2023 tax changes for 2022 filing

Tax Changes for Filing Your 2022 Tax Return

Like many years, Tax Year 2022 comes with several changes you need to know about when filing your personal and business taxes. Understanding the tax changes for 2023 filing is critical to reducing the risk of overpaying your taxes. The following are some of the most important changes Canadians must know about heading into tax filing season.

Repayment of COVID-19 Benefits

Those who received COVID-19 benefits in 2022 from CRA, such as any of the following, are likely to receive a T4A slip to report these benefits on tax returns:

  • Canada Recovery Benefit (CRB)
  • Canada Recovery Caregiving Benefit (CRCB)
  • Canada Sickness Recovery Benefit (CSRB

Those with a net income after adjustments higher than $38,000 from the CRB will need to repay some or all of the benefits they received. For those who repaid all or some of those benefits in 2022, it is possible to claim the tax deduction in the year you desire (when received or when repaid).

Updated Basic Personal Amount

The Basic Personal Amount (BPA) was adjusted to $14,398 for 2022. As a result, you may see a slight boost in your tax return for the year. In 2023, the BPA will increase to $15,000.

Shifts in Federal Tax Brackets

For the tax year 2022, the federal tax brackets are as follows:

  • Up to $50,197 income: 15%
  • From $50,197 to $100,392: 20.5%
  • From $100,392 to $155,625: 26%
  • From 155,625 to $221,708: 29%
  • Above $221,708.01: 33%

Be sure to adjust and plan for any tax changes this year based on your income. The upward adjustment of these tax brackets means that some people may see a shift from a lower tax bracket to a higher one compared to last year’s filing.

Work-From-Home Expenses

As so many people have transitioned to working from home, the government has worked to carry over the work-from-home tax credit first put in place in the previous year. That means Canadians who have expenses from working from home and keep documentation of those costs can now claim up to $500 in those expenses on their income taxes. If you did not calculate this, you can use a $2 per day flat rate for each day you worked at home.

First-Time Home Buyers’ Tax Credit

The First-Time Home Buyers’ Tax Credit is on its way up. The HBTC aims to make it more affordable for Canadians to purchase a home. For the tax year 2022, if you purchased a home, you can now claim $10,000 as a non-refundable income tax credit on your taxes. That is twice as much as it was in the year prior. That could provide up to a $1,500 tax savings for some people.

Change in Old Age Security Income Limits

Another update for the tax season this year is a change in Old Age Security income limits. Seniors who make more than what is allowable may have to pay some of their OAS back to the government. For the 2022 tax year, the new limits are:

  • $80,761, the minimum income recovery threshold
  • $134,626, the maximum recovery threshold for those between the ages of 65 and 74
  • $137,331, the maximum recovery threshold for those over the age of 75

If you made more than the minimum amount, you might need to repay some of your OAS. However, your OAS might be cancelled if you made more than the maximum amount listed here.

TFSA Limited Increases

Tax-free savings account limits have also increased for the tax year 2022 to $6,500.

Air Quality Improvement Tax Credit

Another federal change to note is the Air Quality Improvement Tax credit. Businesses that made suitable ventilation upgrades under this credit can claim 25% up to $10,000 can be made in 2022. That provides up to a $2,500 tax credit.

Labour Mobility Deduction

For those who work as apprentices, tradespeople, or employees in the construction industry, the Labour Mobility Deduction (LMD) will allow for claims for meals and lodging expenses. This applies when those in this field must move to a temporary location to work in the industry.

RRSP Dollar Limit Increase

The Registered Retirement Savings Plan (RRSP) dollar limit for 2022 is $29,210. You cannot, however, go beyond 18% of your earned income from the previous year.

For more tips on retirement planning, we recommend checking out this post.

Consult an Accountant to Ensure You’re Filing Properly

With the changes occurring in income tax returns for 2023, be sure to set up a consultation with your accountant to discuss any that may affect you. That helps ensure you are compliant and take full advantage of all potential deductions. If you’d like to discuss these changes with us, just book a free consultation.

Disclaimer: Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein. Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

How do financial statements help in decision-making

How do financial statements help in decision-making?

Most small business owners get started to serve customers and to do something they find fulfilling. Not many find that fulfillment in reading financial statements. Yet these statements not only tell them how they’re doing but also suggest actions to promote future success. They are a critical leadership tool to aide in decision making.

When trying to answer the question, how do financial statements help in decision-making, there are three financial statements that every small business owner should understand. They’re the income statement, the cash flow statement and the balance sheet. Here are some keys to using each for business decision-making.

Income Statement

It’s also known as the profit and loss statement, or simply the P&L. It shows all the revenue and expense for a specific time period, be it a month, a quarter or a year.

It reads from top to bottom. Revenue is the top line, net profit is the bottom line, and different types of expenses and intermediate totals are in between, as follows:

  • Revenue – Cost of Goods Sold (COGS) = Gross Profit.
  • Gross Profit – Selling, General and Administrative Expenses (SG&A) = Operating Income.
  • Operating Income – Interest = Pre-Tax Income.
  • Pre-Tax Income – Taxes = After-Tax Income or Net Profit, aka the bottom line.

While everyone talks about the bottom line, the most fruitful places to make changes are near the top of the sheet.

  • Increasing revenue improves numbers all down the line.
  • Decreasing COGS means finding lower prices for inventory and reducing manufacturing costs.
  • SG&A can be minimized by actions such as reducing utility and building expenses and targeting marketing campaigns effectively.

The last two expenses, interest and taxes, are areas where a business owner should consider consulting an expert for financial advice.

There are ratios that help a business owner gauge financial health.

