Presented to you by Frank C.
Weyer C.M.A. at
http://www.reach.net/~fweyer/
290 Dundas Street West, Suite 1, Trenton, Ontario, K8V 351
Telephone (613) 392-2953, Fax (613) 392-2375
42(1)
On February 24, 1998, a balanced Budget for 1997-1998 was tabled with a similar commitment for the next two years. This also allows for a $3 billion per year contingency reserve that could be used to pay down the $583 billion public debt.
Some provisions include:
Proposes a supplement of $500 to the personal, spousal, and equivalent-to-spouse credits for low/middle income tax filers - effective July 1, 1998. This is reduced by 4% of income in excess of $6,956.
Proposes to eliminate/reduce the 3% general surtax for individuals with incomes up to $65,000. For 1998, individuals will receive half the value of the 1999 surtax reduction.
Commencing in 1998, the maximum child care expense deduction will be:
- $7,000 (up from $5,000) for disabled children or children under age 7 at the end of the year; and
- $4,000 (up from $3,000) for other eligible children.
Replaces the existing Child Tax Benefit and Working Income Supplement (WIS) with, the Canada Child Tax Benefit (CCTB). Effective in July 1998, the CCTB will provide benefits of $1,625 for the first child and $1,425 for each additional child for families with net income up to $20,921.
Commencing in 1998, the Budget proposes to reduce federal tax by up to $400 for individuals residing with, and providing in-home care for, a parent or grandparent (including in-laws) 65 years of age or over, or an infirm dependent relative. The credit will be reduced by the dependant's net income in excess of $11,500.
Also, the caregiver may claim their training costs as a medical expense credit.
A disabled individual may participate in the Home Buyer's Plan even if the individual has previously owned a home. This applies to RRSP withdrawals after 1998.
Effective January 1, 1998, the Budget proposes to increase the $500 exemption for volunteer firefighters, and other emergency service volunteers, to $1,000. The $1,000 exemption will be reduced by related compensation in excess of $3,000.
Proposes to lengthen from 5 to 10 years, the period during which cultural property must be retained by designated institutions on dispositions after February 23,1998.
Proposes to allow as Scientific Research (SR&ED), both materials that have been consumed, as well as materials that will be transformed into another product unless the project is sold or converted to commercial use.
42(2)
Revenue Canada undertook over 13,000 underground economy audits and reassessed over $165 million in unreported taxes. This includes everything from attending at general contractors to review lists of sub-contractors to monitoring and following up on vehicles entering construction sites. Additional sources of information include building permits, municipal and provincial licensing, and material suppliers.
A revised GST New Housing Rebate Form was introduced in 1997 which requires owner-builders to report information on who did the work and how much was paid.
A voluntary construction contract reporting system introduced in the 1995 Budget will become mandatory for payments made after 1998.
Subject to further consultation, it is intended that:
Effective January 1, 1998, Federal Government Departments and Agencies will report to Revenue Canada service contract payments over $500 made to businesses (individuals, small business, corporations, partnerships, etc.). T4A information slips will be issued annually.
Crown corporations will begin to report such contract payments effective January 1, 1999.
Some provincial governments have already taken similar initiatives and discussions are under way with others.
42(3)
Students are winners again in the 1998 Federal Budget.
Commencing in 1998, the Budget proposes to allow a non-refundable 17% federal credit on the interest portion of new and outstanding loans approved under the Canada Student Loans program and provincial student loan programs.
Unused credits may be carried forward five years.
Proposes to allow a $10,000 tax-free withdrawal (to a maximum of $20,000 over four years) from an RRSP (other than a locked-in RRSP) to finance fulltime education for themselves or their spouses.
Withdrawals are repayable without interest, in equal installments over 10 years commencing no later than the fifth year after the first withdrawal.
RRSP withdrawals may be made under the plan after 1998.
Proposes to allow part-time students a $60 per month education credit and the child care expense deduction for 1998 and subsequent years.
An eligible education program must last at least three consecutive weeks and involve a minimum of 12 hours of courses each month.
The child care expense deduction is permitted even for attendance at a secondary school
This Foundation will be a private, independent institution that will provide over 100,000 scholarships to low- and middle-income students each year over the next decade commencing in the year 2000. The scholarships will average $3,000 each per year and will be awarded to Canadians of all ages, part-time as well as fulltime students. Those attending publicly funded institutions will be eligible to apply.
To encourage employers to hire Canadians between the ages of 18 and 24, employers will be given an employment insurance (El) premium holiday in the years 1999 and 2000.
This Budget doubles the resources devoted to Youth Service Canada to assist those, particularly between ages 20 and 24, who have not completed high school. Wage subsidies of up to $10,000 will be provided.
See the next section
42(4)
RESPs provide a trust vehicle for individuals to provide for post-secondary education of beneficiaries. In practice, most contributors are parents saving for their children's education. Contributions to RESPs are not tax deductible and normally return to the contributor on a tax-free basis. However, the income generated by the contributions is tax sheltered until paid out to named beneficiaries, when it is included in beneficiaries' incomes. Since beneficiary students typically have little other income, they pay little or no tax on these "educational assistance payments", out of a RESP.
There is a lifetime limit of $42,000 and an annual limit of $4,000 on contributions in respect of a beneficiary. An RESP must be terminated within twenty-five years.
