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.

Principal Residence Exemption when Moving into Nursing Home

Gains on the sale of a principal residence are not necessarily exempt from tax. The tax authorities can tax on capital gains in certain circumstances, such as when owner leaves their principal residence to move into a nursing home.

For seniors considering a move to a nursing home, they or their children must decide what to do with their principal residence and should understand the related tax implications.

To take advantage of the principal residence exemption and not have to pay tax on the sale of their principal residence, the property must meet all of the following four conditions:

  • It is a housing unit, a leasehold interest in a housing unit, or a share of the capital stock of a co-operative housing corporation you acquire only to get the right to inhabit a housing unit owned by that corporation.
  • You own the property alone or jointly with another person.
  • You, your current or former spouse or common-law partner, or any of your children lived in it at some time during the year.
  • You designate the property as your principal residence.

If a senior who has no spouse or child leaves in her/his principal residence when moving into a nursing home, she/he loses the right to claim the principal residence exemption for the years in which she/he must live in a nursing home.

To avoid such a surprise, here are some considerations as seniors explore the possibility of transitioning to a nursing home.

Sell the Home

The default option is to sell the senior’s principal residence. In this case, they can use the principal residence exemption to eliminate any capital gains tax on the property. The proceeds could be used to fund their nursing home and provide an early inheritance for their beneficiaries.

Have an Adult Child Live in the Home

If a senior does not wish to sell the property, they may wish to take advantage of the ordinarily inhabited rule by having an adult child occupy the home during this period.

Rent out the Home and File a Subsection 45(2) Election

When a taxpayer converts a principal residence to a rental property, Income Tax Act deems the taxpayer to dispose of and to immediately reacquire the property at fair market value.

Generally, income-producing properties cannot be designated as a taxpayer’s principal residence unless the taxpayer qualifies for and files a subsection 45(2) election. The subsection 45(2) election deems no change in use to have occurred and allows a taxpayer to designate the home as their principal residence for up to four tax years during the time it is used for income-producing purposes–thus deferring the deemed disposition until the property is sold.

Benefits being reviewed?

If you receive a letter from CRA that the agency is reviewing your benefits, it could be a routine check.

As per CRA, it sends about 350,000 such letters every year to “make sure Canadians are receiving the benefits and credits they’re entitled to.”

The letter or questionnaire may ask for documents to confirm that the information in our records is right and up to date. For example, we may ask you to validate your marital status, where you live, and who cares for your children.

It’s important that you reply and send all the information requested as soon as possible. This will help the CRA review your file quickly and easily. If you need help, we’ll work with you to answer any questions or concerns you may have.

Taxpayers usually have 45 calendar days to respond, and CRA says it will tell taxpayers how to send documents in its letter.

If you can’t get the documents we’re asking for or if you need more time to reply, it’s important that you call the number provided in your letter.

If you don’t reply, CRA says that “your benefits will stop and you may be asked to repay benefits that were previously sent to you.”

GST/HST New Housing Rebate and New Residential Rental Property Rebate

If you are buying a new residential complex from a builder, the builder will collect the GST/HST at the time of sale. The CRA provides relief of a portion of the tax collected by the builder in the form of rebates: New Housing Rebate and New Residential Rental Property Rebate.

The rebates are divided into two components – federal and provincial.

If the property is in a GST province like Alberta, etc., you only concern with the federal rebate calculated as 36% of the 5% GST on properties valued $350,000 or less. The federal component of the rebate is phased out for properties valued between $350,000 and $450,000. If exceeding $450,000, there is no federal rebate available.

If the property is in an HST province like Ontario, etc., there is an additional rebate of the provincial component equal to 75% of the tax that is capped depending on the province (in Ontario, the provincial portion of the rebate is capped at $24,000). Unlike the federal component, the provincial component is not subject to the phase out rule.

It’s important to understand the difference between the GST/HST New Housing Rebate and the GST/HST New Residential Rental Property Rebate. This will ensure a complete and correct rebate application.

GST/HST New Housing Rebate

If you bought the new home with the intention for use as your (or your relation’s) primary place of residence, the New Housing Rebate is for you.

You or your relation must live in the new home as the primary place of residence for at least the first twelve months. In order to prove that the new home is your primary place of residence, make sure to change your address with CRA and address on your government issued IDs after moving in.

If you sell the home before the initial twelve months from closing, you must pay the rebate back in full.

If you are buying an investment property, this rebate does not apply to you.

GST/HST New Residential Rental Property Rebate

If you’re a buyer who intend to rent out the residential complex on a long-term basis, you must file for a New Residential Rental Property Rebate.

The property must be rented out for more than one year before resell to another buyer. Otherwise, The rebate must be paid back in full.

Getting It Right

Regardless of which rebate you claim, there is a two year limit in which you can make the claim. However, the CRA is not restricted to that two year limit for assessing errors related to rebate claims.

Therefore, if a new housing rebate is incorrectly claimed in place of a new residential rental property rebate and the error is identified following the close of the rebate claim period, the CRA may be in a position to demand repayment of the rebate plus interest and penalties.

Ensuring the GST/HST on your real estate investment is handled correctly can prevent a lot of heartache later.

Professional Services

BBTS provides professional services with the GST/HST new housing rebate and new residential rental property rebate.

With BBTS, clients can rest assured that application paperwork is submitted correctly and always on time.