  • Gross Profit Margin = Gross Profit / Total Revenue
  • Operating Profit Margin = Operating Income / Total Revenue
  • Net Profit Margin = Net Income / Total Revenue

Ratios vary by industry, so it’s hard to make broad statements about desirable numbers. A professional accountant can help benchmark these against industry norms.

Cash Flow Statement

In accrual accounting, income and expenses on the income statement don’t correspond to cash flowing in and out. For example, when a sale is made, the customer owes money and the income statement recognizes revenue. However, a business can’t spend that money until the customer actually pays.

The Cash Flow Statement shows how much money was generated from (or used in) operations and how that cash was used for investments and where it came from in the form of financing. Even with a healthy income statement, a lack of cash means trouble in the future.

There are two ways to calculate cash flow: direct and indirect.

A direct Cash Flow Statement shows changes in cash from three categories:

  • Operations: cash received for sales minus cash paid out for inventory, wages and other current expenses.
  • Investing Activities: cash spent for major capital expenditures minus cash received for retiring them.
  • Financing Activities: loaned money received minus interest on loans.

The direct method is straightforward but requires keeping track of every dollar received or spent.

The indirect method starts with net income from the income statement. It then subtracts any factor that added to net income but didn’t produce cash (e.g., an increase in accounts receivable). It adds anything that’s subtracted from net income but didn’t reduce cash (e.g. a decrease in accounts receivables).

If cash flow is low or varies greatly from period to period, the business should take action to improve it.

Balance Sheet

A balance sheet lists the company’s assets and liabilities.

Assets and liabilities are classified as current and non-current. Current includes cash, receivables, inventory, and debts due within a year. Non-current includes building, major equipment, and long-term loans.

A healthy company has more assets than liabilities.

Assets minus liabilities equals the third category on the balance sheet, retained earnings. This is the amount of money that has been earned and reinvested. Net profits for the income statement are added to retained earnings.

The current ratio is current assets divided by current liabilities. There’s also a quick ratio, which is like the current ratio but excludes inventory from the assets. If this is greater than one, the company can meet its short-term obligations.

The balance sheet also shows whether a company has enough overall assets to cover long-term debt.

Interpreting Financial Statements

A savvy business owner can learn much from the 3 financial statements, and a knowledgeable partner such as Avisar Chartered Professional Accountants can really unlock the statements and show a business how to improve its financial position. Avisar specializes in taxes, statements, and consulting for small businesses, entrepreneurs and non-profits.

Read our Guide to Understanding Financial Statements for Business Owners for more on how to make the most of your financial statements.

Disclaimer: Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein. Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

Federal Budget 2022: Charities Measures

Annual Disbursement Quota for Registered Charities

Registered charities are generally required to expend a minimum amount each year for charitable purposes, referred to as the disbursement quota (DQ). Presently, the DQ is set at 3.5% of property not used directly in charitable activities or administration.

Budget 2022 proposes to increase the DQ rate from 3.5% to 5% for the portion of property not used in charitable activities or administration that exceeds $1 million. Budget 2022 also proposes to clarify that expenditures for administration and management are not considered qualifying expenditures to satisfy a charity’s DQ.

Where a charity cannot meet its DQ, it may apply to CRA and request relief. Budget 2022 proposes to amend the existing rule such that CRA will have the discretion to reduce a charity’s DQ obligation for any particular tax year. It also proposes to allow CRA to publicly disclose information relating to such a decision to provide relief.

These measures would apply to charities in respect of their fiscal periods beginning on or after January 1, 2023.

Charitable Partnerships

Budget 2022 proposes to allow a charity to provide its resources to organizations that are not qualified donees, provided that these disbursements further the charity’s charitable purposes and the charity ensures that the funds are applied to charitable activities by the grantee.

To be considered a qualifying disbursement, the charity will need to meet mandatory accountability requirements, including, for example:

  • conducting a pre-grant inquiry sufficient to provide reasonable assurances that the charity’s resources will be used for the purposes set out in the written agreement, including a review of the identity, past history, practices, activities and areas of expertise of the grantee;
  • monitoring the grantee, which would include receiving periodic reports on the use of the charity’s resources, at least annually and taking remedial action as required; and
  • publicly disclosing on its annual information return information relating to grants above $5,000.

In addition, Budget 2022 proposes to require charities to, upon request by CRA, take all reasonable steps to obtain receipts, invoices, or other documentary evidence from grantees to demonstrate amounts were spent appropriately.

Finally, Budget 2022 proposes to prohibit registered charities from accepting gifts, the granting of which was expressly or implicitly conditional on making a gift to a person other than a qualified donee.

These changes would apply as of Royal Assent.

Federal Budget 2022: Sales and Excise Tax Measures

GST/HST on Assignment Sales by Individuals

An assignment sale in respect of residential housing is a transaction in which a purchaser (an “assignor”) under an agreement of purchase and sale with a builder of a new home sells their rights and obligations under the agreement to another person (an “assignee”). An assignment sale of newly constructed (or substantially renovated) residential real estate made by an individual would generally be taxable if the individual had originally entered into the agreement of purchase and sale with the builder for the primary purpose of selling their interest in the agreement. Where there was another primary purpose, such as residing in the property, the assignment sale would generally be exempt.

To provide greater certainty on the status of assignment sales, Budget 2022 proposes to make all assignment sales in respect of newly constructed or substantially renovated residential housing taxable for GST/HST purposes. As a result, the GST/HST would apply to the total amount paid for a new home by its first occupant. Typically, the consideration for an assignment sale includes an amount attributable to a deposit that had previously been paid to the builder by the assignor. That deposit would already be subject to GST/HST when applied by the builder to the purchase price on closing. Budget 2022 proposes that the amount attributable to the deposit be excluded from the consideration for a taxable assignment sale.

