Other Personal Tax Changes for 2020-21

In addition to the changes related to COVID-19, other significant changes will take effect that has implications to your 2020 personal tax return.

TAX FILING DEADLINE

While the deadline to file your 2019 personal tax return and pay any outstanding balance was extended in 2020, the tax filing deadline for your 2020 tax return remains April 30, 2021. Self-employed individuals and their spouses or common-law partners must file their tax returns by June 15, 2021, but any amount due must still be paid by April 30 to avoid interest charges.

On February 9, 2021, the federal government announced – that individuals with total taxable income of $75,000 or less in 2020 who received COVID‑19-related income support or employment insurance benefits in that year, will not be required to pay interest on any outstanding income tax debt for the 2020 tax year until April 30, 2022. The deadline for filing their tax returns remains unchanged.

ENHANCED BASIC PERSONAL AMOUNT

The basic personal amount (federal amount), which was $12,069 for all taxpayers in 2019, will increase in 2020, and the amount will now depend on your net income:

  • If your net income was greater than or equal to $214,368, the level at which the top 33% marginal tax bracket starts, you will be able to claim a basic personal amount of $12,298.
  • If your net income was lower than or equal to $150,473, the level at which the 29% tax bracket starts, you will be able to claim an enhanced basic personal amount of $13,229.
  • If your net income was between these two amounts, you will have a pro-rated basic personal amount.

This newly enhanced system will also apply to the maximum spousal or common-law partner amounts and the maximum amount for an eligible dependant. The graduated tax brackets and other non-refundable credit amounts (e.g., the age amount and the disability amount) increased by an inflation factor of 1.9% for 2020.

New Digital News Subscription Tax Credit

There is a new, non-refundable digital news subscription tax credit that will be available from 2020 to 2024. This tax credit is calculated at 15% of the eligible amounts paid, to a maximum of $500, to access primarily original written news in a digital format from a qualified Canadian journalism organization (QCJO).

If your subscription provides access to content in a non-digital format, or to content not from a QCJO, only the cost of a stand-alone digital subscription to the content of the QCJO is eligible for the credit; if there is no stand-alone digital subscription, one half of the amount paid is considered an eligible expense.

New Canada Training Credit (CTC)

The CTC is a new refundable tax credit introduced in 2020. If you are between 26 and 65 years old, you will accumulate $250 towards their Canada Training Credit Limit (CTCL) account in 2020 if both of the following apply to you:

  • You had at least $10,000 of “working income” in 2019.
  • Your total 2019 net income was less than or equal to $147,667 (the level at which the 29% tax bracket started that year).

Working income generally includes employment and self-employment income, research grants, scholarships, bursaries, prizes, and maternity and parental EI benefits.

WHO QUALIFIES, AND HOW TO CALCULATE YOUR CTC BALANCE

If you meet both the minimum working income limit and the maximum total income limit in subsequent years, the CTCL account will continue to accumulate over time to a maximum of $5,000; both limits will be indexed to inflation.

You can claim up to 50% of the costs of taking a course or enrolling in a training program against the balance in your account in the year you paid the tuition. The remaining 50% of the program costs may be eligible for the tuition tax credit, as the CTC uses the same eligibility criteria as are used for the tuition tax credit. You would see the balance in your CTC account for 2020 on your notice of assessment for 2019. Any unused CTCL will expire when you turn 65.

For example, Sohil was a 28-year-old Canadian resident in 2020. From 2019 to 2023, he met both the minimum working income limit and the maximum net income limit, so the balance in his notional CTCL account as reported on his 2023 notice of assessment was $1,250 (five years x $250 per year). In 2024, he enrols in a continuing education program at a local community college to upgrade his skills. The tuition he pays for the program is $2,000.

On his 2024 tax return, Sohil can claim a refundable CTC of $1,000 (50% of the $2,000 tuition), and he can claim a non-refundable tuition tax credit of 15% on the remaining $1,000 of tuition fees not eligible for the CTC. Sohil’s CTCL for 2025, assuming he meets both the working income and net income criteria for 2024, would be $500 ($1,250 opening balance – $1,000 CTC claimed in 2025 + $250 added based on his income in 2024).

Tax-Exempt Qualified Donees

Certain not-for-profit journalism organizations were allowed to register with the CRA under a new category of tax-exempt qualified donee. Canadians may claim the charitable donation tax credit for donations to these organizations. 

