Québec, which suggested a rental value of approximately double, were more representative of the reality. This was supported by the fact that the over five thousand square foot property was listed for sale in 2017 for $4,800,000. The Court upheld the assessment.

Corporate Tax Return Filed Late: Ability to get a Tax Refund

A July 22, 2024 Federal Court case found that CRA’s refusal to accept and provide

tax refunds for corporate tax returns filed more than three years after the relevant year-end was reasonable. While a specific provision allows CRA to accept requests (at their discretion) for refunds after the three-year deadline for individuals, there is no parallel provision for corporations.

While no tax refund can be provided where corporate tax returns are not filed within three years of the fiscal year-end, CRA has discretion to re-appropriate the refund to another account of the taxpayer (e.g. the taxpayer’s GST/HST, payroll or income tax account). However, this re-appropriation is fully at CRA’s discretion, based on factors such as CRA error or delay, natural or man-made disasters, death, accident, serious illness, or emotional or mental distress.

Shareholder Purchasing Asset: Input Tax Credit (ITC)

An August 20, 2024 Tax Court of Canada case reviewed whether a corporation could claim ITCs of $8,874 related to the purchase of two vehicles that were used by the corporation. One vehicle was purchased by the shareholder and the other was purchased by the shareholder and his spouse.

Taxpayer loses

To be eligible for an ITC, the corporation must meet all of the following conditions:

1. the corporation must have acquired the vehicles;
2. the GST/HST in respect of the vehicles must be payable or must have been paid by the corporation; and
3. the vehicles must have been acquired in the course of the corporation’s commercial activities.

The Court found no evidence that the corporation acquired either vehicle; the corporation’s name was not on the sales agreements, bill of sales, vehicle registrations or proof of insurance. In addition, there was no evidence of any trust, agency or assignment agreement. As such, criterion (1) was not met.

The Court also found that the corporation was not liable to pay consideration under the purchase agreement for either vehicle; therefore, GST/HST was not payable by the corporation. As such, criterion (2) was not met.

While the corporation argued that the vehicles were used or available for use by the corporation, the vehicles were not actually acquired in the course of the corporation’s commercial activities. As such, criterion (3) was not met.

While only failing one of the above criteria would be fatal to the claim, the corporation failed all three. The ITC was appropriately denied.

Shareholder Loan Account: Proper Bookkeeping

A July 31, 2024 Tax Court of Canada case reviewed whether payments made by a corporation in 2013 and 2014 of $24,249 and $41,680, respectively, were taxable as shareholder benefits on the basis that they were for the personal expenses of the shareholder. The Court also reviewed whether payments of $13,693 and $28,131 in 2013 and 2014 were taxable to the shareholder as indirect payments on the basis that they were made on behalf of the shareholder’s son for personal mortgage payments and day-to-day expenses. The taxpayer argued that all these payments constituted non-taxable shareholder loan repayments.

Starting in 2001 and continuing over several years, the taxpayer loaned a newly incorporated entity, of which the taxpayer and his spouse were shareholders, over $600,000. The loans enabled the corporation to acquire and operate a tire/auto detailing business managed by the taxpayer’s son. As the corporation could not afford a professional to prepare the corporation’s tax returns, the taxpayer compiled the returns, although he had no accounting training other than a personal tax preparation course

he took 40 years prior. In 2018, the corporation ceased operations due to financial problems.

Taxpayer loses – shareholder benefit

The Court acknowledged that the taxpayer had made a bona fide loan to the corporation. However, the Court observed that payments the taxpayer received from the corporation were not properly recorded via a debit entry to the shareholder loan account as a repayment of the shareholder loan. The taxpayer argued that he did not know how to record payments for personal expenses in the shareholder loan account. The Court found that this was not a sufficient reason for not debiting the shareholder loan account for the repayments of the shareholder loan. The Court noted that the choice was to pay for professional assistance for the books and records or learn how to do it properly, neither of which the taxpayer selected. The shareholder benefit income inclusion was upheld.

