Balance owing – CRA Benefits overpayment

When you get married, or start living common-law, it can impact your tax situation. Some of the changes occur immediately (e.g., your eligibility for the GST/HST credit and CCB).

What happens when your marital status changes?

  • Your entitlement to the GST/HST credit changes since it is based on previous year “adjusted family net income”. Your adjusted family net income usually increases when you become married or common-law, so you might find that you no longer receive the GST/HST credit. If you are still eligible for the credit, only one of you will receive it, even if you were both receiving it before.
  • Your entitlement to the CCB and the WITB change since these are also based on your previous year adjusted family net income.

GST/HST credit

Based on your previous year “adjusted family net income, if a recalculation shows you have been overpaid the GST/HST credit, the CRA will send you a notice with a remittance voucher attached to inform you of the balance owing. The CRA will keep all future GST/HST credit payments or income tax refunds until your balance is repaid.

Canada child benefit (CCB)

Based on your previous year “adjusted family net income, if a recalculation shows that you were overpaid CCB, the Canada Revenue Agency (CRA) will send you a notice with a remittance voucher attached to inform you of the balance owing. The CRA may keep all or a portion of future CCB payments, income tax refunds, or goods and services tax/harmonized sales tax (GST/HST) credits until your balance owing is repaid.

Working income tax benefit (WITB)

Based on your previous year “adjusted family net income, if the CRA overpaid your WITB advance payments, the CRA will notify you on your income tax and benefit return notice of assessment for the taxation year in which you were overpaid. WITB advance payment overpayments will be collected with any amount owing on your income tax and benefit return.

Until your balance is repaid, the CRA may keep all or a portion of any future WITB advanced payments that you apply for and any income tax refunds or goods and services/harmonized tax (GST/HST) credits.

It’s important to let the CRA know when your marital status changes. You can do this through My Accountby phone, or by filing a form RC65. You must also accurately report your marital status when filing your tax return—even if you don’t really feel like you’re living common-law.

Statute-Barred Tax Returns or Reassessment Period

Reassessment Period

CRA Reassessment: How Far Back Can It Go?

For individuals, trusts and Canadian Controlled Private Corporations (CCPC’s), the normal reassessment period for Canadian income taxes is three years from the date that your tax return was initially assessed. For non-CCPC’s and mutual fund trusts, this period is extended to four years. After that, the returns enter a statute barred period.

A tax return does not become statute-barred if it is not filed.

If an arbitrary assessment is issued without a return being filed, the statute-barred clock starts from the date of mailing of such Notice of Assessment.

There are many exceptions to these rules.

The following situations could extend the statute barred period by an extra 3 years:

  • Foreign reporting (Form T1135).
  • A loss carry back from a later tax year is applied to an earlier tax year. 
  • A non-arm’s length assets transaction involving the taxpayer and a non-resident.

The following situation would result in an unlimited reassessment period:

  • The taxpayer made a misrepresentation due to neglect, carelessness, wilful default or fraud. 
  • The taxpayer filed a waiver in respect of the normal reassessment period. 
  • CRA can examine a statute-barred return to determine the cost of an asset for CCA claims in non-statute barred years.
  • A court has instructed CRA to reassess a statute barred period

Understanding CRA Arbitrary Assessments

CRA Arbitrary Assessments

What happens if you do not file tax returns? Many taxpayers believe that not filing is the safest route to take if they do not have the money to cover the amount of taxes owing.

If you fail to submit filings to CRA when required, CRA may do it for you and estimate your taxes owing. These Arbitrary / Notional tax assessments are often too high, but they are nonetheless binding unless successfully challenged by the taxpayer.

What are Arbitrary / Notional Assessments?

Subsection 152(7) the Income Tax Act and subsection 299(1) of the Excise Tax Act provide the statutory authority for CRA to issue arbitrary tax assessments.

The CRA will estimate your tax liability using a variety of available information, including income reported in prior years or information obtained through third parties and often not allowing deductions or credits to which the taxpayer would otherwise be entitled.

 This means that Arbitrary Assessments often create huge tax liabilities for taxpayers, over and above what they would actually owe if they completed and filed their own taxes.

What Can Taxpayers Do?

If you receive an Arbitrary Assessment, you have a number of options open to you.

