Canada Revenue Agency

UPDATE TO TRUSTS REPORTING REQUIREMENTS – On March 28, 2024, the Canada Revenue Agency (CRA) announced that bare trusts would be exempt from the T3 filing obligations for the 2023 tax year, unless the CRA makes a direct request

 

New rules aimed at providing more transparency on beneficial ownership of assets now require that more trusts (and estates) file tax returns. These changes will catch many individuals and businesses that may not be aware of their trust-like relationships, exposing them to potential penalties and other consequences for non-compliance. The rules become effective in 2023, with a filing deadline of April 2, 2024.

Unexpected exposure – bare trust arrangements 

The rules have been expanded to include cases where a trust acts as an agent for its beneficiaries, commonly known as a bare trust. In such instances, the person/entity listed as the owner of an asset is not the true beneficial owner; instead, they hold the asset on behalf of another party.

STEP 1: Does a bare trust arrangement exist?

To determine if a bare trust arrangement exists, the following question should be asked:

  • Is the person on title or holding the asset the true beneficial owner? For example, do they get the benefits of the asset (such as sale proceeds) and bear the costs or risks of the asset (such as property taxes)?

There is likely a bare trust arrangement if there is a mismatch between legal and beneficial ownership, often requiring a trust return.

There are several reasons why an individual, business or organization may use a bare trust arrangement. Many parties involved in a bare trust arrangement may not realize that they are, much less that there may be a filing requirement with CRA. No lawyer may have ever been involved, and no written agreement may have ever been drafted. 

While there are countless possibilities of bare trust arrangements, the following lists some common potential examples

Individual Reasons 

  • a parent is on title of a child’s home (without the parent having beneficial ownership) to assist the child in obtaining a mortgage;
  • a parent or grandparent holds an investment or bank account in trust for a child or grandchild;
  • one spouse is on title of a house or asset although the other spouse is at least a partial beneficial owner;
  • a child is on parent’s financial accounts (or other assets) to assist with administration after the parent’s passing;

Estate Planning Reasons 

  • a child is on title of a parent’s home (without the child having beneficial ownership) for probate or estate planning purposes only;

Business Administration Reasons 

  • a corporate bank account is opened by the shareholders with the corporation being the beneficial owner of the funds;
  • corporation is on title of an individual’s real estate, vehicle or other asset, and vice-versa;
  • assets registered to one corporation but beneficially owned by a related corporation 
  • use of a nominee corporation for real estate development purposes;
  • partner of a partnership holding a bank account or asset for the benefit of all the other partners of a partnership;
  • joint venture arrangement where the operator holds legal title to development property as an agent for the benefit of other participants;
  • cost-sharing arrangement where a person holds a business bank account, or other assets, to facilitate the arrangement while having no, or only partial, beneficial interest in these shared assets;
  • a lawyer’s specific trust account (while a lawyer’s general trust account is largely carved out of the filing requirements, a specific trust account is not).

Industry-specific Issues 

  • property management company holding operational bank accounts in trust for their clients, or individuals managing properties for other corporations holding bank accounts for those other corporations; and

CRA has not commented on several of the examples; it is uncertain how they will interpret and enforce the law.

STEP 2: Does a trust return need to be filed?

After determining that a bare trust arrangement exists, it is important to determine whether an exception from filing a trust return is available.

Some of the more common exceptions include the following:

  • trusts in existence for less than three months  at the end of the year;
  • trusts holding only assets within a prescribed listing that is very restrictive (such items in the listing include cash and publicly listed shares) with a total fair market value that does not exceed $50,000 at any time in the year;
  • trusts required by law or under rules of professional conduct to hold funds related to the activity regulated  thereunder, excluding any trust that is maintained as a separate trust for a particular client (this applies to a lawyer’s general trust account, but not specific client accounts); and
  • registered charities and non-profit clubs, societies or associations.

A trust return must be filed if one of the exceptions are not met. Even where one of the new exceptions is met, a trust would still have to file a return if they had to file under the prior rules, such as the trust having taxes payable or having disposed of capital property.

STEP 3: What information must be disclosed?

Where a trust is required to file a tax return, the identity of all the trustees (who is on title or holds the asset), beneficiaries (who really owns the asset), settlors (who owned the asset originally) and anyone with the ability to exert influence over trustee decisions regarding the income or capital of the trust must be disclosed.

Such required information includes:

  • name;
  • address;
  • date of birth (if applicable);
  • country of residence; and
  • tax identification number (e.g. social insurance number, business number, trust number).

Obtaining this information proactively is especially helpful, particularly if those involved are no longer in close contact.

Traditional trusts

Under the previous rules, a trust was required to file a trust return if one of several conditions were met, such as the trust having taxes payable or disposing of capital property. Many trusts did not meet a condition and, therefore, were not required to file a trust return previously. For example, many trusts owning shares of a private corporation were historically not required to file in years when there were no share sales or dividends received. However, trusts that were exempted from filing under the old rules are now required to file unless one of a new set of narrow exceptions is also met. See some of the more common exceptions in STEP 2 above.

