Major tax changes and improvement to services.
Significant changes due to the COVID-19 pandemic, and numerous tax issues to be aware of this year
Different ways to legally smooth income over a number of years… Maximizing access to the lowest marginal tax rates.
A list of tax deductions or credits to consider in the upcoming tax season
If you are a U.S. person potentially subject to this tax, but have not filed as such, contact us to discuss your options
Failing to make source deductions,
may expose directors personally to the liability
Deducting personal expenses in a corporation can lead to a very costly bill, as in Tax Court of Canada case, July 23, 2020
Virtual communication will likely be a permanent fixture in the future for professional meetings
In an April 29, 2020 CPA Canada article, the author provided a variety of tips for professional meetings conducted by online video conference, which has become much more common during the COVID-19 pandemic.
Among the tips discussed, the author recommended the following:
having a meeting host to own the meeting, set the agenda, and drive the meeting;
setting protocols such as the use of mute features (whether by participants or the host) or chat functions;
using the waiting room to avoid one client dropping in while another meeting is in progress;
framing the view to control what participants see in the background; and
sharing screens to more efficiently share information.
ACTION ITEM: Prior to providing video content or presenting virtually, review this article. As virtual communication will likely be a permanent fixture in the future, consideration should be given to investing in a reliable, quality web camera and microphone.
Even a fully exempt principal residence sale was required to be reported for 2016 and later years
General CRA activity
Over the last few years, CRA has focused on purchases and sales within the real estate sector. They are reviewing transactions for several items, such as:
property flips on account of income;
ineligible principal residence claims;
commissions on sales;
pre-sale condo assignments; and
eligibility for the GST/HST new housing and rental rebates.
One method for reviewing such transactions is by requiring taxpayers to respond to a detailed questionnaire. The questionnaire covers items such as:
date and details of purchase and sale in sale agreements, statements of adjustments, and mortgage/financial documentation;
details of any major renovations, building permits, construction contracts, and municipal approvals;
estimates of fair market values at different key points (such as after the completion of a renovation);
real estate listing agreements; and
invoices, receipts, bank statements, driver’s licence, and other items which indicates the address of the property.
The purchaser’s intention for the use of the property is key in determining the appropriate tax treatment upon sale.
U.S. real estate
On June 25, 2020, CRA issued a solicitation for engaging one or more third-party suppliers to provide “U.S. real estate and real property data where a Canadian resident is the owner or party to the purchase, sale or transfer” back to, at a minimum, January 1, 2014 with ongoing provision of new data on a monthly basis.
CRA may consider reviewing several issues in this context, including:
missed disclosure of real estate not exclusively held for personal use;
unreported rental income, whether not reported at all or not reported accurately;
unreported real estate sales; and
inappropriate claims for the principal residence exemption on such dispositions.
ACTION ITEM: Even a fully exempt principal residence sale was required to be reported for 2016 and later years. Where disposals of real estate in 2016 or subsequent years are not reported, CRA can reassess for an unlimited period. Ensure all disposals, in Canada and abroad, are reported on the tax return.
COVID-19 pandemic, have made many adjustments to payroll for businesses
What if I make a clerical, administrative, or system error resulting in a salary overpayment? On April 6, 2020, CRA released the updated guide RC4120 Employers’ Guide – Filing the T4 slip and Summary providing detailed instructions on these such issues.
The employer may elect to have the employee repay the net amount (gross amount less CPP, EI and income tax withheld) overpaid due to the error, provided they meet the following criteria:
no later than three years after the end of the year in which the salary was overpaid
the employer made the election in the prescribed manner (see below),
the employee repaid or arranged to repay the net amount of the overpayment;
the employer did not issue a T4 slip with the employee’s correct earnings (that is, with the salary overpayment removed); and
the employer’s business is actively operating.
This election would reduce the cashflow burden the employee would otherwise bear.
The election is made by either excluding the salary overpayment from an original T4 slip or amending a T4 slip to remove the overpayment and reducing the corresponding income tax deducted, along with CPP and EI withheld and remitted.
Repayment after the T4 is issued
If the employee repays or arranges to repay after the original T4 is issued, the employer must amend the T4 slip appropriately, including any relevant CPP and EI adjustments.
After CRA receives and processes the amended T4, it will credit the income tax, CPP and EI remitted on the salary overpayment made in error (including the employer’s share of CPP contributions and EI premiums) to the employer’s payroll program account. The employer can then reduce the next payroll remittance by the credited amount.
Finally, CRA also provided guidance and examples for situations in which the employer does not elect to have the net amount repaid, and the gross amount is repaid instead.
ACTION ITEM: Over the course of the COVID-19 pandemic, many adjustments have been made to payroll for businesses. If a T4 correction or wage adjustment is required, consult with the detailed guidance in publication RC4120, or reach out for assistance.