Greetings! This monthly Newsletter provides business, financial planning and tax information to clients and friends of our firm. Any of the general information contained in this Newsletter should not be acted upon without first determining its application to your specific situation. Contact our office if you have any questions or concerns. |
RENTAL AND BUSINESS LOSSES
FOR TAXPAYERS
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CRA's long established practice prior to 2002, was to disallow rental and business losses unless the taxpayer could prove there is "a reasonable expectation of profit". CRA relied on 20 year old tax cases that established the principle. The chance of winning an appeal was very low.
This practice changed when the Tax Court decided the CRA's argument was seriously flawed. The Court said it is unreasonable for CRA to reject a loss based on subsequent events. Few, if any, taxpayers enter into rental or business operations with an intention to lose money. It sounds like common sense, but income tax is not always logical or rationale - it is political and economic.
If you have business or rental losses, you are in a better position to claim the losses. CRA may ask you to prove the legitimacy of rental or business losses and to establish their credibility. Document your transactions and maintain an adequate accounting system. A business plan is also helpful.
The main point is, CRA should not reassess based only on the fact you have losses. If you are challenged, and can support your claim, your chance of success is good.
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U.S. WITHHOLDING TAX IS NOT RECOVERABLE
IN YOUR RRSP, RESP OR TFSA
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The U.S. requires taxes to be withheld on investment income such as dividends and interest. This is true regardless of whether the income is earned personally or within your RRSP or other registered investments.
Taxes paid personally are recoverable in the year paid as a foreign tax credit (on your personal or corporate return). This is not the case with an RRSP. The amounts paid are not recoverable since the income earned in the RRSP is not taxable. It simply reduces your rate of return.
If you own U.S. securities producing dividends or interest, consider holding them outside of your RRSP.
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OBJECTING TO
CANADA REVENUE AGENCY'S DECISIONS
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Sooner or later the Canada Revenue Agency will reassess one of your tax returns. The change could reflect a simple calculation or clerical error. Sometimes there is a disagreement on the application of tax law. You should review the change carefully and promptly. If you believe the change is incorrect you can object to it. A Notice of Objection should be filed within ninety days of the date of the Notice of Assessment (or Reassessment). For 2011 personal tax returns you have until April 30, 2013 (which is one year after the due date of the return) to object.
We are very experienced with CRA appeals. Most of them are settled without going to Court. Should an appeal to the Courts be necessary, we work with legal counsel to provide information, analysis and support. Contact us immediately if CRA reassesses any of your returns.
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| IMPORTANT UPCOMING DATES |
 June 15
- Canadian personal tax return filing deadline for self-employed individuals.
- U.S. Closer Connections statement due for 2011 tax year.
- 2012 second quarterly installment due.
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