The assignor in respect of a taxable assignment sale would generally be responsible for collecting the GST/HST and remitting the tax to CRA. Where an assignor is non-resident, the assignee would be required to self-assess and pay the GST/HST directly to CRA.

The amount of a new housing rebate is determined based on the total consideration payable for a newly-constructed home, which would include the consideration for a taxable assignment sale. Accordingly, these changes may affect the amount of a New Housing Rebate that may be available in respect of a new home.

This measure would apply in respect of any assignment agreement entered into on or after May 7, 2022 (one month after Budget Day).

GST/HST Health Care Rebate

Hospitals can claim an 83% rebate and charities and non-profit organizations can claim a 50% rebate of the GST (or federal component of the HST) that they pay on inputs used in their exempt supplies. The 83% hospital rebate also applies to eligible charities and non-profit organizations that provide health care services similar to those traditionally performed in hospitals.

One of the conditions to be eligible for the expanded hospital rebate is that a charity or non-profit organization must deliver the health care service with the active involvement of, or on the recommendation of, a physician, or in a geographically remote community, with the active involvement of a nurse practitioner.

Budget 2022 proposes to allow the 83% hospital rebate to a charity or non-profit organization that delivers health care service with the active involvement of, or on the recommendation of, either a physician or a nurse practitioner, irrespective of their geographical location.

This measure would generally apply to rebate claim periods ending after April 7, 2022 in respect of GST/HST paid or payable after that date.

Excise Tax on Vaping Products

Budget 2021 announced a consultation on a new excise duty on vaping products. Budget 2022 sets out a taxation framework on vaping products that include either liquid or solid vaping substances (whether or not they contain nicotine), with an equivalency of 1 ml of liquid = 1 gram of solids (excluding those already subject to the cannabis excise duty framework).

A federal excise duty rate of $1 per 2 ml, or fraction thereof, is proposed for the first 10 ml of vaping substance, and $1 per 10 ml, or fraction thereof, for volumes beyond that. If a province or territory were to choose to participate in a coordinated vaping taxation regime administered by the federal government as set out in the budget documents, an additional duty rate would be imposed in respect of dutiable vaping products intended for sale in that participating jurisdiction.

Other Excise Tax Measures

Excise Duty Framework

Budget 2022 proposes several amendments to streamline, strengthen, and adapt the cannabis excise duty framework specifically, as well as other excise regimes, including the following:

  • allow licensed cannabis producers to remit excise duties on a quarterly rather than monthly basis, starting from the quarter that began on April 1, 2022 where the licensee’s required excise duty remittances for the four immediately preceding fiscal quarters were less than $1M in excise duties during the four fiscal quarters;
  • allow CRA to approve certain contract-for-service arrangements between two licensed cannabis producers to permit the producers to:
  • transfer stamps, and packaged but unstamped products, between them;
  • stamp and enter cannabis products into the retail market that have been packaged by the other producer; and
  • pay the excise duty on cannabis products that were stamped by the other producer.
  • amend the penalty provision for lost cannabis excise stamps so that the higher penalty for losing stamps for a province or territory would only apply where the adjustment rate for that jurisdiction is greater than 0%;
  • apply the existing cannabis penalty provisions to situations where unlicensed parties illegally possess or purchase cannabis products, and where licensed parties illegally distribute cannabis products;
  • exempt holders of a Health Canada-issue Research Licence or Cannabis Drug Licence from the requirement to be licensed under the excise duty regime;
  • in respect of spirits, wine, tobacco and cannabis products:
  • add all cancellation criteria for an excise licence, other than a proactive request by a licensee to cancel its licence, to the criteria that CRA may use to suspend an excise licence;
  • remove cash and transferable bonds issued by the Government of Canada, and add bank drafts and Canada Post money orders, to the types of financial security that could be accepted by CRA; and
  • confirm the ability of CRA to carry out virtual audits and reviews of all licensees.

Except where indicated otherwise, the above proposals would be effective only on Royal Assent.

100% Canadian Wine Exemption

Wine that is produced in Canada and composed wholly of agricultural or plant product grown in Canada (i.e. 100% Canadian wine) is presently exempt from excise duties. However, this exemption was challenged at the World Trade Organization (WTO). In accordance with a settlement reached in July 2020, Budget 2022 proposes to repeal the 100% Canadian wine excise duty exemption effective on June 30, 2022.

Low-alcohol Beer

At present, wine and spirits containing no more than 0.5% alcohol by volume (ABV) are exempt from federal excise duty, however beer containing no more than 0.5% ABV is subject to duty. Budget 2022 proposes to eliminate excise duty for beer containing no more than 0.5% ABV, bringing the tax treatment of such beer into line with the treatment of wine and spirits with the same alcohol content. This measure would come into force on July 1, 2022.

The Difference Between Capital Gains and Investment Income

Can Smart Capital Gains Financial Planning Save You Money?

What are capital gains? The profit people generate from selling an asset or investment is typically referred to as a “capital gain.” The term has also become synonymous with taxation, because a percentage of the profit margin may end up in the government’s coffers. But it’s important to understand that not every asset falls under the capital gain rules. Financial planners and accountants have strategies to utilize to minimize tax liability.

How Are Capital Gains Taxed in Canada?

Profits made from selling items such as stocks, bonds, mutual funds, and exchange-traded funds generally fall under capital gain rules. The same applies to tangible assets, such as rental properties, second homes, equipment, and luxury items, which also may be subject to after-sale taxation. Principle homes generally are exempt as long as they remain a primary residence.  