  1. You may file a Notice of Objection with CRA, but this will not halt collections actions.
  2. You may choose to file a return yourself in an attempt to reduce your tax bill. In most cases, this will usually trigger CRA audit to ensure that your tax return is filed correctly.
  3. Finally, you may choose to simply pay the Arbitrary Assessment.

GST/HST New Housing Rebate Denied

GST/HST New Housing Rebate Denied

New Housing Rebate

Under the new housing rebate, you are entitled to receive the rebate on the condition you will occupy the new home as the principal resident (meaning, you’re living in the new home day-in-and-day-out) for at least the first year.

The new housing rebate, pursuant to subsection 254(2) of the Excise Tax Act (Canada) (the “ETA“), allows for the partial recovery of GST or the federal portion of HST paid for a new or substantially renovated Home that is intended to be used by the buyer (or a relation) as his or her primary place of residence (the “Federal Rebate“).

There are several conditions that must be met to be eligible for the Federal Rebate. The same conditions apply to be eligible for a separate rebate available in Ontario, pursuant to section 41 of the New Harmonized Value-added Tax System Regulation, No. 2 for the provincial potion of HST paid in Ontario (the “Ontario Rebate“).

GST/HST Rebates on New Homes with More Than One Buyer

If you purchase newly constructed real estate in Ontario and want to qualify for the HST rebate new home program, you must use the property as the primary place of residence for yourself or someone closely related to you such as a child, grandchild, brother, sister, or someone you are related to by marriage or common-law partnership.

If anyone is listed on the title (even just for mortgage qualification reasons) that does live on the premises and is not “closely related”, no rebate will be issued.

If you did receive an GST/HST new housing rebate even though one or more of the individuals listed on the title will not be living at the residence and are not closely related, it is advised that you contact the CRA immediately. When the CRA eventually flags the transaction, you will be charged interest on the total amount of the refund.

To qualify for financing, a buyer may consider accepting a gift or loan, or the generous extended family member or friend may offer to be a secured guarantor instead of co-signing the agreement of purchase and sale.

Personal Real Estate Corporations in Ontario

Unlike other regulated professionals (doctors, lawyers, engineers, architects, dentists and accountants) who can incorporate their business, Ontario real estate agents are currently excluded from this group due to a technicality in the Real Estate and Business Brokers Act, 2002. But it looks like Ontario REALTORS are one step closer to being allowed to form personal real estate corporations.

Bill 104, Tax Fairness for Realtors Act, 2017, passed second reading in the Ontario legislature on March 23, 2017. If Bill 104 continues to move through the legislative approval process and receives Royal Assent, following third reading and a final vote in the legislature, it will become law in Ontario.

If passed, the bill 104 would permit realtors to form personal real estate corporations. This would enable real estate salespeople and brokers across the province to take advantage of the business benefits of incorporation.

Low Tax Rates and Tax Deferral Opportunities

Many tax planning opportunities available to other corporations and business owners would also be available to Personal Real Estate Corporation and the owners.

In Ontario, the top marginal rate is 53.53% on income over $220,000. As a Personal Real Estate Corporation, real estate agents would have access to the Ontario small business tax rate of only 13.5% on the first $500,000 of active income in 2018 for CCPC, and 26.5% thereafter. A significant tax deferral would easily be achieved if the real estate agent leave income in the corporation.

Income Splitting Opportunities

For some professionals, such as lawyers, ownership in their Professional Corporation is restricted to licensed professionals.However, it does not look like that would be the case with the Personal Real Estate Corporation. Bill 104 would allow for the issuance of non-equity shares to the family members of the realtor. As a result, Personal Real Estate Corporation can split income across family members by paying them a reasonable salary or issuing dividends.

Until Bill 104 passes into law, there will still be questions surrounding exactly how it will be implemented and what that will mean for real estate agents. Stay tuned with us.

#realestate #corporations #tax #planning

Tax on Split Income (TOSI Rules) – Impact to Dental, Doctor and Lawyer Professionals

The federal government has confirmed changes to tax rules that will restrict income splitting using private corporations. The changes, effective January 1, 2018, would expand the TOSI rules. The TOSI rules will generally apply to income from private business arrangements, such as dividends or interest paid from a professional Corporation.

Where the TOSI applies, the income is subject to the top marginal tax rate in the hands of the individual, and personal tax credits (with the exception of the dividend tax credit and foreign tax credit) are denied with respect to the amounts.