Taxpayer loses – indirect payment

The Court noted that all of the following conditions were met in respect of payments to or for the benefit of the taxpayer’s son:

• the payments were made to a person (the son) other than the reassessed taxpayer (the shareholder);
• the allocations were at the direction or with the concurrence of the reassessed taxpayer (the shareholder);
• the payments were made for the benefit of the reassessed taxpayer (the shareholder) or for the benefit of another person (the son) whom the reassessed taxpayer wished to benefit; and
• the payments would have been included in the reassessed taxpayer’s income (the shareholder’s income) if they had been received by them.

The taxpayer was, therefore, required to pay tax on the indirect payments benefiting his son.

New Canada Disability Benefit: Proposed Regulations

Details on the new Canada disability benefit were included in regulations that were released on June 29, 2024. This benefit is intended to provide support to low-income working-age individuals with a disability.

To be eligible for the benefit, the taxpayer would be required to:

• be a resident of Canada (for tax purposes);
• have a valid disability tax credit certificate;
• be between the ages of 18 and 64;
• have filed an income tax return for the previous tax year; and
• be a Canadian citizen, permanent resident, protected person, temporary resident (that lived in Canada for the past 18 months) or registered (or entitled to be registered) under the Indian Act.

The maximum benefit for the July 2025 to June 2026 period would be $2,400 ($200 per month), but would be reduced by the following:

• 20% of income above $23,000 if the beneficiary is single;
• 20% of income above $32,500 if the beneficiary is married or has a common-law partner; and
• 10% of income above $32,500 if the beneficiary is married or has a common-law partner and both are eligible.

In addition, the first $10,000 of work income ($14,000 for a couple) would be exempt from this calculation. Work income would have the same definition as that used for the Canada workers benefit, which includes income from sources such as employment and self-employment. The maximum benefit amounts would be increased in future years for inflation (based on the consumer price index).

If an application is denied, the taxpayer would have 180 days to apply for reconsideration. If still unsuccessful, the decision could be appealed to the Social Security Tribunal.

2024 REMUNERATION

Higher personal income levels are taxed at higher personal rates, while lower levels are taxed at lower rates. Therefore, individuals may want to, where possible, adjust income out of high-income years and into low-income years. This is particularly useful if the taxpayer is expecting a large fluctuation in income due to, for example, an impending:

• maternity/paternity leave;
• large bonus/dividend; or
• sale of a company or investment assets.

In addition to increases in marginal tax rates, individuals should consider other costs of additional income. For example, an individual with a child may receive reduced Canada child benefit (CCB) payments. Likewise, excessive personal income may reduce the receipt of OAS, GIS, GST/HST credit and other provincial/ territorial programs.

There are various ways to smooth income over several years to ensure an individual is maximizing access to the lowest marginal tax rates.

• Taking more or less earnings out of the corporation (in respect of owner-managed companies).
• Realizing capital gains/losses by selling investments.
• Deciding whether to claim RRSP contributions made in the current year or carry forward the contributions.
• Withdrawing funds from an RRSP to increase income. However, care should be given to the loss in the RRSP room based on the withdrawal.
• Deciding whether or not to claim CCA on assets used to earn rental/business income.

Note that dividends paid to shareholders of a corporation that do not meaningfully contribute to the business may result in higher taxes due to the “tax on split income” rules.

Year-end planning considerations not specifically related to changes in income levels and marginal tax rates include:

1. Corporate earnings in excess of personal requirements could be left in the company to obtain a tax deferral (the personal tax is paid when cash is withdrawn from the company). The effect on the qualified small business corporation status should be reviewed before selling the shares where large amounts of capital have accumulated. In addition, changes that may limit access to the small business deduction where significant corporate passive investment income is earned should be reviewed.
2. If dividends are paid out of a struggling business with a tax debt that cannot be paid, the recipient could be held liable for a portion of the corporation’s tax debt, not exceeding the value of the dividend.
3. Individuals who wish to contribute to the CPP or an RRSP may require a salary to generate earned income. RRSP contribution room increases by 18% of the previous year’s earned income up to a yearly prescribed maximum ($31,560 for 2024).
4. Consider paying taxable dividends to obtain a refund from the refundable dividend tax on hand account in the corporation. The refund amount may be restricted if eligible dividends are paid. Eligible dividends are subject to lower personal tax rates.
5. Access to the corporate federal small business deduction is reduced where more than $50,000 of passive income is earned in the corporation. Consider whether it is appropriate to remove passive income-generating assets from the corporation and whether a shift in the types of passive assets held is appropriate. In some provinces, it may actually be beneficial to have access to the federal small business deduction reduced. As many variables affect these decisions, consultation with a professional advisor is suggested.
6. If you provide services to a small number of clients through a corporation (that would otherwise be considered your employer), CRA could classify the business as a personal services business. There are significant negative tax implications of such a classification. Consider discussing risk and exposure minimization strategies (such as paying a salary to the incorporated worker) with a professional advisor in such scenarios.