Although there is not necessarily a “capital gains tax” explicitly written into law, 50 percent of the profit earned from the sale of an asset becomes taxable. The rate of taxation is based on the person’s marginal tax rate. For instance, if you sold a second home for $100,000 above the purchase price, minus expenses, you’d apply $50,000 (half) to your taxable income. If you’re in the 33 percent bracket, then one-third of the $50,000 goes to taxes. The remaining two-thirds plus the untaxed $50,000 are free and clear profit.

That’s why it’s crucial to maintain diligent records regarding reasonable expenses associated with an asset. Fees, commissions, maintenance, advertising, and improvements are generally deducted from the amount of capital gain total and potential taxes.

The Difference Between Capital Gains and Investment Income

It’s not uncommon for people to find the difference between capital gains and investment income confusing. This holds particularly true when dealing with investment opportunities such as stocks.

While the two are not necessarily mutually exclusive, investment income generally refers to ongoing profits. Dividends on a lucrative stock or monthly rent payments from a real estate property are examples of investment income. They are not subject to the same tax formula as a capital gain generated from the sale of an asset.

How to Minimize Taxes on Capital Gains

The fact that someone makes a hefty profit on the sale of an asset doesn’t mean they must pay the full face value in taxes. A savvy accountant may employ the following strategies to reduce capital gains tax liability.

  • Establish Tax Shelters: These financial umbrellas shield investments and allow people to buy and sell stocks in a duty-free environment. Shelters such as a Registered Retirement Savings Plan, Registered Education Savings Plan, and Tax-Free Savings Account rank among the popular ways Canadians manage wealth without incurring taxes on annual capital gains. However, tax shelters do limit your ability to deduct capital losses.
  • Deduct Capital Losses: Sometimes, people become hyper-focused on paying taxes on profits and overlook losses. This scenario proves common with real estate investments. Property owners may lose track of the ongoing expenses, fees, taxes, interest payments, and wide-reaching other costs. Although you may have earned sound investment income over the years, the final sale could result in an overall loss. It’s critical to subtract all of your expenses before arriving at a capital gains figure.
  • Know When to Pay: One of the capital gains caveats involves deferment. If you receive a capital gain from a divorced spouse or deceased parent, the taxable amount does not necessarily come due that year. The new owner of an asset incurs the tax liability when they sell it and earn a profit. It’s important to keep in mind that the profit will be calculated based on the value when your ex-spouse or parent purchased the asset.
  • Lifetime Exemption: Certain small business owners may be eligible for the Lifetime Capital Gains Exemption when selling farms, fishery property, and qualifying private interests. Canada’s lifetime exemption proves complicated, and it’s advisable to consult with a tax professional.  

An experienced advisor can help you minimize their tax liability by spreading the profits over years. This strategy, often called a capital gain reserve, does more than simply postpone payment. A capital gain reserve can reduce the amount you pay.

What Is a Capital Gains Reserve?

A capital gains reserve effectively reduces the amount of profit you enjoyed as income in a given year. After calculating your capital gain, everyday people can lower that figure on the income by claiming a reserve amount. Taxpayers can usually spread the total revenue over five years using a specific formula.

In cases involving family farms, fishing businesses, among others, a qualifying capital gains reserve may be extended for upwards of 10 years. This type of deferment helps prevent the gain from driving you into a higher tax bracket and unnecessarily giving more of your hard-earned money to the government.  

While Canadians all need to pay their fair share of taxes, it’s equally important to ensure the best financial stability for you and your business.

Want to know more about the difference between capital gains and investment income? Contact Avisar Chartered Professional Accountants and schedule a consultation today. 

Avisar is a highly-regarded accounting firm operating in Langley, Abbotsford, Surrey, Vancouver, and the rest of the Lower Mainland.

Disclaimer: Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein. Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

2021 small business tax changes; 2021 personal tax changes

Tax Changes: What You Need to Know for the 2021 Tax Year

There have been some changes to Canada’s tax rules for the 2021 tax year. Understanding these changes and how they affect you is a very important part of making sure you’re handling your tax obligations correctly. Here are the most important personal and small business tax changes you should be aware of.

What are the tax changes for 2021?

2021 Personal Tax Changes

According to the Government of Canada’s web page on 2021 personal tax changes, these are the biggest adjustments to note when getting ready to file.

Zero-Emission Vehicles: The definition of what qualifies as a zero-emission vehicle is different for the 2021 tax year, provided the vehicle was bought after March 1, 2020. It can still qualify if subject to terminal loss claim or capital cost allowance, provided it wasn’t acquired on a tax-deferred basis, or “rollover.” It also can’t have been previously owned by someone who isn’t part of an arms-length transaction.

Canada Workers Benefit (CWB): The rates and income thresholds are different for the 2021 tax year. There is also a “secondary earner exemption” that has been introduced. Information based on province or territory is available.

COVID-19 Benefits: A T4A slip with instructions will be provided to you if you received benefits related to COVID-19. These benefits include the Canada Recovery Benefit (CRB), Canada Recovery Sickness Benefit (CRSB), or Canada Recovery Caregiving Benefit (CRCB). If you received a CRB, you might need to repay all or part of it if your net income is over $38,000. There is a chart you can use for calculating the repayment amount. Indigenous people may find that their benefits are tax-exempt. There is a form you can file for that exemption if you qualify.

2021 Small Business Tax Changes

It’s not just individuals who are subject to some differences in filing this year. There are also 2021 small business tax changes to consider. Here are the biggest ones to be aware of.

COVID-19 Benefits: Self-employed borrowers who received the Canada Emergency Wage Subsidy (CEWS), Canada Emergency Rent Subsidy (CERS), Canada Recovery Hiring Program (CRHP) or Fish Harvester Benefit and Grant Program (FHBGP) must include these in business income or reduce their expenses to match the amount they received. Corporations also have to report these benefits, as they are taxable for nearly every entity that received them.