Other Changes for 2021

TAX BRACKETS AND NON-REFUNDABLE TAX CREDITS

The federal tax brackets and most non-refundable credit amounts will increase by 1.0% for 2021. The enhanced amounts for the basic personal amount and the maximum amounts for spouses and eligible dependants will be $13,808, in order to achieve the government’s target of $15,000 for 2023.

EMPLOYMENT INSURANCE AND CANADA PENSION PLAN

Employment Insurance premiums remain unchanged for 2021, but the maximum insurable earnings have increased from $54,600 in 2020 to $56,300.

The maximum pensionable earnings for the Canada Pension Plan have increased from $58,700 in 2020 to $61,600; the employee and employer contribution rates have also increased from 5.25% to 5.45% in 2021.

The contribution limit for Tax Free Savings Accounts remains unchanged at $6,000 for 2021.

TREATMENT OF CERTAIN STOCK OPTIONS

The 2019 federal budget proposed changes to the preferential tax treatment of stock options for employees of large, long-established, mature companies. As a result of a continuing consultation process, the federal government announced in December 2019 that the implementation of these changes would be delayed. The Fall Economic Statement released on November 30, 2020 further clarified the changes and noted that they will apply to stock options granted after June 2021.

To see how these changes affect you, it may be useful to meet with your Chartered Professional Accountant (CPA).

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.

Avisar Charter Professionals - Payroll Considerations

Payroll Deduction Considerations

Payroll deductions are something all businesses need to consider. However, due to some key differences in how they apply if you are an employer vs self-employed, there continues to remain some confusion about what they are and how they apply to each group.

What Are Payroll Deductions?

Payroll deductions are amounts withheld (or rather, “deducted”) from an employee’s gross pay on their payroll cheque by their employer and can be separated into 2 categories – government-mandated deductions and voluntary deductions (contributions to a private pension plan, RRSP Savings plan, or union dues).

In Canada, the three government-mandated payroll deductions consist of:

  • Employee contributions to the Canada Pension Plan (“CPP”)
  • Employee contributions to Employment Insurance (“EI”)
  • Federal and provincial Income tax

The exact amount for each payroll deduction varies depending on the province of employment.  For individual calculations, you can use the Canada Revenue Agency’s (“CRA”) Payroll Deductions Online Calculator to determine the appropriate amounts to withhold.

EMPLOYER

By law, employers are responsible for deducting the above amounts from employee earnings and remitting them to the CRA, in addition to the employer portions of the CPP and EI contributions.

Everything you need to know from opening a payroll account to remitting the deductions and filing your T4 Summary at year-end are outlined on the CRA website.

SELF-EMPLOYED

Generally, if you are a sole proprietor, a partnership, an independent contractor, etc., you are considered to be self-employed.

Unlike employers, monthly remittances for CPP and income tax are not required throughout the year. Instead, contributions are calculated upon filing your personal tax return each year. As a self-employed individual, you are responsible for both the employee and employer amounts, which is based on the net income of your business, subject to the same maximum contribution.

However, self-employed individuals do not have to pay EI premiums, unless they opt into the EI benefits for self-employed program which provides special benefits to the self-employed such as sickness or maternity benefits.

PENALTIES

The reason it is important to be on top of your payroll deductions is that you will be charged high penalties if you do not, even if you are just 1 day late.

These penalties are based on a percentage of the payroll deduction amount (Ie. CPP, EI, Income tax) that should have been withheld & paid. While it starts at 3% for payments 1 to 3 days late, it quickly gets up to 10% if it is more than 7 days late or not remitted.

Furthermore, if you are assessed this penalty more than once in a calendar year, the CRA will apply a 20% penalty on these failures if they were made knowingly or under circumstances of gross negligence.

SUMMARY

Regardless of your situation, if you are an employer that needs assistance with payroll planning, registration, calculation, or self-employed and looking for ways to efficiently structure your business around the above considerations, please contact your Avisar professional for more information.

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.

US Taxes - Accidental american

U.S. Taxes For Individuals: Accidental Americans

It is becoming more well-known that United States citizens have income tax filing requirements from their home country, regardless of where they reside. However, there are some people who do not know they hold U.S. citizenship.

Are you potentially one of these “accidental Americans”?

What Is An “Accidental American”?