Under the new rules, some of the more common trusts that may require disclosure include the following: trust owning shares of a private corporation, trust owning a family cottagespousal or common-law partner trustalter-ego trust and testamentary trust.

Failing to File… So what?

Failure to make the required filings and disclosures on time attracts penalties of $25/day, to a maximum of $2,500, as well as further penalties on any unpaid taxes. New gross negligence penalties may also apply, being the greater of $2,500 and 5% of the highest total fair market value of the trust’s property at any time in the year. These will apply to any person or partnership subject to the new regime.

CRA has recently indicated that, for bare trusts only, the late filing penalty would be waived for the 2023 tax year in situations where the filing is made after the due date of April 2, 2024. However, CRA noted that this does not extend to the penalty applicable where the failure to file is made knowingly or due to gross negligence. As there is limited guidance as to who would qualify, it is recommended that disclosures should be made in a timely manner.

In addition to penalties, failing to properly file trust returns may result in negative tax (such as possibly losing access to the principal residence exemption) and non-tax (such as inadvertently exposing assets to creditors inappropriately) consequences.
At Richardson Miller LLP, we can help you assess the effect of the new trust reporting requirements on your trust.

For more details on your obligations under these rules, contact us www.rmllp.ca or call (780) 805-3335.

Starting a small business in Canada requires careful planning and attention to various legal requirements. One important step in this process is registering for a Business Number with the Canada Revenue Agency (CRA). In addition, depending on the nature of your business, you may also need to register for the Goods and Services Tax (GST) or the Harmonized Sales Tax (HST). Richardson Miller will explore how to register for GST/HST in Canada for your small business, the benefits of registration, and the potential penalties for not registering.

Why do I need to register for a Business Number?

A Business Number is a unique identifier that the CRA assigns to each registered business in Canada. It is used for various tax purposes, including filing returns, reporting income, and claiming input tax credits (ITCs). Registering for a Business Number is required if you are operating a business in Canada, regardless of whether you are a sole proprietor, a partnership, or a corporation.

What is a Business Number and why is it important?

A Business Number is a nine-digit number that identifies your business for tax purposes. It ensures accurate tracking and reporting of your business activities to the CRA. With a Business Number, the CRA can match your business information with your tax returns and easily communicate with you regarding any tax-related matters.

What are the benefits of having a Business Number?

Having a Business Number offers several benefits for your small business. It allows you to claim input tax credits (ITCs) for the GST/HST you pay on business expenses. ITCs are credits that can be deducted from the amount of tax you owe, reducing your overall tax liability. A Business Number enables you to file your taxes accurately and on time, avoiding potential penalties for late or incorrect filing. Lastly, it enhances your professional credibility and establishes your business as a legitimate entity in the eyes of customers, suppliers, and financial institutions.

How do I obtain a Business Number?

To obtain a Business Number, you can register online through the Business Registration Online (BRO) portal on the CRA website. Before you begin the registration process, make sure you have all the necessary information, including your social insurance number (SIN), business name, business address, type of business, and fiscal year-end. Once you submit your registration, the CRA will review your application and assign you a Business Number.

Do I need to register for GST/HST?

If your business is engaged in the supply of taxable goods or services in Canada and meets certain revenue thresholds, you are required to register for GST/HST. Both GST and HST are consumption taxes that are levied on most goods and services in Canada. The main difference between the two is that GST is applicable in provinces and territories that do not have a harmonized sales tax, whereas HST combines the federal GST with the provincial sales tax in certain provinces.

What is the difference between GST and HST?

GST, or Goods and Services Tax, is a federal tax on most goods and services sold or provided in Canada. It is currently set at a rate of 5%. HST, or Harmonized Sales Tax, is a combined federal-provincial tax that applies in provinces that have harmonized their sales tax with the federal GST. The HST rate varies by province and ranges from 13% to 15%. If your business operates in a province with HST, you will need to register for a GST/HST account and charge this tax rate to your customers.

How do I determine if I am a small supplier?

As a small business, you may qualify as a small supplier and be eligible for certain GST/HST exemptions. A small supplier is a business with annual revenue below a certain threshold. If your total revenue from taxable goods and services is less than $30,000 in a calendar quarter or over the last four consecutive calendar quarters, you are considered a small supplier and are not required to register for GST/HST. However, if you choose to register voluntarily, you can still claim input tax credits and benefit from the advantages of GST/HST registration.

How do I register for GST/HST as a sole proprietor?

As a sole proprietor, registering for GST/HST can be done conveniently online through the CRA’s Business Registration Online (BRO) portal. The registration process requires you to provide essential details such as your Business Number, business name, fiscal year-end, type of business, and other pertinent information. It is important to ensure accuracy and completeness when filling out the registration form to avoid any delays or complications.

Can I register for GST/HST online as a sole proprietor?

Yes, sole proprietors can register for GST/HST online through the Business Registration Online (BRO) portal. This online registration option provides a quick and convenient way for sole proprietors to obtain their GST/HST numbers in Canada. By registering online, you can save time and avoid the need for paper-based registration forms.

What information do I need to provide when registering?