Three New Programs: The government is proposing three new programs to help businesses that were hit the hardest by the COVID-19 pandemic. These programs are the Tourism and Hospitality Recovery Program, the Hardest-Hit Business Recovery Program, and the Local Lockdown Program. These programs will provide support for businesses that are primarily in the hospitality and tourism industries, so those businesses can stay afloat until the economy recovers.

Territory and Province Changes: Many provinces and territories have changed some of their individual filing requirements. The list of these changes is long and varies by province or territory. The best way to be sure you’re handling your taxes the right way is to look at the information for your location, so you don’t mistake what you can deduct or miss any important deadlines.

If you follow the guidelines for your 2021 personal or small business income taxes and make sure you’re taking any changes into account, you can reduce any chances of having a problem with underpayment of your taxes. You can also reduce the chances that you’ll miss a deduction and end up paying more than you need to. Fortunately, the government is pretty clear about the changes, and what you need to do to file your taxes successfully. If you would like to discuss how tax changes could impact your business or personal return, book a free consultation with an Avisar expert.

Disclaimer:

Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein. Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

Canada trade cargo container hanging against dark clouds.

The tax consequences of leaving Canada permanently

From assets and property to personal ties, several factors affect the tax consequences of leaving Canada. As a result, detailed planning needs to be done in advance of the move.

About three million Canadians currently live outside the country. And many others contemplate making a move at some point in their lives – whether it be to pursue a professional opportunity, return to their home country or relax in a warmer climate.

But if you are thinking of moving abroad, it’s important to remember that the process can be complicated. Among other things, you will need to plan for the tax consequences, especially if you expect the move to be permanent. There are many rules to consider – the key considerations below are just a few of them – which is why professional advice is important.

“Having a CPA oversee the process helps avoid unpleasant surprises,” says Virginie Vargel, a CPA who specializes in expatriate and non-resident taxation.

Here are four factors to think about:

Determining your residency status

To determine whether you will need to continue paying tax in Canada, the Government will first check whether you have retained significant ties here, says CPA Annie Poitras, lead senior manager, U.S. and international taxation at Raymond Chabot Grant Thornton. Such ties, she says, might include owning a house in Canada or having a spouse or common-law partner and/or dependents who are minors still residing in the country. The Government will also consider secondary ties, such as owning personal property, bank accounts, or a valid driver’s licence.

“These ties are acceptable as long as they can be justified,” says Poitras. “You can keep your driver’s licence if it is valid in the host country and you can continue to own a residence that you are renting out if conditions are met, such as having a written lease. The Canada Revenue Agency starts to ask more questions, however, if you leave the country but retain a vacant home or if you have dependents, spouse or common-law partner in Canada. Residency status is based on facts and on the taxpayer’s firm intention to leave the country.”

If the Government determines that you are no longer a resident, you will be considered an emigrant and subject to certain restrictions. For example, you will no longer be able to make regular contributions to a tax-free savings account (TFSA). However, as the CRA website explains, “Any withdrawals made during the period that you were a non-resident will be added back to your TFSA contribution room in the following year, but will only be available if you re-establish your Canadian residency status for tax purposes”.

You will still be able to contribute to a registered retirement savings plan (RRSP) if you have unused contributions but it may not make sense to do so. “This is why it is so important to carefully consider the date on which you give up your Canadian residency,” says Poitras.

Avoiding double tax

Switching to non-resident status is crucial because every host country has its own tax rules and, in many cases, an agreement with Canada.

“The goal,” Poitras points out, “is to avoid being taxed twice.” For example, in Canada, the tax rate on an RRSP withdrawal is generally 25 per cent for non-residents. However, depending on tax agreements, this rate could be lowered to 15 per cent depending on how amounts are withdrawn.”

“Whether there is double tax or not depends on whether the foreign country will tax the RRSP,” says FCPA Bruce Ball, vice-president of taxation at CPA Canada. “If the rate is 25 per cent but no tax is paid in the new country of residence, there is no double tax. Also, one may be able to claim a foreign tax credit in the other country based on the Canadian tax depending on the tax rules of that country.

Paying a departure tax

The moment a resident leaves Canada, the CRA deems that they have disposed of certain kinds of property at fair market value and immediately reacquired it at the same price. This is known as a deemed disposition and you may have to report a taxable capital gain that is subject to tax (also known as departure tax). But, that doesn’t mean an individual leaving should rush to liquidate everything.

For example, says Poitras, “furniture and vehicles, are excluded from tax, as are registered plans (such as RRSPs or TFSAs) and CPP and QPP benefit entitlements, because they will be taxed at a later date.” Same for foreign assets, such as, property that generate taxable capital gains, as long as the person has been a resident for 60 months or less during the 10-year period prior to emigration and held the property when residency was established.

Also, there is no immediate need to sell your home, as the deemed disposition does not apply to real property. “There is no deemed capital gain on a principal residence,” Vargel explains. “The property only becomes taxable when you leave the country and it is sold.” At that time, recognition is given to the principal residence designations which apply.

That said, leaving a vacant home can be an issue for residency determination, so it’s common for people to sell or rent the home, says Ball. If the property is rented, there may be a deemed disposition due to a change in use and other issues may arise, such as withholding tax on rental income. Hence, getting professional advice is important.

If the house is sold once the owner has become a non-resident, the vendor must notify the CRA about the disposition or proposed disposition by completing Form T2062 and send the payment or acceptable security to cover the resulting tax payable.

Also, any balance owed under the Home Buyers’ Plan must be repaid before you leave, otherwise it will be included in taxable income, says Vargel.