The TOSI measures include clear “bright-line” tests or safe harbours to automatically exclude individual family members. The exclusions are as follows:

  • The individual is over the age of 65.
  • The individual is over the age of 18, and he or she worked for the business for an average of 20 hours per week, in the present year, or in 5 non-cumulative preceding years.
  • The individual is over the age of 25 and owns more than 10% of the votes and value of the shares of corporation directly (not through a trust) and the business is not in the provision of services, and the corporation is not a professional corporation.
  • Individuals who receive capital gains from qualified small business corporation shares if they would not be subject to the highest marginal tax rate on the gains under existing rules.

Individuals aged 25 or over who do not meet any of the exclusions described above would be subject to a reasonableness test to determine how much income, if any, would be subject to the highest marginal tax rate.



Tax Advices for Dentists, Family Doctors and Lawyers

As a practicing Dentist, Family Doctor and Lawyer, it may come as a surprise that the Canada Revenue Agency will be taking close to half of your hard earned money.  Did you know the marginal tax rate for income over $150,000 is about 47.97% and increases to 53.53% for income over $220,000?

Here are guidance and tax saving strategies for Dentists, Family Doctors and Lawyers:

First, set up a professional corporation.

There are three potential significant tax benefits of incorporating a professional corporation for a Dentist, Family Doctor and Lawyer:

  • Issuing salary or dividends to family members in lower tax brackets;
  • A tax deferral is possible by retaining earnings in the professional corporation;
  • The $800,000 capital gains exemption available for sale of a small business can only be claimed on the sale of shares of a qualifying corporation and not for the sale of a sole proprietorship or a partnership.

In Ontario, the combined federal + Ontario tax rate on the first $500,000 of active business income earned by a professional corporation is only 13.5% for 2018 and 12.5% for 2019. The average tax rate to earn the same amount of income personally is about 45%. The professional corporation provides a 30% deferral of tax leaving you with more cash to reinvest in your practice. Personal tax will be payable when funds are extracted from the professional corporation.

Secondly, pay reasonable salaries to family members in a lower tax bracket

If a family member performs administrative duties for the practice, you can pay him or her a salary as long as it is reasonable (i.e. comparable to what you would pay anyone else to perform the same duties).  If your family member is in a lower tax bracket, this would result in an overall tax savings.

If you would like to take advantage of these tax planning opportunities for your practice, contact us today.

Personal Emergency Leave vs Family Medical Leave

On November 27, 2017, the Fair Workplaces, Better Jobs Act became law, resulting in a number of changes to the Employment Standards Act (ESA). The new rules were in force as of January 2018. Read a complete summary of the changes to the ESA.

Personal Emergency Leave

Most employees have the right to take up to 10 days of job-protected leave each calendar year due to illness, injury, death and certain emergencies and urgent matters. This is known as personal emergency leave. Special rules apply to some occupations.

The personal emergency leave can be because of your needs or the needs of a family member. And you can take up to 10 days even if you started working for your employer partway through the year. If you only take part of a day, your employer can count it as one of your 10 days.

You have the right to be paid for 2 days of personal emergency leave each year if you’ve been working for your employer at least one week. If you take part of a day off as personal emergency leave, your employer still has to pay you for the hours you worked.

Family Medical Leave

Family medical leave is unpaid, job-protected leave of up to 28 weeks in a 52-week period.

All employees, whether full-time, part-time, permanent, or term contract, who are covered by the ESA are entitled to family medical leave.

There is no requirement that an employee be employed for a particular length of time, or that the employer employ a specified number of employees in order for the employee to qualify for family medical leave.

Under the federal Employment Insurance Act, 26 weeks of employment insurance benefits (called “compassionate care benefits“) may be paid to EI eligible employees who have to be away from work temporarily to provide care to a family member who has a serious medical condition with a significant risk of death within 26 weeks and who requires care or support from one or more family members.


Difference between Common Law and Marriage

You have more rights and responsibilities when you get married. If you are not married, you don’t get some rights no matter how long you and your partner have lived together. You have to go through a legal marriage ceremony to be married.

There is no real difference between common law and marriage in terms of custody, access and support claims

Married couples and common-law couples usually have the same rights related to children including rights to custody, access and child support.