When registering for GST/HST, you will need to provide specific information about your business, including your Business Number, business name, fiscal year-end, type of business, business address, and contact information. Additionally, you may be asked to provide details about your anticipated annual revenue, your business structure, and whether you plan to make zero-rated or exempt supplies.

What are the deadlines for registering for GST/HST?

If your small business is required to register for GST/HST, it is important to be aware of the deadlines for registration. Generally, you must register within 29 days of reaching the small supplier threshold or within 29 days of your effective date of registration (if you are voluntarily registering). Failing to register within the specified deadlines can result in penalties and interest charges.

What are the tax implications of registering for GST/HST?

Registering for GST/HST as a small business has several tax implications that you need to be aware of. One of the key implications is the ability to claim input tax credits (ITCs) for the GST/HST you have paid on business expenses. When you register for GST/HST, you will be required to charge this tax to your customers and collect it on behalf of the government. However, you can offset the GST/HST you pay on your business purchases by claiming ITCs on your tax returns, reducing your overall tax liability.

What are Input Tax Credits (ITCs) and how do they work?

Input Tax Credits (ITCs) are credits that allow you to recover the GST/HST you have paid or owe on business expenses. They essentially allow you to claim a refund or reduce the amount of GST/HST you owe. To be eligible for ITCs, you must have valid GST/HST invoices or receipts, and the expenses must have been incurred for business purposes. Proper record-keeping is crucial to ensure you can substantiate your ITC claims.

Will registering for GST/HST affect my income tax?

Registering for GST/HST does not directly affect your income tax liability. Income tax is calculated separately from GST/HST and is based on your business’s net income. However, it is important to ensure that your GST/HST returns are accurately filed and that you report your business income correctly to the CRA for both income tax and GST/HST purposes.

What do I need to know about filing GST/HST returns?

Once you are registered for GST/HST, you will be required to file periodic returns to report the tax you have collected and paid during the reporting period. The frequency of filing returns will depend on the type of business and the level of your annual revenue. Generally, small businesses with annual revenue below $1.5 million can file their returns annually, while businesses with higher revenue may have to file quarterly. It is important to meet the filing deadlines to avoid penalties and interest charges.

What are the penalties for not registering for GST/HST?

Failure to register for GST/HST when required can have serious consequences for your small business. The CRA has stringent measures in place to ensure compliance and failure to register can result in penalties, interest charges, and potential legal action.

What are the consequences of not registering when required?

If you fail to register for GST/HST when required, the consequences can be severe. The CRA may conduct audits or investigations to identify businesses that are not complying with their tax obligations. If they find that you have not registered, they can assess penalties and interest charges on the tax due. Additionally, failure to register can damage your business’s reputation, making it harder to secure contracts or partnerships in the future.

What are the penalties for late registration?

The penalties for late registration of the Goods and Services Tax (GST) or Harmonized Sales Tax (HST) can vary depending on the specific circumstances. However, typically, there are both monetary consequences and potential legal repercussions for failing to register on time.

The Canada Revenue Agency (CRA) may impose a penalty equal to 1% of the GST/HST owing for each month the registration is late, up to a maximum of 12 months. In addition, interest is charged on any unpaid amount, including both the tax owed and the penalty.

If the CRA determines that the late registration was intentional or due to gross negligence, they can assess a penalty of up to 50% of the tax owing. This can significantly increase the financial burden for businesses. Furthermore, failing to comply with registration requirements can be seen as tax evasion, which is a criminal offence. Criminal charges can lead to severe penalties, including fines and imprisonment. It is crucial for individuals and businesses to understand the importance of timely GST/HST registration and compliance to avoid these penalties and legal troubles.

Does this all sound overwhelming, don’t worry – Richardson Miller LLP is in your corner. Give us a call and we can help you get set up.

We’re happy to answer your questions, clear up any confusion, and get you on the right path. Richardson Miller LLP is here to keep you on track and ensure that your taxes and accounting needs are met. Contact us today!

It happens every year; Tax Season!

People always hope that they get a tax return as opposed to a tax bill. But what happens when you get a tax bill? How do you pay it? There are a number of ways to pay when it comes time to pay your personal or business taxes. Whether you decide to pay in person or utilize the CRA My Payment online option (which allows individuals and businesses to pay taxes via the Canada Revenue Agency (CRA) website), the choice is yours. Below we’ve done a brief walkthrough of the different payment methods when it comes time to pay your CRA tax bill.

This a quick reminder of some of the important due dates including:

  • filing and payment due dates
  • and dates for receiving credits and benefit payments from the CRA.

Filing dates for 2022 taxes

Mar 1, 2023: Deadline to contribute to an RRSP, a PRPP, or an SPP
Apr 30, 2023 (May 1, 2022 since April 30 is a Sunday): Deadline to file your taxes
Jun 15, 2023: Deadline to file your taxes if you or your spouse or common-law partner are self-employed

Payment date for 2022 taxes

Apr 30, 2023 (May 1, 2022 since April 30 is a Sunday): Deadline to pay your taxes

How to pay taxes to the CRA

Pay In-Person

Did you know that you can pay your taxes in person at any Canada Post outlet? It’s true, head to your local Canada Post outlet and you can pay your taxes with cash or debit card. You can also go to your local bank branch and pay taxes to the CRA there.