Poitras adds that it’s also important to communicate your change in status to any financial institutions where you have accounts generating passive income, such as interest or dividends. Also, provide a foreign address.

Final tax return and tax deferral

Since it will include your departure date, the change will be confirmed when you file a final tax return by April 30 of the year following the one you left Canada.

“The tax authorities treat this final tax return much like they would treat the tax return of a deceased person,” says Poitras. “It’s the last chance for the CRA to tax the income and property of a Canadian resident, including foreign assets, such as a condo in Florida.”

When filing their return, the resident can choose to defer the departure tax to be paid on income relating to the deemed disposition of property, says Poitras. This can include some or all the assets with no pre-set time limit, even if the eventual return date to Canada has yet to be decided. “Some may defer, since they might come back,” adds Ball.

“If the person provides guarantees [such as a letter from a bank], they will not pay the tax immediately, but only when the assets that are the subject of the guarantee are actually deemed to be disposed of,” she says. “If the amount of federal tax owing on income from the deemed disposition of property is more than $16,500 ($13,777.50 for former residents of Quebec), you have to provide adequate security to the CRA to cover the amount [see Form T1244].”

“Leaving the country has significant and costly consequences from a taxation standpoint,” reminds Poitras. “However, a CPA can review everything in advance before the tax return is filed. It’s always much cheaper to hire an expert to help you plan than to pay them to fix mistakes.”

Stay updated on taxes

This article includes a general summary of detailed tax rules. Need specific tax advice? Hire a Chartered Professional Accountant (CPA) and get the best working for you. Visit the website of your provincial or regional CPA body to access a CPA directory.

Disclaimer:
Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein.

Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

small business accountant

How to Choose the Best Small Business Accountant

The difficulty of finding the right small business accountant can be a challenge for both start-up entrepreneurs and the proprietors of more established enterprises.

Now, in truth, it shouldn’t be too hard to find a competent and reputable local firm or individual that can carry out all the necessary functions small businesses require.

These would include bookkeeping, the maintenance of proper tax records, cost-effective inventory and invoice management, cash flow control, payrolls, and a wide variety of other “back office” tasks.

With the help of modern software packages, it’s often possible for these functions to be discharged in-house by an individual or a small team.

Small Business Accountant or Bookkeeper — Why the Difference Matters

But while these day-to-day tasks are essential to the efficient management and even the survival of any business, they’re only a small part of the value that a good small business accountant can add. As a business grows, the pressures of daily financial management grow with it, and there’s only so much that even the best software can do to help.

Caught up in the daily whirlwind of staff and inventory management, marketing, and multiple tasks involved in running a business, it’s all too easy for owners and managers to lose sight of the big picture, and to fail to make the strategic plans that will determine the long-term success of their enterprise.

The Small Business Accountant as Strategic Partner

That’s why the right choice of small business accountant is so important.

A good firm will act not just as a provider of basic services — and, in truth, they may not be the most cost-effective option for this purpose – but as a true strategic partner in the business, helping with a wide range of crucial long-term plans and decisions.  

These may include: 

Strategic tax planning   

Far more than just the timely submission of routine returns, this involves consideration of such matters as if, when, and where to incorporate, the payment of dividends, profit-taking, and perhaps planning for the eventual sale of the business.

A good small business accountant will also be aware of the personal wealth and tax implications for the business owners in such circumstances.

Financing

Debt is a very common element in the growth of businesses, but it’s often much more involved than simply asking a local bank for a loan or overdraft facility. A good small business accountant will be able to advise on all aspects of debt, such as the right kind of debt to take on — be it loans, secured or otherwise, the issue of bonds, or other types.

They will also know the best and most effective sources of financing — including how to raise new equity capital if appropriate for an incorporated business.

And, importantly, they will know exactly how, and to whom, to pitch financing applications.  

Planning for Growth

On a related point, a good accountant can also help with the preparation of the detailed business plans that must accompany any desire to expand. This includes the investigation of possible new markets, the costing of new products, and the preparation of profit and loss projections for consideration by potential finance providers. 

Goal-Setting 

Less clearly defined but just as important is the advice that a small business accountant can give regarding the long-term goals of the business owner and the key performance indicators (KPIs) that need to be monitored in their pursuit.

It may be, for example, that the owner is primarily concerned with maximizing short-term revenues from a single operation or outlet. Or they may, on the other hand, be more interested in the reinvestment of profits for the long-term expansion of the business.

Either way, a strategically-minded small business accountant will be able to help set appropriate KPIs, monitor progress against them, and modify them as changing circumstances may demand.

Acting as a Sounding Board

The life of an entrepreneur or small business owner can be a lonely, albeit exciting, one. The advice of an impartial, trusted, and knowledgeable professional can be invaluable both in helping owners to negotiate tough times and in restraining them from over-exuberant decision-making during the good.

Finding the Right Small Business Accountant

A good small business accountant should be much more than a mere “number cruncher.” They should act as a long-term financial adviser, strategic planner, mentor, and friend.

Book a Free Consultation

The decision to hire an accountant can be daunting, but it’s worth taking some time to get it right. It’s a choice that’s enormously important to the long-term success of your business. Word-of-mouth recommendations and local small business organizations can be a good starting point.

But in the end, for business owners, there is no substitute for meeting one on one with several potential firms to discuss their unique, individual needs. So, to book a free consultation, simply visit us here or call us on (604) 513-5707.

Can I do my own business tax return

Can I Do My Own Business Tax Return? Avoid These 4 Pitfalls

Properly filing taxes for a small business is one of the essential processes in maintaining a business’s financial health.