An “accidental American” is someone who has inadvertently acquired U.S. citizenship. This can include people in the following situations:

  • A child is physically born in the United States, even though they may not have remained there.
  • A child born in wedlock that:
  • has two U.S. citizen parents, and at least one parent resided physically in the United States or one of its outlying possessions at the time they were born

or

  • has one U.S. citizen parent and one U.S. national parent (lawful permanent resident, or “green card holder”), and the U.S. citizen parent was physically present in the United States or one of its outlying possessions for at least one continuous year

or

  • has one U.S. citizen parent and one non-U.S. parent, and the U.S. citizen parent was physically present in the United States for at least five years, with at least two of those years being after the parent was 14

Additional rules apply for a child born out of wedlock to U.S. citizen parents, and they have specific requirements depending on what year the child is born and whether it is the father or the mother that is the U.S. citizen.

As it can be complicated to determine whether someone in fact has U.S. citizenship, it will help to discuss your situation with a U.S. immigration lawyer.

Benefits and Responsibilities as a U.S. Citizen

If you are a U.S. citizen, you are eligible to have and travel on a U.S. passport. Among the other benefits are that you can:

  • travel to the United States without a visa
  • vote in U.S. federal elections
  • sponsor family members to move permanently to the United States
  • obtain U.S. citizenship for your children

Generally, you would also have the responsibility to pledge allegiance to the United States and give up allegiances to other countries. However, some countries – notably Canada – have agreements in place with the United States for dual citizenship.

You must also file a U.S. income tax return to report your worldwide income annually, regardless of whether or not you are physically living in the United States. There are mechanisms, such as the foreign earned income exclusion or foreign tax credits, that will reduce or eliminate double taxation on the income reported in both the United States and the country where you physically live.

In addition to the income tax return, you may also be required to file additional information reports. Some of the more common ones include:

  • FinCEN Form 114: Report of Foreign Bank and Financial Accounts (FBAR).
  • This form is required when the maximum value of all financial accounts outside of the United States that you own individually or jointly, or for which you have signing authority, exceeds $10,000 USD in aggregate.
  • Form 5471: Information Return of U.S. Persons With Respect to Certain Foreign Corporations.
  • This form is required when you are a U.S. person with share holdings in a non-U.S. corporation. The required sections of the form are dictated on the share transactions that took place during the calendar year, as well as the percentage of ownership you have by vote or value.
  • Form 8621: Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund.
  • This form is required when you are a U.S. person with shareholdings in a non-U.S. corporation that is classified as a Passive Foreign Investment Company. Common examples are non-U.S. mutual funds, exchange traded funds and some real estate investment trusts.

What are your U.S. income tax voluntary disclosure options?

If you find yourself in the situation of being an “accidental American” and are delinquent on your U.S. income tax filings, there are voluntary disclosure programs available. Under these programs, you could be subject to lower civil penalties than the default penalty amounts or, if you qualify for the Streamlined Foreign Offshore Filing Compliance Procedures, you could potentially face no penalties.

The voluntary disclosure program that you qualify for depends on your situation. One determining factor is whether your delinquency was willful (on purpose) or non-willful (not on purpose). If your situation is more on the willful side of the spectrum, it is advisable to go through the voluntary disclosure process with a U.S. tax lawyer to reduce and/or avoid criminal penalties as well as civil penalties.

Do you have to keep your U.S. citizenship?

Even though you may be an “accidental American,” you can choose whether to keep your U.S. citizenship. However, as the renunciation is generally irrevocable – it cannot be reversed – it is not a decision to make lightly. If you are thinking of renouncing, please speak to a professional in the U.S. immigration space so that you avoid any potential issues. The websites below can give you further interpretation, but only a professional immigration counsel can advise on what would apply in your circumstances.

U.S. Citizenship and Immigration Services. Policy Manual. Chapter 3 – U.S. Citizens at Birthhttps://www.uscis.gov/policy-manual/volume-12-part-h-chapter-3

U.S. Citizenship and Immigration Services. What Are the Benefits and Responsibilities of Citizenship?https://www.uscis.gov/sites/default/files/document/guides/chapter2.pdf

U.S. Department of State – Bureau of Consular Affairs. Renunciation of U.S. Nationality Abroadhttps://travel.state.gov/content/travel/en/legal/travel-legal-considerations/us-citizenship/Renunciation-US-Nationality-Abroad.html

Internal Revenue Service. Report of Foreign Bank and Financial Accounts (FBAR) (filing information)https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar

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 Emergency Business Account

Canada Emergency Business Account (CEBA)

What Is CEBA?

Introduced on April 9, 2020, CEBA is a government program administered by a number of financial institutions across Canada, based on directions from Export Development Canada.

This program was launched to support businesses and non-profits that have experienced diminished revenues due to Covid-19 by providing partially forgivable interest-free loans. Its intention is to help businesses safely navigate a period of shutdown, and better positioning themselves to resume normal business operations after Covid-19.