How to pay taxes owing to CRA online via debit card?

In order to pay taxes to the CRA online, you can access it via CRA sign-in services or with CRA My Payment. This is to pay with a debit card only aka Interac Debit, Visa Debit or Debit Mastercard, you cannot pay using credit cards with My Payment. To make a payment:

  1. Go to CRA my payment and click pay now
  2. Select payment type
  3. Select payment allocation
  4. Enter your account number, period date, and amount]
  5. Keep your transaction receipt with a payment confirmation number

Please note that payment usually takes 1 to 3 business days to be processed by the CRA. To avoid further fees and interest charges, make sure to pay on time.

Taxes that can be paid online – Individuals

  • Individual Income tax
  • Balance Owing/ Arrear payments, Installment and Payments on Filing
  • Child and Family Benefits Payment

How to pay taxes owing to CRA via online banking?

You can set up an online payment to electronically transfer the funds to the CRA. This can be done via your Canadian financial institution’s website or online banking app. In order to set up this type of payment:

  1. Sign in to your online banking
  2. If you are an individual, under “Add a payee” look for a relevant payee depending on the type of your payment.
    • CRA (revenue) – current-year tax return
      • Use this option to make a payment for your current tax return. You can use this option only once per return.
    • CRA (revenue) – tax amount owing
      • Use this option to pay any amount owing.
    • CRA (revenue) – tax instalment
      • Use this option to make payments toward the future tax year.
    • CRA (revenue) – Canada emergency benefit repayment
      • Use this option to repay a Canada emergency response benefit, Canada emergency student benefit, Canada recovery benefit, Canada recovery sickness benefit, or a Canada recovery caregiving benefit.
  3. If you are a business, under “Add a payee” look for a relevant payee depending on the type of your payment.
    • Federal – Corporation Tax Payments – TXINS
    • Federal – GST/HST Payment – GST-P (GST-P)
    • Federal Payroll Deductions – Regular/Quarterly – EMPTX – (PD7A)
    • Federal Payroll Deductions – Threshold 1 – EMPTX – (PD7A)
    • Federal Payroll Deductions – Threshold 2 – EMPTX – (PD7A)
    • Federal – Canada emergency wage subsidy repayment
  4. Enter your social insurance number (SIN) or business number as your CRA account number.

Payments are typically received by the CRA within 5 business days. In order to avoid fees and interest, Richardson Miller LLP recommends setting up a payment in advance.

How to pay taxes owing to CRA in instalment payments?

You can pay tax in instalments to the CRA but did you know that sometimes, the CRA will request that you pay the current tax year’s taxes in instalments during the current year? What this means is the CRA may ask you to pay in instalments towards your expected 2021 taxes owning in 4 quarterly payments throughout 2021.

Here are some examples of situations where this will be requested:

Personal Income Tax: If you had a balance owing of over $3,000 in any year, you may be required to pay in quarterly instalments towards the following year’s tax bill. Usually, the dates are March 15, June 15, September 15, and December 15.

Corporate Income Tax: Usually, if your last corporate income tax owing is higher than $3,000, you may need to pay in instalments (monthly or quarterly) towards your next year’s tax bill. There are a few options to calculate your monthly and quarterly instalment payments:

Monthly Payments

  1. One-twelfth (1/12) of the estimated tax payable for the current tax year is due each month of the tax year.
  2. One-twelfth (1/12) of the tax payable from the previous tax year is due each month of the current tax year.
  3. One-twelfth (1/12) of the tax payable from the year before the previous tax year is due in each of the first two months of the current tax year. One-tenth (1/10) of the difference between the tax for the previous tax year and the total of the first 2 payments is due in each of the remaining 10 months of the current tax year.

source: canada.ca

Quarterly Payments

  1. One-quarter (1/4) of the estimated tax payable for the current tax year is due each quarter of the tax year.
  2. One-quarter (1/4) of the tax payable from the previous tax year is due each quarter of the current tax year.
  3. One-quarter (1/4) of the tax payable from the year before the previous tax year is due in the first quarter of the current tax year. One-third (1/3) of the difference between the tax for the previous tax year and the first payment is due in each of the remaining three quarters of the current tax year.

source: canada.ca

If you are currently trying to make a payment arrangement with the CRA, the accountants at Richardson Miller LLP are happy to help you navigate through this tax situation. Reach out to the team today!

GST/HST Payments: In Canada, you are able to pay GST / HST owing either annually or quarterly. If your tax owing is more than $3,000 in a year, you could be told to pay quarterly payments in the following year just like personal or corporate tax income. The quarterly payments are equal to one-quarter (1/4) of your tax from the previous year.

Learn more about GST / HST and your business.

Late/ Unpaid Instalments: It can happen to any of us. Sometimes a payment is late or forgotten about. When this happens you may have to pay interest and possible penalty charges that will be applied if you do not pay your required tax instalments or paid insufficient amounts. More information about this can be found here.