Year End Personal Tax Planning

December 31, 2024 is fast approaching… see below for a list of tax planning considerations. Please contact us for further details or to discuss whether these may apply to your tax situation.

• NEW! As of June 25, 2024, 2/3s of capital gains in excess of $250,000 per year are proposed to be taxable. Capital gains of $250,000 or less will effectively continue to be included at a 50% rate due to a new deduction. If you anticipate that annual net capital gains will not exceed the $250,000 threshold, the changes will not affect you. However, if you expect annual capital gains to exceed $250,000, you may be impacted by the changes. If you expect to realize annual capital gains over $250,000 in the near term, consider triggering gains at the end of 2024 to utilize the full $250,000 in capital gains that are protected from the 2/3 inclusion rate. Any unused limit cannot be carried forward; however, a new $250,000 limit will become available next year. Triggering gains can be useful if your portfolio has significant accrued gains that you would like to realize in the near future. Spreading the gains over a few years to maximize access to the effective 50% inclusion rate can reduce the overall tax cost. However, if you don’t foresee exceeding $250,000 in gains in a single year, deferring gains may be better to avoid paying tax earlier than necessary. That is, determining whether to trigger capital gains should be considered in light of expected future capital gains and the expected time horizon of holding the investment.
• Consider triggering capital losses at year-end to offset capital gains. NEW! Capital losses carried forward and claimed in 2024 will be applied at the blended capital gains inclusion rate for 2024. This rate considers capital gains realized at both the 50% and 2/3 inclusion rate in 2024. That is, a capital loss of prior years claimed in 2024 cannot be applied only to capital gains included at the 2/3 rate if capital gains were also realized at the 50% rate (i.e. before June 25, 2024). Net capital losses that cannot be used in the current year can be carried back three years or forward indefinitely. Capital losses carried forward or back are adjusted to align with the inclusion rate for the year in which they are claimed. For example, a capital loss carried forward to 2025 would be deducted at a 2/3 rate if it offsets capital gains in excess of the $250,000 threshold eligible for the effective 50% inclusion rate. By contrast, a capital loss carried back to 2023 would be applied at the 50% rate. Capital losses claimed in years subject to the 2/3 rate are more valuable than losses claimed in years subject to the 50% rate.
• Certain expenditures made by individuals by December 31, 2024 will be eligible for tax deductions or credits, including digital news subscriptions, moving expenses, multigenerational home renovation expenditures, child care expenses, charitable donations, political contributions, registered journalism organization contributions, medical expenses, alimony, eligible employment expenses, union, professional or like dues, carrying charges and interest expense. Ensure you keep all receipts that may relate to these expenses.
• A senior whose 2024 net income exceeds $90,997 will lose all or part of their old age security pension. Senior citizens will also begin to lose their age credit if their net income exceeds $44,325. Consider limiting income over these amounts, if possible. Another option would be to defer receiving old age security receipts (for up to 60 months) if it would otherwise be eroded due to high-income levels.
• If you own a business or rental property, consider making a capital asset purchase by the end of the year. Many capital assets purchased and made available for use in 2024 will be eligible for a 100% CCA write-off under the immediate expensing rules.
• NEW! Looking to sell your business? Several new tax-efficient options exist or will be available shortly. They include the Canadian entrepreneurs’ incentive, the use of an employee ownership trust for sales to employees, the use of the updated intergenerational business transfer rules for sales to children, as well as the ability to shelter up to $1.25 million in capital gains under the lifetime capital gains exemption. The effective date of these incentives varies.
• UPDATE! The alternative minimum tax (AMT) applies a minimum tax to individuals who would otherwise be subject to low regular taxes due to claiming various legitimate tax incentives, such as the capital gains exemption. Starting in 2024, the mechanism by which AMT is calculated has changed. Broadly, the changes target higher-income individuals, with lower and mid-income individuals generally at reduced risk of AMT exposure. Individuals who have paid AMT in recent years may pay less regular tax than expected due to the ability to offset previously paid AMT against current-year tax liabilities.