The application deadline for this program is March 31, 2021.

HOW MUCH CAN YOU BORROW?

When CEBA first came out, the maximum loanable amount was up to $40,000. As of December 4, 2020, CEBA applicants can now receive up to a $60,000 loan.

CEBA applicants who previously qualified for the initial $40,000 CEBA loan may still apply for the additional $20,000 expansion at the financial institution that provided the initial loan, even if it has already been repaid.

WHO QUALIFIES?

To qualify, the CEBA applicant must:

  • be a Canadian operating business in operation as of March 1, 2020;
  • have an active CRA Business Number;
  • have an active business chequing/operating account with its primary financial institution;
  • not have previously used CEBA (except in the case where you had previously been approved for the initial $40,000 loan and would like to apply for the $20,000 expansion – that is allowable) and will not apply for support under CEBA at any other financial institution;
  • acknowledge its intention to continue to operate its business or to resume operations; and
  • participate in post-funding surveys conducted by the Government of Canada or any of its agents.

CEBA applicants may choose one of two streams to obtain their CEBA loan. The amounts that can be loaned under these streams are the same.

CEBA has undergone a few changes since its initial introduction and the requirements we list above may change without prior notice. If you would like to determine your eligibility for CEBA based on the latest requirements, an online Pre-Screen Tool is available. We would also recommend that you visit your primary financial institution’s website as they may have their loan applications available online which could provide insights as to requirements not on the CEBA website.

WHAT CAN I SPEND THE CEBA FUNDS ON?

Funds are required to be spent on non-deferrable eligible expenses (as defined on the CEBA website) incurred during 2020.

This program is not defined by legislation or regulations; therefore, participants should treat it as they would any business contract and carefully review the terms of their loan before agreeing. Restrictions, if any, may still slightly differ between financial institutions therefore CEBA applicants should carefully review the terms of their loan agreement and take due care in ensuring that funds are spent accordingly.

Repaying The Loan

Repayments can be made any time after October 1, 2020. If the CEBA applicant cannot fully repay the loan by December 31, 2022, the loan is converted into a 3-year term loan with interest fixed at 5%/year. The payment frequency of such interest will be determined by your financial institution and the full principal of the converted loan will be due on December 31, 2025.

However, if you “fully” repay the loan by December 31, 2022, a portion of the loan will be forgiven as follows:

  • If you borrowed $40,000 or less, 25 percent of the loan will be forgiven (up to $10,000), or
  • If you borrowed more than $40,000 and up to $60,000, $10,000 of the first $40,000 of the loan will be forgiven plus 50 percent of the amounts above $40,000 and up to $60,000 (up to an additional $10,000).

The forgivable portion of CEBA is taxable when received, and if and when repaid would be deductible. Please contact us or a tax professional if you have any questions.

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.

T4-Reporting

New T4 Reporting Requirements

For the 2020 tax year, additional information will need to be reported on T4 slips, “Statement of Remuneration Paid”. Employers will be required to report an employee’s income and retroactive payments paid during specified time periods; this is in addition to reporting an employee’s income on Box 14.

The purpose of the added reporting requirement is to validate payments made to individuals who have received payments from the Canada Emergency Response Benefit (“CERB”), Canada Emergency Student Benefit (“CESB”), and the Canada Emergency Wage Subsidy (“CEWS”).

Reporting Requirements

The 2020 T4 slip will have new information codes for employers to report employment income paid during specified time periods. These codes and related time periods are as follows:  

  • Code 57: Employment income –March 15 to May 9
  • Code 58: Employment income –May 10 to July 4
  • Code 59: Employment income –July 5 to August 29
  • Code 60: Employment income –August 30 to September 26

As an example, if an employer is reporting employment income earned during the period of May 6 to May 19 and the income is paid on May 31, the employer will report the income using code 58.

Please contact us if you have any questions.

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.

Taxation Of Stock Options

Stock options are beneficial to employees, allowing them to purchase shares in their employer corporation (or related company) below fair market value. Stock options can be a useful way to remunerate key employees when a company has a cash shortage (and the options would actually bring cash in when an employee exercises them), although this would also dilute the existing shareholders’ ownership of the company.

Employees granted company stock options are not taxed; however, employees who exercise the stock option and purchase the shares are considered to have received a benefit. How and when that benefit is taxed depends on who the employer is and whether the stock option price is below the fair market value of the shares at the time the option is granted.

Public Company Employers

If the option price is below the fair market value of the shares at the time the option was granted by a public company employer, the employee is deemed to have received a benefit that is included in their employment income when they exercise the option to purchase the shares.