We’re happy to answer your questions, clear up any confusion and get you on the right path with your personal or business taxes. Having clean, up-to-date books will make tax time so much easier for you!

Are you looking for a qualified, experienced Chartered Professional Accountant? Give us a call. We’re happy to help.

Last updated on March 15, 2023

When Bob’s Trucking Inc. started experiencing cash flow problems, Bob found his company was unable to pay all of its bills. He decided to use the money the company did have to pay for fuel and employees to continue operations because without fuel in the trucks or employees to drive the trucks, there was no business. At this point, he stopped paying the company’s GST and source deductions to CRA. He thought that if the trucking company ended up going bankrupt, the business debt to CRA would be taken care of through bankruptcy…WRONG!

Am I personally responsible for my business debts to Canada Revenue Agency?

When a business collects GST from customers or withholds source deductions from employees, it is acting as an agent on behalf of CRA. The company now has an obligation to remit these amounts collected to CRA. If Bob’s Trucking cannot meet this obligation in full, CRA will start arranging payment plans with the company. If this is still unsuccessful, CRA will pursue legal action against Bob’s Trucking Inc. to collect these amounts.

If CRA is still unsuccessful in collecting from the company, they can and they will go after the director of the company to try to collect these amounts. Here is where Bob’s personal bank accounts and assets are now at risk!

It is a slightly different story when Bob’s Trucking Inc. owes corporate income taxes to CRA. Since these amounts have not been collected by a third party on behalf of CRA, the company is not acting as an agent. The same collection process will be followed by CRA to try to collect these amounts from the company. But, if that is unsuccessful, Bob’s personal assets may or may not be at risk.

If Bob’s Trucking Inc. paid Bob dividends, then CRA can go after Bob personally for corporate income taxes owing up to the amount of the dividends he received. The logic behind this is if the company did not have sufficient money to meet its corporate tax obligations, how did it have sufficient money to pay dividends?

No business owner wants to find themselves getting behind with filing or payments with CRA.

When this does happen, most owners put their heads in the sand and try to avoid CRA’s phone calls and correspondence. This is a big mistake! CRA is willing to work with businesses to arrange payment plans to avoid pursuing legal action. But you MUST communicate with CRA.

This is one of the reasons it is important to have a professional accountant on your team. It is important to be proactive as a business owner so you do not find yourself in hot water with CRA. At Richardson Miller LLP, we have decades of experience working with business owners and corresponding with CRA.

You are officially caught on CRA’s radar…

  • CRA is auditing or reviewing your information
  • Your filings have been arbitrarily re-assessed
  • The collections department is harassing you

No matter what the reason, dealing with the Canada Revenue Agency (CRA) can be extremely stressful.

Here are some tips to help ease that CRA audit pain.

What are your responsibilities?

By law, you have to keep adequate books and records to determine your tax obligations and your entitlements. Generally, books and records must be kept for a minimum of six years.

If you use a computer for your accounting records, you must keep your books and records in an electronically readable format, even if you also keep them on paper. Using the services of a tax professional does not relieve you of your responsibilities.

For an audit, you must make available to the auditor all of your relevant records (both paper and electronic) and supporting documents, and provide complete and timely explanations to the auditor’s questions. Failure to provide required books and records is an offence under the law.

Source: canada.ca

1. Do NOT Ignore them.

The problem will not go away. Keep the lines of communication open. Return phone calls even if the only thing you have to say is “I’m working on it”.

2. Deal with any requests or incorrect assessments ASAP as they are often very time-sensitive.

If you ignore requests and CRA re-assesses you, it can take several months to correct AND if you ignore them long enough, the problem may become unfixable.

CRA Audit Client Examples

a. I had a trucking company referred to me. He was behind on GST filings and CRA Factually assessed him. The client had opted to bury his head in the sand. The returns became statute-barred and CRA refused to reassess them. I luckily found a reasonable auditor to re-open the files and managed to save my (very happy) client $80,000.

CRA Factually assessed – If you don’t file your GST file on time, the CRA can arbitrarily access you and send you a bill.

b. In another case, (again, before he was my client) an automotive mechanic shop company underwent a payroll audit. The business owner and (non-CPA) accountant at the time didn’t respond properly to queries. CRA incorrectly assessed over $100,000 owing in source deductions. They were referred to me. It took over a year of fighting with CRA to have them amend their assessment to the correct balance owing of only $4,000. In the meantime, their corporate bank accounts were seized. Again, if it would have been dealt with properly in the first place, it would have never been an issue.

3. Enlist your Chartered Professional Accountant in dealing with CRA.

Generally, I’m the one who responds to my client’s CRA queries. If the client is preparing the response, I review it before it is sent in. In the case of an on-site audit, I prefer to gather the records and host the auditor in my own boardroom. This eliminates any intimidation factor.

Quite often, the accountant will know exactly what the auditor is looking for and be able to provide the facts and only the facts to get the issue resolved as efficiently as possible. The last thing you want is a simple review request for payroll to turn into a GST audit, personal benefit assessments, disallowed expenses… the list goes on.

Sometimes just a slight change in terminology can drastically change the audit outcome.

