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2010 3rd Quarter, Issue No. 91
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Personal Tax Employment Income Business/Property Income Owner-Manager Remuneration Estate Planning Web Tips GST/HST International Did You Know... |
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CAREGIVER CREDIT
The Income Tax Act (ITA) provides a caregiver federal tax credit of up to $633 for 2010 ($4,223 x 15%) plus a provincial tax credit for individuals residing with and providing in-home care to a parent or grandparent (including in-laws) 65 or over or an infirm dependent relative. The federal credit is reduced by 15 cents for each dollar of the dependant’s net income over $14,422 in 2010.
MEDICAL EXPENSE - WEIGHT LOSS PROGRAM
In a Technical Interpretation, CRA notes that fees charged for a weight loss program qualify as medical expenses if the services are diagnostic, therapeutic, or rehabilitative and are provided by medical practitioners.
A “medical practitioner” is a person who is authorized by a province or other jurisdiction to act as a “medical practitioner”.
MEDICAL EXPENSES - COSMETIC PROCEDURES
The 2010 Federal Budget notes that purely cosmetic procedures are no longer eligible to be claimed as medical expense tax credits. This generally includes surgical and non-surgical procedures purely aimed at enhancing one’s appearance such as liposuction, hair replacement procedures, botulinum toxin injections, and teeth whitening.
MEDICAL EXPENSES - TRAVEL - AEROPLAN FREQUENT FLYER POINTS
In a Tax Court of Canada case, the taxpayer “purchased” an airline ticket from Thunder Bay to Chicago to obtain medical treatment by redeeming Frequent Flyer Points. In addition, the Appellant paid taxes of $220 on the ticket.
The value of the Frequent Flyer Points plus the $220 was allowed as a medical expense.
UNIVERSITY OUTSIDE CANADA
The ITA also provides a tuition credit where the individual is a student in full-time attendance at a university outside Canada in a course leading to a degree.
CHILD CARE EXPENSE (CCE) - PAYMENT TO YOUR SISTER
In a Technical Interpretation, CRA notes that where a taxpayer pays his sister (age 18 or over) to take care of his child while he is working, the amounts paid will likely be CCEs on the basis that they are only prohibited with respect to payments to the child’s father or mother, a supporting person of the child, or a person who is under eighteen years of age and related to the taxpayer, or a person in respect of whom the taxpayer or supporting person has deducted a tax credit.
EMPLOYEE BIRTHDAY GIFTS
In a Technical Interpretation, CRA notes that gifts to employees from employers of up to $500 are tax-free as long as they have not been given to non-arm’s length employees and are not performance-related awards (e.g. sales targets) or cash and near-cash awards.
Birthday gifts of up to $500 would qualify for the non-taxable amount.
If the value of the gift is over $500 then the excess would be taxable.
SPORT FACILITY PAID BY THE EMPLOYER
In a Technical Interpretation, CRA notes that a benefit related to the payment or reimbursement of sports facility dues by an employer, must be included in the employee’s income if the employee, not the employer, is the primary beneficiary.
Editor’s Comment
Membership in a facility, which is mainly for client promotion, may be considered as primarily to the advantage of the employer and may not be a taxable benefit.
HOME PURCHASE LOAN
An employee may borrow funds from an employer to acquire a home, or to repay a loan or debt (refinance) that was received to acquire a home. There will be no taxable benefit as long as the interest charged by the employer is equal to the prescribed interest rate at the time the loan is taken out by the employee (currently 1% until at least September 30, 2010).
PRIVATE HEALTH SERVICES PLAN (PHSP)
In a Technical Interpretation, CRA notes that an employer may deduct its contributions to a PHSP and the benefits received by employees will not be included in income.
A PHSP is a contract of insurance for expenses that would normally qualify as medical expenses. A Cost-Plus Plan can be considered a PHSP if it contains the basic elements mentioned above.
EMPLOYMENT INSURANCE BENEFITS FOR SELF-EMPLOYED PEOPLE
Self-employed persons will be able to enter into an agreement with Service Canada to access four types of special Employment Insurance (EI) benefits:
• maternity benefits;
• parental benefits;
• sickness benefits; and
• compassionate care benefits.
To enter into an agreement with Service Canada, you may register online using My Service Canada Account. If you enter into an agreement after April 1, 2010, you will have to wait twelve months before you will be able to make a claim for EI special benefits.
Self-employed persons also include persons that own more than 40% of the voting shares of a corporation and are, therefore, otherwise, exempt from participating in the Employment Insurance Program.
Self-employed persons just pay the employee portion of EI premiums.
EMPLOYEE PROFIT SHARING PLAN (EPSP)
In an Employment Insurance (EI)/Canada Pension Plan (CPP) case, the Court found that payments made through an EPSP for the owner-manager were not subject to EI or CPP.
PERSONAL LIABILITY
In a CRA Release, CRA warned that businesses are required to hold source deductions and GST/HST amounts in trust for the Government.