Small business owners wishing to reduce overhead and expenses may wonder – can I do my own business tax return? Yes, a small business owner can do their own tax return but there are a number of common errors that you should keep in mind if you choose to do your own taxes. Mistakes (innocent or otherwise) when filing a small business tax return independently can result in consequences/penalties from the Canada Revenue Agency (CRA).

If you’re considering doing your own business tax return, you should give yourself lots of time so that you are not under the pressure of a fast-approaching CRA deadline, and keep in mind the many potential issues that may arise from doing taxes without an accountant. We’ll discuss some of the bigger ones here.

Not Filing/Paying Taxes on Time 

Most small businesses are calendar-year filers, which means the tax year ends 12/31. April 30th is tax day, as noted by the Canadian Revenue Agency, with June 15th available for self-employed individuals filing taxes.  

The CRA assesses a late penalty and/or interest on the amount of taxes due until the balance is paid. As of the 2020 tax year, the late filing payment was 5% of the amount owed, plus 1% for each month – with a max of 12 months of fees for unpaid balances. Note, additional fines are set for late installment fees. The late fees are even higher for returns from 2017, 2018, 2019. These steep fees and penalties are the fundamental reason NOT to miss a tax deadline. CRA extensions are available for specific instances but filing an extension does not delay the required payment of those taxes due by the original deadline.

Failing To Pay Estimated Taxes As Required During the Year 

Most self-employed individuals – filing as a sole proprietor, a shareholder in a corporation, a partner, or simply self-employee – are required to make payments towards their estimated taxes if they anticipate their payable taxes will exceed the maximum allowed. Note, minimum amounts will depend on the location of the business, the type of business formation, and the work being done. The CRA offers a calculation chart to help.

An accounting professional or bookkeeper can offer guidance on the appropriate amount that needs to be sent.

Mis-Categorizing Employees As Contractors

The employee vs. contractor issue tends to generate many CRA audits – which is significant because the determined status influences how an employer must manage employment insurance and other entitlement benefit deductions. The CRA’s rules regarding the taxation of contractors can be complex. Even if the contractor works from home and uses their own equipment during the hours they set themselves, they may still be re-characterized as employees under CRA guidelines.

Mis-classifying contractors can be quite costly to a business owner who may miss CPP (Canada Pension Plan) and other required deductions. The bottom line is that independent contractors are defined by their contribution to the business, not where or when they work.

In addition to the above-noted problems created by doing your taxes incorrectly, the following issues may also cause potential problems:

  • Late/Inaccurate Wage Taxes
  • Mis-reported Home Office Deductions
  • Under-Reporting Income
  • Travel Mileage Deducted Without Documentation
  • Inaccurate Inventory Counts
  • Unreasonable Corporation Owner’s Wages Compared to Shareholder Income

Not Choosing to Use a Professional Accountant

Although it can be quite tempting to follow “the road less expensive,” the amount of work required (as an accounting novice) and the potential consequences for making a business tax filing mistake are quite substantial. This makes it worthwhile to avoid making these costly mistakes when possible.

Even if you file your taxes on time without an accountant and remit the required amount, a small business owner may miss deductions for which they qualify simply because they lack the knowledge, experience, and skill to know they exist.

Accountants may seem like an expense you can forego until you realize that tax preparation and filing are complicated and, if done incorrectly, expensive. And while filing a business tax return only needs to be done once per year, the implications for mistakes are far-reaching.

Want to discuss your tax needs with no sales pitch? Schedule a free consultation and we’d be happy to answer any questions you may have, including, can I do my own business tax return?

Disclaimer:
Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein.

Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

Fed Budget 2021 Personal measures

Federal Budget 2021: Personal Measures

COVID-19 Benefit Amounts – Tax Treatment

Budget 2021 proposes to allow individuals the option to claim a deduction in respect of the repayment of a COVID‑19 benefit amount for the year when the benefit was received, rather than the year in which the repayment was made. This option would be available for benefit amounts repaid at any time before 2023.

For these purposes, COVID-19 benefits would include:

  • Canada Emergency Response Benefits (CERB) / Employment Insurance Emergency Response Benefits;
  • Canada Emergency Student Benefits (CESB);
  • Canada Recovery Benefits (CRB);
  • Canada Recovery Sickness Benefits (CRSB); and
  • Canada Recovery Caregiving Benefits (CRCB).

Individuals may only deduct benefit amounts once they have been repaid. An individual who makes a repayment, but who has already filed their income tax return for the year in which the benefit was received, would be able to request an adjustment to the return for that year.

Canada Recovery Benefits (CRB)

Budget 2021 proposes the following in respect of CRB:

  • The maximum CRB would be extended by 12 weeks to a maximum of 50 weeks. The first four additional weeks will be paid at $500 per week, with subsequent weeks paid at $300 per week. All new CRB claims after July 17, 2021 would receive the $300 per week benefit, which will be available until September 25, 2021.
  • The maximum Canada Recovery Caregiving Benefit would be extended by 4 weeks, to a maximum of 42 weeks, paid at $500 per week.
  • Legislative amendments would be made providing the authority for additional potential extensions of CRB, EI and related programs until November 20, 2021.

Employment Insurance (EI)

Temporary Measures

Budget 2021 proposes to extend many of the temporary EI measures commenced in 2020, including:

  • Maintaining a 420-hour entrance requirement for regular and special benefits, with a 14-week minimum entitlement for regular benefits, and a new common earnings threshold for fishing benefits.
  • Simplifying rules around the treatment of severance, vacation pay, and other monies paid on separation.
  • Extending the temporary enhancements to the Work-Sharing program such as the possibility to establish longer work-sharing agreements and a streamlined application process.