The amount of the benefit is equal to the difference between the fair market value of the shares at the date of purchase and the option price the employee paid. If the employee sells those shares at a future date, they would recognize a capital gain or loss equal to the difference between the sale price and the fair market value at the time the option was exercised.

For example, assume Pub Co. granted an option in 2017 to a key executive named Sarah to allow her to purchase 1,000 shares at $10 per share when the fair market value of the shares was $12. Sarah exercised those options in 2018 when the fair market value was $14 per share, and she sold them in 2019 for $15 per share. Sarah’s fully taxable employment income in 2018 would be $4,000 [1000 shares × ($14-$10)]. She would also report a capital gain in 2019 of $1,000 [1000 shares × ($15-$14)], half of which is taxable.

Note that if Sarah had exercised the option in 2017 when it was granted, her employment income would have been $2,000 [1000 shares × ($12-$10)] in that year, and the 2019 capital gain would be $3,000 [1000 shares × ($15-$12)]. While the total income over the three-year period would be the same as in the first scenario, her total taxable income would decrease by $1,000, since a greater portion is a capital gain and only half of that is taxable.

If a public company employer grants stock options that do not have an immediate benefit to the employee (i.e., the option price is equal to, or greater than, the fair market value of the shares at the time the option is granted), the employee can deduct half the employment income benefit when the options are exercised as a “stock option deduction.” This leaves half the benefit taxable in the year that the option is exercised – similar to the way that capital gains are taxed.

If Sarah’s employer had set the option price at $12 (the fair market value of the shares at the time the option was granted) instead of $10, her 2018 employment income addition would have been $2,000 [1000 shares × ($14-$12)], but she would have been able to deduct $1,000 from her taxable income in that year as a stock option deduction.

Canadian-Controlled Private Corporation (CCPC) Employers

If the employer is a CCPC, the employment benefit is not taxable until the shares are sold, rather than when it is exercised. If the employee owns the shares for two years after the acquisition, half of the employment income addition can be deducted from taxable income as a stock option deduction. If the employee does not hold the share for two years, then they can claim the stock option deduction only if the option price is equal to, or greater than, the fair market value of the shares at the date the option was granted.

Note that although the effective tax rate for stock options that qualify for the stock option deduction is similar to that of capital gains, they are not considered capital gains (i.e., you cannot use them to offset any capital losses).

Federal Budget Changes for 2019

The original purpose for the preferential tax treatment of stock options was to assist the growth and development of small businesses (in the preliminary stages when cash flow may be limited) and compete with larger, higher-paying companies to attract and retain talent. However, the government became increasingly concerned that stock options were often used to provide preferential tax treatment on the compensation paid to employees of large, mature companies.

The Budget proposed to cap the amount of stock options for which employees of “large, long-established, mature firms” could claim the stock option deduction at $200,000 per year. These changes are not intended to affect employees of CCPCs or “start-ups and rapidly growing Canadian companies.”

The $200,000 cap is determined for shares that become vested in a calendar year (generally the first year in which they can be exercised) and is based on the fair market value of the shares at the time the options are granted. The cap will be applied separately for employers that deal at arm’s length.

Essentially, the Budget proposed that there be qualified options, which are subject to the current tax regime outlined above, as well as non-qualified options. While the employee is not entitled to the stock option deduction for non-qualified options, the employer can deduct the total option benefits recognized by the employee from the corporation’s taxable income if certain conditions are met. In such cases, non-qualified options would be treated the same as any other employment income.

At the time the options are granted, employers who are not CCPCs or “start-ups, emerging or scale-up companies” can take the options that meet the conditions to be qualified and designate them as non-qualified instead. These changes will not apply to stock options granted before 2020.

The characteristics of “start-ups, emerging or scale-up companies” will be defined by regulation following a stakeholder consultation period, which ended in mid-September 2019. Given the October election results, it is important that affected employees and employers continue to monitor and assess the potential impact of these changes.

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.

Taxes and Ethics

Tax practitioners help their employers and clients to understand and meet their tax compliance obligations, and to know what tax planning opportunities may be available to them. These opportunities can range from illegal tax evasion schemes to those that are merely taking advantage of tax incentives in the manner that the government intended. In between those two extremes is a grey area. The General Anti-Avoidance Rule (GAAR) was introduced in 1988 to address this grey area by distinguishing between legitimate tax planning and abusive tax avoidance.