I had a trucking company client go through a review to determine whether a subcontracted driver was an employee. If the contractor was determined to be an employee, my client would have been liable for over $20K in payroll taxes. My client kept referring to the contractor in employee terms even though the nature of the arrangement was leaning toward the contractor. Had I not been able to pre-screen and rephrase his responses to the appropriate terminology, the client would have ended up with a nasty bill.

4. CRA isn’t always right.

I know…it’s shocking indeed. You want someone in your corner who understands taxes to be able to argue on your behalf.

I had a client undergo a GST audit. The auditor (who appeared somewhat inexperienced) proposed an assessment of over $20,000 owing. Upon review of his supporting paperwork, I successfully argued the GST owing down to less than $2,000.

Do you need help in dealing with a CRA issue? We’re happy to help!

 

Tips for Staying Under Canada Revenue Agency Radar

If you’re a taxpayer in Canada, you’re likely familiar with the Canada Revenue Agency, commonly known as the CRA. The CRA is responsible for the administration of taxes, benefits, and other related programs in Canada. As a taxpayer, it’s important to understand how the CRA operates, what may trigger an audit, and how to avoid any issues with the CRA. In this article, we’ll explore some tips for staying under Canadian Revenue Agency radar.

What is the Canada Revenue Agency (CRA)?

How does CRA monitor taxpayers?

The CRA monitors taxpayers in a variety of ways. One of the most common ways is through reviewing individual income tax returns, which are due annually by April 30. Income tax returns report a taxpayer’s income, deductions, and credits for a particular tax year. The CRA also monitors businesses, particularly those that are registered for the Harmonized Sales Tax (HST). The CRA will compare a business’s sales records to its reported HST to ensure that the business is accurately collecting and remitting its taxes.

What are some red flags that may trigger a CRA audit?

There are a few red flags that may trigger a CRA audit. One is failing to report all your income, including business income or income earned from sources outside of Canada. Another is claiming deductions that seem too high for your income level or profession. A third is repeatedly incurring business losses, particularly if those losses result in you not paying any taxes. Finally, if you have been audited in the past, the CRA may be more likely to audit you again in the future.

What are the consequences of a CRA audit?

If you’re audited by the CRA, you can expect to face a few consequences. One is a potential increase in your tax bill if the auditor determines that you owe more taxes than you originally reported. Another consequence is the cost of hiring an accountant or tax professional to help you navigate the audit process. Finally, getting audited can be a stressful experience that takes up a lot of your time.

Common Tax Deductions to Consider

What deductions can I claim on my tax return?

On your income tax return, you can claim a variety of deductions to lower your taxable income and reduce your tax bill. Some common deductions include contributions to RRSPs and charitable donations. You can also deduct child care expenses, medical expenses, and certain employment expenses.

What are some commonly missed deductions?

There are a few commonly missed deductions that Canadians should be aware of. One is the deduction for interest paid on student loans. Another is the deduction for moving expenses, particularly if you’re moving to a new city for work. You can also deduct certain expenses related to working from home if you’re self-employed or your employer requires you to work from home regularly.

What is the process for claiming deductions?

To claim deductions on your tax return, you’ll need to keep receipts or other documentation to prove that you incurred the expenses you’re claiming. You’ll also need to fill out the appropriate lines on your income tax return, which can vary depending on the type of deduction. If you’re unsure about claiming a particular deduction, it’s best to consult with an accountant or tax professional.

Uncommon Tax Deductions to Consider

What are some under-the-radar tax deductions?

There are a few under-the-radar tax deductions that Canadians should be aware of. One is the deduction for carrying charges and interest expenses, which includes fees you may have paid to manage your investments or borrow money for investment purposes. Another is the deduction for your share of expenses related to a rental property you co-own with others. Finally, if you earn business income, you may be able to deduct home office expenses, even if you also work outside of the home.

How can I determine if I qualify for these deductions?

To determine if you qualify for these deductions, you’ll need to review the CRA’s guidelines for each deduction and keep detailed records of your expenses. You can also consult with an accountant or tax professional to ensure that you’re taking full advantage of all the deductions you’re entitled to.

What documentation do I need to claim these deductions?

To claim these deductions, you’ll need to keep receipts and other documentation to prove that you incurred the expenses you’re claiming. You’ll also need to be able to demonstrate how the expenses are related to earning income, particularly if you’re claiming deductions related to a rental property or home office expenses.

Preparing for a CRA Audit

What steps should I take if I receive notice of a CRA audit?

If you receive notice of a CRA audit, it’s important to take the process seriously and respond to the CRA auditor in a timely manner. You’ll need to provide all the requested information and documentation and be prepared to answer questions about your income and expenses. You may also want to consult with an accountant or tax professional to ensure that you’re fully prepared for the audit.

Should I seek the help of an accountant or tax professional?

If you’re facing a CRA audit, it’s a good idea to seek the help of an accountant or tax professional. These experts can help you navigate the audit process, ensure that you’re providing all the necessary information and documentation, and help you negotiate with the CRA if necessary.

What can I do to reduce the risk of an audit in the future?