The only difference in terms of support is the act that is used. The Divorce Act and the Federal Child Support Guidelines govern a divorced couples, however, the Family Law Act and the Ontario Child Support guidelines govern a common law couples. The requirements for making out a claim for support are the same regardless of the act, and the amounts listed in the guidelines are also almost identical.

There are different rights between a marriage and a common law relationship to the assets and liabilities, matrimonial home

Assets and Liabilities

When you get married, the law assumes you are in an equal partnership. When a marriage breaks down the Family Law Act provides you and your partner with a regime to share assets and liabilities. The assets and liabilities of each spouse at the date of marriage and the date of separation will be used to calculate a payment from one spouse to the other.

A common law relationship, on the other hand, has no regime to share assets and liabilities. Common-law partners only have to share the property you own together. You can try to claim a share of your partner’s property in some situations, but it can be very hard to prove you should get a share.

Matrimonial Home

Only married couples can have a matrimonial home. Common-law couples cannot have a matrimonial home, so they have different rights.

In a marriage, you and your partner have an equal right to stay in a matrimonial home and right to claim a share in the value of a matrimonial home as part of an equalization payment rule even if a spouse owns the matrimonial home fully. Additionally, under the Family Law Act a spouse can apply to the court for an order for exclusive possession of the matrimonial home. This can even result in the person who owns title to the house being forced to leave.

If you were living common-law, then your right to stay in the home after you separate usually depends on who owns the home or whose name is on the lease or rental agreement.


Dumping the Landlord & Buying Your Own Business Space

Congratulations! Your business has grown to the point where you no longer want to pay someone else’s mortgage and you have decided to buy your own property. You have a lot of issues to deal with; one of the chief ones being “How should I acquire the property?”

If your business is an unincorporated proprietorship and you buy the property personally, one of the key concerns is going to be paying down the debt used to acquire the property. Assuming that you are in the top tax bracket in Ontario, for every dollar of profit earned you will pay 46.41 cents in income tax and have 53.59 cents left to pay down the principal on the mortgage.

This might be a good time, therefore, to consider incorporating your business and acquiring the real estate in a corporation. The first $500,000 annually of “active business income”, or ABI, is taxed at 15.5% in Ontario. That would mean that for every dollar of profit earned you would have 84.5 cents left to pay towards the principal and so this will help speed up the debt repayment process.

But should you buy the property in the same corporation as the one in which you carry on your business (which I’ll call Operating Company)? What if you want to sell your business down the road but want to keep the real estate and be someone else’s landlord to finance your retirement? Having the operations and the real estate in the same company like this may prevent you from accessing your $750,000 lifetime capital gains exemption (CGE) because you may be stuck with selling the business assets of Operating Company (which would be taxable) as opposed to the shares of Operating Company (a portion of which may be non-taxable). It can be very difficult to separate out the business from the real estate in the future if a sale is already in the works. What if your business runs into trouble? Having the real estate in the same company as the operations may expose the real estate to claims of creditors.

So assuming you decide to set up a holding company to buy the property, then your next question may be “How do I pay off the debt in Holding Company?” Operating Company and Holding Company would enter into a lease agreement whereby Holding Company would lease the property to Operating Company. The rental income earned by Holding Company would be taxed at the 15.5% rate (because it would also be considered ABI) and so Holding Company would use the after-tax profit to pay down the debt.

Another good question concerns the ownership of Holding Company. With proper planning, family members could own an interest in Holding Company. This could allow for additional CGE claims on the sale of the shares of Holding Company, thus reducing the income tax bill on the eventual sale of the real estate even more (consideration could be given to bringing the family members into ownership of Operating Company now as well).

What if instead of buying an existing building you decide to build your own? In Holding Company, the entire cost of the building would be written off for income tax purposes on a very slow basis (it would take almost 40 years to write off 90% of the cost). With some planning, Holding Company could bear the cost of the main structure of the building and Operating Company could bear the cost of the interior “fit-up”. Operating Company would treat this cost as a leasehold improvement and could write it off over 6 years, thereby significantly increasing the tax write-off and the resulting tax savings.

As indicated above, only the first $500,000 of annual ABI is eligible for the 15.5% tax rate and in Ontario, this rate goes to 25% for income above $500,000. Operating Company and Holding Company would have to share this $500,000, so if their combined income exceeds $500,000, the higher rate applies on the excess.