Understanding where the line is between legitimate tax planning and abusive tax avoidance is critical, as the latter can be costly due to third-party civil penalties for preparers, gross negligence penalties for clients and potential reputational damage for both. Tax planning and tax compliance activities can also raise unique ethical issues for CPAs.

All CPAs are required to adhere to the CPA Code of Conduct (“Code”), called the Rules of Professional Conduct in some provinces. To understand how the Code applies to specific situations encountered by tax practitioners, it is helpful to consider each of its fundamental principles:

  • professional behaviour
  • integrity and due care
  • objectivity
  • professional competence
  • confidentiality

Professional Behaviour

CPAs must conduct themselves, at all times, in a manner that will maintain the good reputation of the profession and protect the public interest. In particular, CPAs must consider whether any tax planning opportunities with which they may be associated might bring them, and the profession, into disrepute.

Integrity and Due Care

CPAs must act honestly in all dealings with their clients, tax authorities and other parties, and do nothing knowingly or carelessly that might mislead either by commission or omission. They must also ensure that their staff have appropriate training and supervision.

The Institute of Chartered Accountants of England and Wales issued guidance in the Professional Conduct in Relation to Taxation report that “[a] member who has reason to believe that the proposed arrangements are, or may be, tax evasion must strongly advise clients not to enter into them. If a client chooses to ignore that advice, it is difficult to envisage situations where it would be appropriate for a member to continue to act other than to rectify the client’s affairs.”

In addition, practitioners who believe that they are being asked to use a statement that is clearly false or highly suspicious when preparing tax returns or other filings should consider withdrawing from the engagement, particularly if they want to ensure that they won’t be subject to third-party civil penalties. These penalties were introduced into income and excise tax legislation to apply to those who counsel others to file their returns based on false or misleading information, or to those who turn a blind eye to false information provided by their clients for tax purposes. Two penalties are possible: one for tax promoters and one for tax preparers. These penalties are not intended to apply when there are honest mistakes or when there are differences of opinion where there is bona fide uncertainty.

Objectivity

Relationships that unduly influence or bias the professional judgment of the member must be avoided. If practitioners receive a commission or other financial incentive from a third party relating to a matter upon which they are advising the client, they must ensure that the remuneration does not compromise their objectivity, and they must disclose the compensation arrangement to the client.

Professional Competence

CPAs have a duty to carry out their work with requisite skill and care. At the 2019 The One Conference, there was a joint presentation by CPA Canada and the administrator of the professions professional liability insurance programs, where they identified that almost 60% of the number of liability insurance claims from 1999 to 2019 were a result of taxation services, accounting for almost 40% of the claims paid.

The most common reason for those claims was a lack of expertise – that is, errors due to practitioners advising on technical tax matters when they did not have adequate experience or knowledge. Other common reasons included a lack of attention to detail, such as missing filing deadlines and lacking relevant documentation. CPAs should consider obtaining second opinions on significant matters and seeking assistance from suitably qualified specialists when appropriate.

For more information on how practitioners can help reduce risk in their tax-related practice, please refer to CPA Canada’s comprehensive Tax Risk Management Guide.

Confidentiality

CPAs can only disclose confidential client information without the client’s consent when there is an express legal or professional right or duty to disclose, such as complying with anti-money laundering legislation or practice inspection by their CPA body. When CPAs withdraw from engagements, they have a duty to respond promptly to communication from a successor member or firm as to whether there are any circumstances that might influence their decision to accept the engagement. In these cases, practitioners should state that there are such circumstances but that they cannot disclose them without the client’s permission. Further, CPAs cannot inform the Canada Revenue Agency due to the confidentiality requirement, but there may be a legal duty to report schemes that involve suspicious transactions or large cash transactions under anti-money lending legislation (visit www.fintrac-canafe.gc.ca/re-ed/accts-eng%20 for further details). When confidentiality is in doubt, the CPA should consider obtaining legal advice.

CPAs who accept payment to prepare more than 10 tax returns in a calendar year are required to file personal and corporate tax returns electronically, with some limited exceptions. They must file these returns as an agent for the taxpayer, and the client must review and approve the tax filings before they are submitted. It is critical that the practitioner ensure that authorization forms are completed and that there are appropriate controls over the filer’s access credentials. While there is no requirement to verify the information provided by the client, CPAs should not be associated with the presentation of facts that they know (or should have known) to be false or misleading, or to assert tax positions in the filing that they consider having no sustainable basis.

As with any ethical matter, CPAs can consult with the Member Advisory Services at their provincial body for guidance on the application of the Code.