Other Benefits

  • Sickness benefits would increase from 15 to 26 weeks, as of summer 2022.
  • Self-employed fishers who submit an EI claim for the winter 2021 fishing benefit period would have extended temporary eligibility for the entire benefit period.

Consultation on long-term changes

Consultations on long-term reforms to EI will be commenced, focusing on the need for income support for self-employed and gig workers; how best to support Canadians through different life events such as adoption; and how to provide more consistent and reliable benefits to workers in seasonal industries.

Disability Tax Credit (DTC)

Budget 2021 proposes several changes which would provide broader access to the DTC. These proposals would apply to the 2021 and subsequent taxation years, in respect of DTC certificates filed on or after Royal Assent.

Mental Functions

The DTC is generally available to individuals who are markedly restricted in their ability to perform a basic activity of daily living due to a severe and prolonged impairment in physical or mental functions.

Budget 2021 proposes to expand the definition of mental functions necessary for everyday life to include: attention, concentration, memory, judgement, perception of reality, problem-solving, goal-setting, regulation of behaviour and emotions, verbal and non-verbal comprehension, and adaptive functioning.

Life-Sustaining Therapy

Individuals can qualify for the DTC where they undergo therapies that have a significant impact on everyday life. Under current rules, the therapy is required to be administered at least three times/week for a total duration averaging at least 14 hours a week.

Also, only certain types of therapy are allowed to be included in this computation.

To better recognize additional aspects of therapy for this computation, Budget 2021 proposes to:

  • expand the types of activities which can be included in the 14 hour per week minimum to include:
  • medically required recuperation after therapy;
  • activities related to determining dosages of medication that must be adjusted on a daily basis, or determining the amounts of certain compounds that can be safely consumed;
  • the time reasonably required by another person to assist the individual in performing and supervising the therapy where the individual is incapable of performing therapy on their own due to the impacts of their disability; and
  • reduce the requirement that therapy be administered at least three times each week to two times each week, retaining the requirement that therapy require an average of not less than 14 hours a week.

These proposals would apply to the 2021 and subsequent taxation years, in respect of DTC certificates filed on or after Royal Assent.

Canada Workers Benefit (CWB)

The CWB is a non-taxable refundable tax credit that supplements the earnings of low- and modest-income workers.

Budget 2021 proposes to enhance the CWB by, for example, by increasing the phase-out thresholds for individuals without dependents and families (from $13,194 to $22,944 and from $17,522 to $26,177, respectively in 2021). The phase-out rate is also slightly increased. Corresponding changes would be made to the disability supplement.

Budget 2021 also proposes to introduce a “secondary earner exemption” to the CWB which would allow the spouse or common-law partner with the lower working income to exclude up to $14,000 of their working income in the computation of their adjusted net income, for the purpose of the CWB phase-out.

These measures would apply to the 2021 and subsequent taxation years. Indexation of amounts would continue to apply after the 2021 taxation year, including the secondary earner exemption.

Northern Residents Deductions (NRD)

Budget 2021 proposes to expand access to the travel component of the NRD. Under the current rules, the claim is limited to the amount of employer-provided travel benefits the taxpayer received in respect of travel by that individual.

Under the new approach, a taxpayer would have the option to claim, in respect of the taxpayer and each “eligible family member”, up to a $1,200 standard amount that may be allocated across eligible trips taken by that individual, allowing individuals with no employment benefits to claim this deduction.

For residents of the Intermediate Zone, this effectively becomes a $600 standard amount.

An eligible family member would be an individual living in the taxpayer’s household who is the taxpayer’s spouse or common-law partner, their child under the age of 18, or a related individual who is wholly dependent on them for support and is either their parent or grandparent or dependent by reason of mental or physical infirmity.

Claims would still be limited to the least of this new number, the total expenses paid for the trip and the cost of the lowest return airfare to the nearest designated city.

This measure would apply to the 2021 and subsequent taxation years.

Postdoctoral Fellowship Income

Budget 2021 proposes to include postdoctoral fellowship income in “earned income” for RRSP purposes. This measure would apply in respect of postdoctoral fellowship income received in the 2021 and subsequent taxation years.

This measure would also apply in respect of postdoctoral fellowship income received in the 2011 to 2020 taxation years, where the taxpayer submits a request in writing to CRA for an adjustment to their RRSP room for the relevant years.

Defined Contribution Pension Plans – Fixing Contribution Errors

Budget 2021 proposes to provide more flexibility to plan administrators of defined contribution pension plans to correct for both under-contributions and over-contributions. This measure would apply in respect of additional contributions made, and amounts of over-contribution refunded, in the 2021 and subsequent taxation years.

Other Measures

Budget 2021 also announced plans for a wide variety of other programs, including:

  • Child Care – Providing new investments totaling up to $30 billion over the next 5 years, and $8.3 billion ongoing for Early Learning and Child Care and Indigenous Early Learning and Child Care, with the goal of providing regulated child care for $10/day on average, within the next five years.
  • Student Loans – Extending the waiver of interest accrual on Canada Student Loans and Canada Apprentice Loans until March 31, 2023 and extending the doubling of the Canada Student Grants until the end of July 2023.
  • Home Renovation Loans – Providing interest-free loans of up to $40,000 to homeowners and landlords who undertake retrofits identified through an authorized EnerGuide energy assessment. This program will also include funding dedicated to support low-income homeowners and renters including cooperatives and not-for profit owned housing. The program would be available by summer 2021.
  • Old Age Security Enhancements – Providing pensioners who will be age 75 and older as of June, 2022 with a one-time additional payment of $500 in August 2021. Budget 2021 then proposes to increase regular OAS payments for pensioners 75 and over by 10% on an ongoing basis as of July 2022.

Disclaimer: Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein.

Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.