CRA can collect these unremitted amounts through garnishments, assessment of the directors, seizure and sale of assets, and any other means of recovery allowed under Federal Legislation.
CRA notes that taxpayers that have not complied may make a Voluntary Disclosure and will not be penalized or prosecuted if they make valid disclosures before they become aware of any CRA compliance action against them. Taxpayers may only have to pay the taxes owing, plus interest.
DIRECTOR LIABILITY - DE FACTO DIRECTOR
In Tax Court of Canada case, CRA assessed the taxpayer for the corporation’s unpaid GST of $14,455 because she was listed as a director in the records of the company.
The taxpayer noted that she was never elected as a director and this was all a mistake. However, CRA said that, in any event, she was still a de facto director because she was acting as a director.
Taxpayer Wins!
The Court found that the taxpayer was not elected as a director of the corporation and did not act as a de facto director.
DIRECTOR LIABILITY - DUE CARE AND DILIGENCE
In a Tax Court of Canada case, Antonio, the father of Tony, was assessed personal liability for unpaid source deductions, interest and penalties of over $651,000 and unpaid GST of over $191,000.
Taxpayer Wins!
The Court noted that Tony, the son, was the one who controlled the company and intimidated his father Antonio with respect to the directorship role. The Court concluded that Antonio, with his limited commercial experience, reasonably trusted, and relied on, his son. Therefore, Antonio was held not to be liable on the basis that he exercised the required due care and diligence.
DIRECTOR LIABILITY
In an Ontario Superior Court of Justice case, Mr. Adams took action for indemnity against various Defendants for $217,243 he was required to pay to CRA as a director for unpaid GST and source deductions on behalf of the corporation.
Mr. Adams alleged that the Defendants were officers and directors of the corporation and that they failed to ensure the corporation made the proper remittances to CRA.
Mr. Adams Loses
The Court found that the Defendants were not directors at the time the debts arose and, even if they had been, the Court noted that they exercised due diligence under the Act and would not be liable in any event.
-PROFIT ORGANIZATION (NPO) - FILING REQUIREMENTS
In a Technical Interpretation, CRA notes that NPOs may be corporations with share capital, corporations without share capital, or unincorporated entities. The filing requirements for these associations are similar to taxable organizations.
TRANSFER OF CAPITAL LOSSES BETWEEN SPOUSES
In a Technical Interpretation, CRA confirmed that it still accepts the transfer of latent capital losses between spouses.
HOME BUYERS PLAN (HBP)
In a Technical Interpretation, CRA notes that up to $25,000 may be withdrawn from an individual’s RRSP to buy or build a qualifying house (first-time buyer - a four-year test).
CRA also notes that if an individual buys a qualifying house with his/her spouse, they can each withdraw up to $25,000 from their RRSPs for a combined amount of up to $50,000.
Under the HBP, the individual has to repay all withdrawals to his/her RRSP within fifteen years.
RRSP/RESP/RRIF - QUALIFIED INVESTMENTS
In a Technical Interpretation, CRA notes that shares of small business corporations may be qualified investments provided that certain conditions are met including, immediately after the acquisition of the share, each person who is an annuitant, a beneficiary or a subscriber is not a connected shareholder (a 10% test).
CHARITIES CONNECTION
Charities Connection is a new CRA electronic publication that gives charities timely information on technical issues, new guidance and policy changes, Charities Directorate initiatives, and reminders.
For example, Charities Connection No. 2 provides information to charities on the payroll process, determining the employment status of charity workers, what is included in employees’ income, withholdings, remittances, and reporting.
For more information Google “charities connection”.
FAMILY TRUSTS
Recently CRA have been auditing Family Trusts.
A Family Trust may be used to provide control of the assets to the Trustees rather than the beneficiaries, reduce probate fees by getting the assets out of the Estate, preventing the assets from being part of the public record in a death, and providing income splitting with family members. However, Family Trusts must be properly established and operated, hence the CRA audits.
TAX-FREE SAVINGS ACCOUNTS (TFSA) - OVER-CONTRIBUTIONS
Taxpayers must be careful not to inadvertently subject themselves to TFSA penalties. For example, if a taxpayer put $5,000 into Bank 1 in January, 2009 and withdrew that amount and then put $5,000 into Bank 2 in February, 2009, the penalty is 1% per month ($50 per month or $600) because the taxpayer had excess contributions of $5,000 for the twelve months. This is because the withdrawal does not get credited until the following year. If it is considered deliberate, there is an additional penalty of 100% of any income or gains resulting from the deliberate over-contribution.
CRA TFSA PENALTY RELIEF
CRA announced that they will consider waiving the tax on excess TFSA contributions if the taxpayer genuinely misunderstood the operation of the rules.
CRA sent out over 70,000 letters to persons who have technically had over-contributions in 2009.
If a taxpayer receives a Notice of Assessment, they may object or request a waiver of the taxes on excess contributions under Taxpayer Relief.