• Consider restructuring your investment portfolio to convert non-deductible interest into deductible interest. It may also be possible to convert personal interest expense, such as interest on a house mortgage or personal vehicle, into deductible interest.
• If you have equity investments or loans to a Canadian small business that has become insolvent or bankrupt, an allowable business investment loss (ABIL) may be available. For loans to corporations to be eligible, the borrower must act at arm’s length. ABILs can offset income beyond capital gains, such as interest, business or employment income.
• If a commercial debt you owe (generally a business loan) has been forgiven, special rules apply that may result in additional taxes or other adjustments to the tax return.
• You have until Thursday, March 3, 2025, to make tax-deductible registered retirement savings plan (RRSP) contributions for the 2024 year. Consider having the higher income earning individual contribute to their spouse’s RRSP via a spousal RRSP for greater tax savings.
• NEW! Consider using the home buyers’ plan (HBP) to withdraw up to $60,000 (for withdrawals after April 16, 2024, $35,000 previously) from your RRSP to fund the purchase of your first home. Taxpayers must repay the amounts withdrawn under the HBP over a 15-year period. For withdrawals between January 1, 2022 and December 31, 2025, the 15-year period has been temporarily deferred, such that it now starts with the fifth year following the year the first withdrawal was made.
• Consider making a contribution to a tax-free first home savings account (FHSA). Eligible contributions are deductible, and withdrawals to purchase a first home are not taxable. Up to $8,000 can be contributed annually, to a maximum lifetime limit of $40,000. Contributions made in 2024 and unused contributions from 2023 can be deducted against 2024 income.
• Individuals should consider contributing to their tax-free savings account (TFSA). An additional $7,000 may be contributed starting on January 1, 2025. Consider a catch-up contribution if you have not contributed the maximum amount for prior years.
• A Canada education savings grant for registered education savings plan (RESP) contributions equal to 20% of annual contributions for children (maximum $500 per child per year) is available. In addition, lower-income families may be eligible to receive the Canada learning bond.
• A registered disability savings plan (RDSP) may be established for a person under 60 eligible for the disability tax credit. Non-deductible contributions to a lifetime maximum of $200,000 are permitted. Grants, bonds and investment income earned in the plan are included in the beneficiary’s income when paid out of the RDSP.
• Canada pension plan (CPP) receipts may be split between spouses aged 65 or over (application to CRA is required). Also, it may be advantageous to apply to receive CPP early (age 60-65) or late (age 65-70).
• Are you a U.S. resident, citizen or green card holder? Consider U.S. filing obligations concerning income and financial asset holdings. Filing obligations may also apply if you were born in the U.S. Information exchange agreements have increased the flow of information between CRA and the IRS. Collection agreements enable CRA to collect amounts on behalf of the IRS.
• If income, forms or elections have been missed in the past, a voluntary disclosure to CRA may be available to avoid penalties.
• Interest-free loans of up to $40,000 are available to homeowners and landlords who undertake retrofits identified through an authorized EnerGuide energy assessment (Canada Greener Homes Loan).
• NEW! The Canadian dental care plan is available to individuals and their spouse or common-law partner (if applicable) who have an adjusted family net income (AFNI) of less than $90,000; are Canadian resident for tax purposes; have filed their tax return in the previous year; and do not have access to dental insurance (e.g. through an employer, pension or group plan). A co-payment is required if AFNI is between $70,000 and $89,999.
• NEW! As of January 1, 2024, expenses incurred to earn short-term rental income will not be deductible for tax purposes when the rental operation is not compliant with the applicable provincial or municipal licensing, permitting or registration requirements. If the operation is compliant for only a portion of the rental period, deductions will generally be denied on a pro-rata basis. However, if the operation is compliant by December 31, 2024, the operation will be considered compliant for all of 2024.

Deverdenne Davis Cyr LLP 103, 10501 - 67th Avenue, Grande Prairie, AB T8W 0K8

Phone 780-814-7474 | Fax 780-814-7409

www.ddcllp.ca