To reduce the risk of an audit in the future, there are a few things you can do. One is to ensure that you’re reporting all your income accurately and honestly. Another is to keep detailed records of your expenses and to only claim deductions that you’re entitled to. Finally, if you’re self-employed or running your own business, be sure to understand your obligations under the tax system and to comply with them fully.

Understanding Dividends and Tax Credits

What are dividends and how are they taxed?

Dividends are payments made by a corporation to its shareholders. In Canada, dividends are taxed at a lower rate than other types of income, known as the gross-up and dividend tax credit system. This system is designed to encourage investment in Canadian corporations and provide tax relief to Canadians who invest in these corporations.

What tax credits are available to taxpayers?

There are a variety of tax credits available to taxpayers in Canada. These include credits for child care expenses, donations to charities, and medical expenses. There are also credits for students, seniors, and people with disabilities, as well as for certain environmentally-friendly activities.

How can I maximize my use of dividends and tax credits?

To maximize your use of dividends and tax credits, it’s important to understand how they work and to ensure that you’re taking full advantage of all the credits you’re entitled to. You should also consider working with an accountant or tax professional to ensure that you’re structuring your investments in the most tax-efficient way possible.

Overall, staying under the CRA radar requires diligence and a good understanding of the tax system. By keeping accurate records, filing your taxes on time, and complying with all relevant regulations, you can avoid an audit and reduce your risk of non-compliance.

Does this all sound overwhelming, don’t worry – Richardson Miller LLP is in your corner. Give us a call and we can help you get set up.

We’re happy to answer your questions, clear up any confusion and get you on the right path. Having clean, up-to-date books will make tax time so much easier for you!

Richardson Miller LLP is here to keep you on track and ensure that your taxes and accounting needs are met. Contact us today!

GST QUICK METHOD

If your business is operating at revenue of $400,000 or less, you need to stop what you are doing and read this!

Canada Revenue Agency (CRA) offers an elective GST filing method for small businesses who have less than $400,000 in annual revenues. It is called the Quick Method and, in my opinion, it is a highly under-utilized election.

Who should use the Quick Method?

  • Other than a few industry specific exceptions, most businesses with less than $400,000 can use this election
  • Businesses with the majority of their expenses not being subject to GST would want to utilize this method. For example, if your largest expense is payroll you would definitely want to consider this.

How does the Quick Method work?

Under this method you would still charge the applicable rate of GST/HST on your sales, but this is not the same as the amount of GST you end up remitting up to CRA. What you end up remitting is based on the quick method remittance rates which are less than the applicable rates of GST/HST you charged.

Yes, that is correct, you collect more GST from your clients than you send to CRA. You do not get to claim any GST paid under this method though because the part of the GST you collected but got to keep accounts for the ITCs you would have otherwise claimed. The intention behind this election is to streamline the GST process for small businesses, but it can end up saving your business money! Who doesn’t want to save some money?

If the majority of your expenses are not subject to GST anyways, you are going to end up ahead under the Quick Method. You can find all the specifics on CRA’s website but I’ll go through a quick example below.

A practical example

It may seem a little confusing and it does require a little bit of number crunching so I will just sum it up a little.

Let’s look at Joe’s Contracting Ltd. Joe owns this business and he provides handyman services to his customers. He has very little costs associated with supplies as the majority of the jobs require only labour so he has one employee that helps him out. His business is based in Alberta and he earns exactly $400,000 in revenue a year.

Under the regular method of GST, Joe would collect GST of $20,000 from his clients and send the whole $20,000 up to CRA.

Under the quick method, Joe would still collect GST of $20,000 from his clients, but the cheque he sends off to CRA is only $15,120.

If you can choose to send CRA $20,000 or $15,120 which one are you choosing? I would think Joe would prefer sending the smaller cheque as well.

And has an additional bonus – this savings will continue to happen every single year when he files his GST return as long as he continues to meet the criteria.

The bottom line

If you think you qualify for the Quick method but have never heard of it before, you may very well be sending too much money to CRA. Reach out to us to discuss.

  1. Jazz Hands.

    That’s right. No auto-correct here—I meant it. With many cities implementing mandatory masks in public, we are missing out on a significant portion of our non-verbal communication options. Many of us can admit to over exaggerating our squinty eyes in attempts to convey that we are in fact smiling. Since Covid-19 is apparently here for the long haul, perhaps we need to consider implementing a universal sign that we are smiling without purposefully deepening our crows-feet (which, going forward, will likely be known as smiling mask wrinkles).

  2. Extended Deadlines.

    I recently visited my dental hygienist for the first time since lock down hit. After my teeth cleaning, I re-booked the appointment for six months later. In six months, it’ll be the end of March 2021! This realization was a bit of a smack in the face. In six short months, we’ll be doing our personal taxes all over again! This point is specifically for the procrastinators out there. Be aware that it’s almost time to do your 2020 personal taxes… even though you JUST finished your 2019 taxes. Perhaps you completed them earlier but JUST paid them. That next tax bill isn’t very far away. For many individuals (corporate filers included), the deadline extension has skewed the sense of urgency/timing/responsibility. Don’t procrastinate. Get ‘er done. Be on time. Missing deadlines may result in penalties, interest, missed incentive opportunities and delayed family tax credits.