Learn how to apply key concepts in ethics to issues you face every day in your tax practice and hear from a wide range of tax practitioners about their experiences with accounting ethics through CPA Canada’s online Ethics and Tax course.

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.

Important Federal Tax Updates

The trust income tax and benefit return filing deadline has been extended to May 1, 2020

The personal income tax filing deadline has been extended to June 1, 2020Personal income tax payment deadline has been extended to August 31, 2020

Although no changes to corporate tax filing deadlines were announced, all corporate income tax payments and corporate income tax instalment payment deadlines have been extended to August 31, 2020.  No interest or penalties will be charged on missed or late payments during this time. 

For more information on Canada’s COVID-19 Economic Response Plan, released on March 18, 2020, click here. 

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.

The High Costs of Equipment And Vehicles

The high cost of equipment demands that owner-managers have an in-depth understanding of the cost of owning and maintaining specific types of equipment, to ensure that it contributes to a positive return on investment. Factoring the significant costs of equipment ownership into a pricing formula could increase your sales figures and at the same time, help you understand where you can reduce present and future costs – and improve your bottom line.

Businesses spend a great deal of time reviewing salary and wages, both to control cost and to determine billing rates when providing estimates or billing clients.

Next to wages, vehicle and equipment ownership and operations are among the higher-expense items within a profit-and-loss statement. Yet, very few businesses monitor the cost of owning and operating vehicles or equipment. Instead, they may simply fold it into the price of doing business without analyzing it further.

Whether your business needs a front-end loader costing just south of $500,000, or a working truck in the $90k to $100k range, analyzing the cost and contributions that these assets make to the business may contribute to a more satisfying bottom line.

To better understand the benefits of job costing each piece of equipment, consider this advice:

This information in turn provides a basis for quoting jobs, as well as documentation you can use if you’re considering future equipment purchases.

  • Consider recording the cost of powering the equipment. Whether the source of power is fossil fuel or electricity, knowing the operation costs is a major consideration in an energy-expensive world.
  • Downtime of all equipment should also be recorded. Knowing how many hours equipment is out-of-commission due to mechanical failure is essential to:
  • Understand the cost of repairing the equipment.
  • Determine the lost opportunity cost because equipment cannot be used.
  • Establish whether that brand of equipment meets job requirements.
  • Compare the downtime to that of similar equipment, so you can analyze based on hard numbers which is the most reliable or usable piece of equipment.
  • Purchasing equipment usually requires financing. Interest is a cost of ownership and, as such, should
  • be recorded for each specific piece of equipment. Factoring interest costs into the operational cost of the equipment forces management to consider whether charge-out rates need to increase, or whether leasing or renting is a better alternative to the cost of ownership.
  • Consider extended warranty cost as part of the cost of operating equipment. If extended warranty is included, you as an owner-manager may wish to consider extending the useful life of the equipment to align with the extended warranty period, which will help you cost jobs or hire out equipment.
  • Finally, be sure to record revenue earned using the equipment based upon the predetermined hourly charge-out rate. Knowing whether the equipment is paying for itself helps determine whether your business should purchase additional equipment, sell the existing equipment or rent similar equipment in the future.

JOB COSTING

Establishing an asset-specific costing process is not as difficult as you might think. Most quality bookkeeping systems will have a job-costing module that already allows posting of expenses and/or revenues for reference purposes. If your software does not have this kind of module, you could also build a spreadsheet to record the cost and revenue attributed to specific assets.

The hard part is to ensure that all employees are trained to record the additional required information. For instance, when an in-house mechanic repairs a specific piece of equipment, the time spent on the repair should be documented to allow posting to the job cost for that equipment.

Bookkeepers must also be able to identify the invoice associated with the cost of parts for that specific equipment repair, for their job-cost posting. Each business will need to adapt its procedures to accommodate its software.

Naturally, all the recordkeeping in the world will not benefit the bottom line if management does not review, on a regular basis, the results of their decision to rent or lease an asset.

Reviewing this data allows management to:

  • Determine whether usage of equipment dictates that the business will need a replacement earlier than suggested.
  • Consider whether the asset is bringing an advantage to the business.
  • Compare similar equipment to determine which brand is less costly to maintain in future.
  • Determine whether your employees have a possible bias towards a specific piece of equipment that may sway future purchase decisions.

Using a fact-filled approach will help you arrive at decisions about acquiring future equipment to be purchased and related cash-flow requirements. It will also help your business take action to ensure that financial data, corporate records, and lines of credit are up-to-date, so you’ll be able to secure financing for any future replacement assets.