FLIGHT TRACKING
www.flightaware.com
If you fly often, or find yourself frequently at the airport dropping off or picking up loved ones, check this site out.
This site has a tool that allows you to track almost any commercial flight in North America. At any point in the flight you can see exactly where the airplane is using one of the three modes (classic, earth view, aviation sectional). Other useful aspects include the ability to see revised estimated times of arrival, the weather on the flight path, and general delays that specific airports are facing.
If you don’t know the exact flight number, that isn’t a problem. Available is a tool that allows you to find flights based on departure/arrival locations and other pertinent details.
LONG DISTANCE CALLING FROM CELL PHONES – SKYPE TO GO
This service is useful for all cell phone users but particularly those that don’t have data plans (or not very robust ones). Basically, you
1) create a Skype account (free),
2) you then follow the steps to select/set up a phone number (this is now your Skype to Go number), and
3) you buy credit or select a usage plan.
From this point you just dial your Skype to Go number from your cell phone whenever you want to make a long distance call. You will then be greeted with a message asking whether you want to enter the long distance number or select from your contact list. You make your selection and then are instantaneously connected. At the end of the day you only pay your normal local cell phone rate plus a very minimal long distance charge/connection fee (usually less than 6 cents/per minute).
Tip – You can also use the Skype to Go number from land lines and other cellulars. In essence you could set up a family long distance plan that could be accessed from all of your cell phones (if in the same area code).
LONG DISTANCE CALLING FROM SMART PHONES (IPHONE, BLACKBERRY, ETC.)
There are applications available, usually for free, for all of these types of phones such as “Skype” and “iCall”.
To find the one that works best for you, consider researching online by viewing application ratings at sites such as:
iphoneappreviews.net or
iPhoneapppodcast.com
To get this service: Go to Skype.com. Click “on your mobile”, and then select “Set up your number now” under the “Skype to Go” heading.
HOW TO CHOOSE YOUR NEXT SMART PHONE
http://tryphone.com/home.seam
This website offers the user the ability to get a close up view of the newest smart phones on the market. Upon selecting the type of phone that you are interested in, you are presented with an expanded view of the phone with the principal screen showing. From there you can interactively click on the phone’s screen (on any of the applications or other buttons) so as to actually review the phone’s interface and capabilities. In addition to interactive phone, reviews, specifications, and demos are available.
CREDIT CARD EXPENSES REIMBURSED
CRA introduced a Guide which notes that where expenses are reimbursed by an employer, the employer may claim an Input Tax Credit (ITC) for the GST/HST. CRA allows a Registrant who is an employer, partnership, charity or public institution to use factors to calculate ITCs in respect of the GST/HST deemed paid by the Registrant on purchases made by the Registrant’s employees, partnership members, or volunteers where credit cards have been used to make purchases.
The use of factors is to simplify the administrative burden Registrants have because credit card receipts are often a one-sum total and include gratuities, PST, etc. This is an administrative policy of the CRA and is not legislated. The choice of the factor method is an option for a Registrant. Some Registrants may prefer to use the exact calculation method.
INPUT TAX CREDITS (ITCs)
In a Tax Court of Canada case, the taxpayer filed a GST Return on August 28, 2007 and claimed Input Tax Credits of $8,129 which were related to expenses that were incurred prior to January 1, 2003.
CRA successfully disallowed the ITCs on the basis that they were not claimed within the four-year time limit.
MOVING TO THE UNITED STATES
Canadians that become non-residents (including moving to the United States) are deemed to dispose of certain assets such as marketable securities, private company investments, or real property. (Departure Tax)
This deemed disposition can create double tax when an individual moves to the U.S. and then disposes of such assets in an actual transaction, because the cost basis of the assets under the U.S. rules is based on the original, historical cost.
However, an election related to the deemed disposition reduces the incidence of double taxation.
WITHHOLDING TAX
In a Technical Interpretation, CRA notes that the requirement to withhold or deduct tax applies to payments for services rendered, or to be rendered, in Canada by a non-resident person. The Regulation includes payments to a non-resident person of a fee, commission or other amount in respect of services rendered in Canada, of any nature whatever.
TRANSFER PRICING
CRA is auditing and assessing more cross-border transactions between related parties. Caution is needed in this area.
U.S. CITIZENS AND RESIDENTS
There is a significant compliance burden to U.S. citizens and residents if they own Canadian (or other non-U.S.) mutual funds.CORPORATION FILINGS
Corporations with gross revenues over $1 million must file their Federal Income Tax Return electronically for all taxation years ending after 2009 - unless they are specifically exempt. However, the penalty only applies for taxation years ending after 2010.
NATURAL PERSON - LOSES AGAIN
In a Federal Court case the Plaintiff’s claim that he was not subject to income tax because he was a “natural person” was dismissed. The Court noted that this argument has been analyzed and dismissed in many other Canadian court cases.
The Plaintiff’s efforts to use the Court to advance this untenable theory were “forlorn and doomed” from the outset.
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.se.
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