The Budget proposes a 20% CESG on RESP contributions made after 1997 for beneficiaries up to and including age 17. The CESG does not affect the contribution limits. Together with the accumulating investment income, the CESG will be available to be paid to a student as part of educational assistance payments (EAP) made out of the RESP. If the beneficiary does not pursue higher education, the CESG (but not the interest earned thereon) must be repaid to the government.
Beginning January 1, 1998, each child under age 18 will accumulate CESG contribution room of $2,000 per year. The CESG will be payable on contributions made in the year to the extent that the contributions in respect of the child do not exceed the lesser of $4,000 and the unused CESG contribution room available in the year. Unused CESG contribution room will be carried forward for use in future years,
There will be a lifetime limit of $7,200 (20% x $2,000 x 18 years) on the amount of CESG money that a student can receive out of RESPS.
When administrative arrangements are complete, CESGs will be paid on all eligible contributions made since January 1, 1998.
A contributor may set up a "family plan" in which each of the beneficiaries is related to the subscriber. This provides additional flexibility for the contributor because EAPs need not be limited to the proportion of each child's "share" of the contributions. This allows a contributor who has named his or her three children as beneficiaries, for example, to direct the entire income to the two children pursuing education if the third child is not eligible.
42(5)
The Budget also proposes that reimbursements of higher mortgage interest payments be taxable.
These provisions apply to moves after September 1998, in respect of payments made after February 23, 1998. For moves before October 1998, these provisions will commence in the year 2001.
42(6)
The Budge proposes that individuals carrying on a business may deduct amounts paid for Private Health Service Plan coverage from business income provided they are actively engaged alone, or as a partner, in their business. Also, either self-employment must be their primary source of income, or their income from other sources must not exceed $10,000.
In addition:
These changes will be effective for fiscal periods commencing after 1997.
42(7)
Revenue Canada has been disallowing a deduction for 50% of the meal portion of Per Diem allowances for example, to a crew on a construction project.
In a Tax Court of Canada case, the Court found that this does not apply to Per Diems paid to all employees at the work site. In this case, the employees were paid $35 per calendar day for food and beverages (Per Diems) for out-of-town jobs.
The Canadian Construction Association (CCA) has been discussing this issue with Revenue Canada pending Revenue Canada's appeal of this decision.
The 1998 Federal Budget brings both good news and bad news.
The Budget proposes that the exception to the add-back rule for meals provided at a remote work site be expanded to include work sites which are at least 30 kilometers from the nearest urban area of at least 40,000 people if the employee is not expected to return daily to his/her principal residence.
The Budget proposes that the full deductibility of meals and entertainment provided by employers for all employees at a particular location be restricted to occasional events not exceeding six in any calendar year and, not regularly provided meals or allowances.
These measures will apply to expenses incurred after February 23, 1998.
42(8)
Supreme Court of Canada decisions, Canderel and Toronto College Park, February 12, 1999, held for the immediate deduction of TIPS in accordance with accepted business principles. The TIPS were considered "running expenses" not subject to the matching principle.
The Court determined that the immediate deduction provided an accurate picture of profit. Revenue Canada could not prove that amortizing the TIPS over the period of the lease resulted in a more accurate picture.
On the recipient's side, the Supreme Court found in IKEA vs. H.M.Q., that IKEA must include the TIPS in income when received and, not amortize it over the period of the lease. This is based on the "realization principle". Amounts that are received free of conditions or restrictions are taxable in the year received, subject to any contrary provisions of the Income Tax Act.
In a Technical Interpretation, Revenue Canada note that where a purchaser was required to deposit the full purchase price, less 10%, with the vendor, subject to installation, adjustments and final approval, the deposits were only contingently received and therefore do not have to be included in income by the vendor until the purchase is approved by the purchaser.
42(9)
In a Tax Court Case, salaries paid to children aged 7 and 9 for $6,500 each were disallowed as an expense to the parents' corporation and, added to income by the parents - resulting in double taxation. The Court noted that:
The fact that they, as co-operative children, want to help their parents in the family enterprise does not make them commercial factors.
42(10)
- CPP - Child Rearing Drop Out
Persons receiving Canada Pension Plan payments may receive in creased amounts if they were entitled to, but did not apply for, the "child-rearing dropout". This applies, for example to a lady who had children in years when CPP contributions were not made.
- Request For Reduction
Individuals may request Revenue Canada to grant their employer permission to lower the payroll source deductions for reasons such as significant RRSP contributions, tax deductible alimony or child support payments, major charitable contributions, refundable alternative minimum tax, etc. The request must be in waiting and include the name and address of the employer. If approved, the employer will receive a letter from Revenue Canada. It could take four or five weeks to process the requests. Revenue Canada receives between 70,000 and 80,000 requests a year and the majority are granted. To qualify, the taxpayer must have filed all previous years' tax returns and have no balance owing. The waiver request must be made each year.
- Records
Revenue Canada auditors may examine all "records" of a taxpayer. A ‘record’ includes an account, an agreement a book, a chart or table, a diagram, a form, an image, an invoice, a letter, a map, a memorandum, a plan, a return, a statement, a telegram, a voucher, and any other thing containing information, whether in writing or in any other form. As taxpayers are required to provide all records, upon request to Revenue Canada, it is important to note that a "record" has a very, very broad definition under the Income Tax Act.
The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a commentary such as this, a further review should be done. Every effort has been made to ensure the accuracy of the information contained in this commentary. However, because of the nature of the subject, no person or firm involved in the distribution or preparation of this commentary accepts any liability for its contents or use.