Learn more about how to read and understand financial statements in How to Read Financial Statements: A Guide for Business Owners.

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.

Bartering, Taxation, And The Internet

The normal procedure for business transactions follows the tried-and-true method of selling a product or service and recording the income. The income earned is taxable as earned income. Rather than use the traditional approach, many individuals and businesses may decide to barter their products or services.

Did you know that good business practice would suggest that you treat all barter and internet transactions as you would normal business transactions?

If you ever face a CRA audit, it will help spare your corporation, proprietorship or partnership the inconvenience of a long, laborious tax audit and potential penalties and interest – or even being convicted for tax evasion.

Bartering occurs when individuals conduct a transaction for goods or services without using a recognized medium of exchange such as money. Undoubtedly, most sellers who involve themselves in barter transactions are unaware that they are required to report the value of the transaction. And, there may be some who use bartering to circumvent corporate or individual income tax and GST/PST.

When bartering transactions occur in the normal course of business, there are effectively two transactions that must be considered:

  • The first transaction is the value of the service or product that is provided to the customer.
    • For example: if your business sells bricks, the value of those bricks should be included in the seller’s business income. Further, the HST/GST and PST (if applicable) must be added to the value assigned to those bricks, then it should be reported and submitted.

Note that this assumes that the individual providing the product or service has already reached or surpassed the small supplier threshold of $30,000 with sufficient “conditions.” You can review these requirements on the CRA website.

  • The second transaction to record is the assigned cost to the goods or services received in exchange for the product you have provided.
    • Assuming that the person or business with whom you are bartering is an HST/GST registrant, it may be possible to record and claim the Input Tax Credit (ITC). If that provider does not provide their GST number, you will have to record the assigned cost as an expense and cannot claim the ITC.

There may be situations when the barter transaction may be considered the sale of capital property. In this case, the transaction may give rise to a capital gain. Your CPA will be able to provide guidance on these transactions.

INTERNET SALES

Bartering has been around since before the advent of currency, but the ability to barter has been enhanced and overshadowed with the advent of the internet, providing access to millions of opportunities to not only barter but also to sell goods or services.

For those who have used the internet to conduct what may be construed as business transactions – whether innocently or intentionally – the CRA believes that there are enough transactions not being reported that are negatively affecting its treasury.

Consider that the CRA court-ordered eBay Canada to release the following account information and sales data of Canadian residents who conducted transactions on its online selling site:

  • sales of more than $20,000 and at least 24 sales transactions in any of the calendar years 2006, 2007 or 2008, (irrespective of membership in eBay’s PowerSeller program), or
  • sales of more than $100,000 in any of the calendar years 2006, 2007 or 2008, regardless of the number of sales transactions..

Given this court order, any Canadian-resident eBay seller who meets these sales thresholds will have the following information released to CRA: full name, user ID, mailing address, billing address, telephone number, fax number, email address, and the selling prices (high bids) of the items

If your transactions meet the above criteria, a wise business decision would include contacting your local CPA and determining the need for voluntary disclosure to prevent penalties and interest, should the CRA carry out an audit.

The following information is required for voluntary disclosure:

  • name, social insurance number (SIN) and date of birth of each member of the family
  • if a business, the names of the principals of the partnership or the shareholders of the corporation,
  • along with their SIN.
  • the last personal tax returns that were filed for the individual and family members
  • the date that the eBay business started
  • if the business is a sole proprietorship, partnership or corporation: the business number
  • for a corporation, the articles of incorporation and the provincial corporate tax number
  • Financial statements, whether for incorporated companies or for sole proprietorships or partnerships, should be available to establish whether eBay income was reported when filing returns.
  • Tax returns should be available to support the financial data that indicates whether eBay income was reported.
  • For corporations or sole proprietors that are registered for GST/HST, all returns filed with the CRA from the date eBay transactions began should be made available. (If the taxpayer exceeded the threshold for registering, the CRA may retroactively register the corporation or individual.)
  • bank accounts showing all transactions through platforms such as PayPal
  • Sales income and expenses that may offset recorded income and therefore affect HST/GST/ITC should be made available. Expenses that may be allowable are those that are necessary to earn income. (It is advisable to review your expenses with your CPA.)

The court order issued to eBay defined the time frame for the information that the CRA was seeking to audit. Canadian taxpayers should not conclude that they have avoided an audit because they have not received
a notice of audit.

If your eBay account meets the criteria discussed above, contact your CPA and discuss the possibility of submitting information to the CRA under the Voluntary Disclosures Program (VDP).

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.