  3. Covid-19 Incentives.

    Back in March and April, many folks got caught up in the government incentives and handouts. I’d encourage everyone to re-visit the CRA website to double check those programs. Over the last few months, the criteria has evolved and the website has been updated continuously. Did you actually qualify for that incentive? Perhaps you first thought you didn’t qualify but now you do. If you didn’t actually qualify but have received money, there are options to repay that money (via My Account and My Business Account on CRA online). Rest assured that CRA will be reviewing all who have received incentives to ensure eligibility.

  4. Creativity

    I’m impressed with the resiliency of entrepreneurs in Alberta. So many businesses have taken this setback and have quickly revised processes/systems and products/services to survive and or thrive. Thankfully this pandemic has hit when we have the technology to work from home. Could you imagine if this happened in 1985? Check out my article on how home offices impact your tax return. On the other hand, there are many businesses that have become victims of the lockdowns. This is truly heartbreaking. If you fall into this category, do continue to talk to your professional accountant to determine your filing responsibilities and opportunities to claim any losses.

If you need advice on COVID-19 issues with your business, please reach out! We’re happy to help. Contact us today.

What does CRA require of an employer?

If you are a business owner and have employees, you know the challenges that can come with managing people. Hiring the right people, maintaining schedules, workloads, employment standards, and conflict resolution can be challenging and unpredictable. But making sure you are onside with Canada Revenue Agency’s (CRA) employer responsibilities doesn’t have to be.

Let’s break this down into three sections: Set up, process and report:

1. Set up:

You must have a payroll account registered with CRA and you can do this online using CRA online account registration.

Once you have the right candidate for your business you must get them to complete and sign a current TD1 form, both a federal and a provincial form. The TD1 tells you, as an employer, how much tax you are required to deduct from their payroll. It will also provide you with their Social Insurance Number which an employer is required to have before paying an employee.

2. Process:

As part of the employee hiring process, you will have determined what their pay will be.

  • Are they paid hourly, paid salary, paid by commissions?
  • Do they have any taxable benefits that you need to include in their gross income?

In order to process the payroll, you will have to determine what amount needs to be recorded as gross income per pay period for the employee.

How do you determine gross income?

Using the gross income from above, you must now calculate and withhold the CPP, EI and income tax from your employee’s cheque and hold in trust for the government until you make your source deduction remittance. You can use the payroll features of accounting software if you are using that or you can use the Payroll Deductions Online Calculator found online at CRA.

Once you have calculated the deductions, you are ready to pay your employee and provide them with a paystub so they can see how their payroll was calculated.

Remit your source deductions according to the dates prescribed for your company by CRA. Most small businesses have to remit by the 15th of the following month but as your payroll gets larger, you may have different remittance dates.

Don’t forget to include your employer portion as part of the money you remit to CRA!

3. Report:

All of your Company’s payroll from January 1st to December 31st needs to be reported annually on a T4 Statement of Remuneration slip. You must provide a copy to the employee and file a copy with Canada Revenue Agency by February 28th each year.

Another reporting requirement you have as an employer is when an employee is no longer with your company, for whatever reason. Whenever this happens you must file a Record of Employment (ROE) with Service Canada. Your ROE could be due within 5 calendar days of the interruption of employment so make sure you check out the government website for more Information on ROE.

Feel free to call me if you need assistance on ensuring you are meeting your employer responsibilities with Canada Revenue Agency.

Have you heard of the T5018 slip?

Did you know that if your business is operating in the construction industry, you may be required to file an annual T5018 Statement of Contractor Payments with Canada Revenue Agency (CRA)?

The why

What is the reasoning behind yet another filing obligation with CRA you may ask? Well, it is estimated that the underground economy totals over $45 billion a year in unreported income in Canada and that the construction industry represents almost 1/3 of the underground economy. With those kinds of statistics, it is no surprise that CRA is taking action to combat this and one of their weapons of choice is the T5018.

The T5018 requires the payer to report to CRA who and what they have paid to subcontractors so that CRA can match those payments up to ensure that the income is being reported by the subcontractors.

So does this form impact you?

First, you need to determine if your business is considered to be operating in construction activities according to the list provided by CRA. Most of this list is the expected: drywalling, electrical, plumbing and carpentry; however, there are some less expected construction activities such as fencing and swimming pool installation.

Second, if you are in the construction, do have more than 50% of your revenue coming from construction activities? If the answer is yes, then you may have to continue to the third criteria.

Finally, did you make payments to subcontractors for construction services? Don’t forget that cash payments and barter payments are considered payments.

At the end of all of this if you are operating in the construction industry, have more than 50% of your revenues from these sources, and paid subcontractors, then you should be filing the T5018 annually with CRA.

What is the downside of failing to file these returns? The failure to file penalty is $25 a day with a minimum penalty of $100 and a maximum penalty of $2,500. And of course, these late filing penalties are not deductible for tax purposes.

If you have questions on the T5018 Statement of Contractor Payments, give us a call, and we will be happy to discuss it with you.