Phone:  780.814.7474  *  Toll free:  1.877.814.7474  *  Fax:  780.814.7409  

JUNE
2015
TAX TIPS, TRAPS... and other financial facts




NEW SUMMER OFFICE HOURS


Our office hours are changing for the summer. We will be open 8:00 am - 5:00 pm Monday to Thursday and for your convenience the office will remain open during the 12:00 pm - 1:00 pm lunch hour. Please note that the office will be CLOSED on Fridays. These hours will be in effect June 1st through August 31st .



IN OUR COMMUNITY


Willsey Davis is a Patron sponsor of the GP & District Music Festival.  The Grand Concert was recently held at the GPRC, congratulations to all who performed in this event.

The GPRC College Classic golf tournament will be held in June to raise funds in support of GPRC students.  Once again Willsey Davis is proud to be a sponsor of this local event.  

Willsey Davis is pleased to support the Function First Pediatrics Summer Camps.  The summer camps make it possible for children with special needs to attend fun & therapeutic camps to support their continued progress during the summer.   

 

The Valleyview & Districts Agricultural  Society annual fair and rodeo will be held in August and Willsey Davis is happy to be a sponsor of this local event.



TAX TICKLERS... some quick points to consider...


  • An employee or self-employed person meeting the requirements to claim a deduction for a workspace in their home could include space used to store inventory, as well as space used for the more traditional office in the home, as part of their workspace in their home.
  • Closely related corporations and Canadian partnerships may elect to treat the provision of certain intercompany taxable supplies as having been made for no consideration, so no GST/HST is payable on these transactions.
  • Canadians are now able to purchase beer and spirits in provinces where they don't live and bring them home for personal use. 


OWNER-MANAGED BUSINESS TRANSITIONS: Planning in Advance


Statistics Canada has noted that by 2020 close to 350,000 business owners will be aged over 55 and that within the next 8 years approximately 550,000 business owners will exit their business.

For business owners moving to retirement and transitioning their business, there are three major options for succession:
  • transition ownership within the family;
  • sell the business to an unrelated party; and,
  • cease operations and sell off any assets available.
In order to successfully transition the business, owners should clearly outline their objectives, determine what the business is worth, identify likely successors, and understand the legal and tax implications of the transition.

To increase the possibility and value of a sale, there are several actions that the owner may take. For example, owners should understand that the business may be viewed as a bundle of assets, some of which may, and others that may not, be desired by a purchaser.  As such, reorganizing the ownership of assets in advance may be warranted.


LOANS FOR VALUE: Income Splitting Opportunity


Loans from a higher income family member to a lower income family member can be an effective approach to enable income splitting.  Lower income family members often include spouses, minor children, or grandchildren.  

This planning technique generally requires a loan to bear interest at no less than CRA's prescribed rate at the time it is advanced.  The lower income family member can then invest the amounts received, earn income on it, and pay tax at their lower marginal tax rate. Interest must be paid on the loan (by a particular date) between the family members or the strategy will not work.

The prescribed rate will remain at 1% until at least June 30, 2015.


DAY TRADING IN AN RRSP, RRIF OR TFSA: Could it be Business Income?


Normally, earnings from within an RRSP, RRIF, or TFSA are tax-free.  However, CRA believes that speculative activities within these types of accounts can constitute a business activity.  Profits of a business carried on within these plans are not exempt from tax, unlike the regular income and capital gains from investment activities.

It also appears that individuals with large balances in their TFSAs may have been targeted by CRA.  CRA has argued that, in some cases, the frequency of trades indicate that the taxpayer is running a trading business, and, therefore, the earnings are taxable as business income.

In one case, an investor increased the value of his TFSA to $180,000 via approximately 200 trades. CRA assessed the gains as taxable.  


FAMILY TAX CUT: Joint Custody, GST/HST Credit, and Withholding Tax


There are still considerable questions and uncertainties with respect to the new Family Tax Cut.  This credit is generally available for families who have a child under 18 years of age at the end of the year (other criteria must be met as well).

Claiming this tax credit will not impact a taxpayer's actual net income or taxable income - it is simply a reduction of taxes (tax credit) which mimics the effect of a transfer of up to $50,000 of taxable income between spouses or common-law partners, to save up to a maximum of $2,000 in tax.

Because the actual net and taxable income does not change, the GST/HST Credit, Canada Child Tax Benefit (CCTB), and other federal or provincial benefits and tax credits will not change either.  

To take advantage of the credit, taxpayers must have advised CRA about children they have.  If not already done, this can be accomplished by completing CRA's Form RC66. 


FOREIGN REPORTING: Warning Letters Sent Out


Recently, CRA began sending letters to some Canadians strongly suggesting that they review their income tax filing to ensure that any foreign income and gains have been properly reported and that proper Forms have been filed.

The letter is signed by the Manager of the CRA Offshore Compliance Section (OCS).  It was recently noted by a large Law Firm in Canada that these letters are being sent to individuals identified as being "high risk" for noncompliance in respect of reporting foreign assets or income.  The letter notes the potential for gross negligence penalties, and even criminal prosecution, where offshore assets or income are not reported and suggests using the Voluntary Disclosure process to avoid criminal charges or civil penalties.  


U.S. PERSONS IN CANADA: Potential U.S. Tax on House Sales


The sale of a principal residence could lead to major tax bills for Americans in Canada.  This is especially true for those that have held their homes for long periods or those that live in high house value markets.

For U.S. purposes, the first $250,000 of a gain may be exempt.  This may be increased to $500,000 depending on the residency/citizenship status of the spouse.  Gains above these thresholds may be subject to tax at, for example, 20%.  

Even if there is no change in value of the property in Canadian dollars, gains in U.S. dollars may occur as a result of the appreciation of the Canadian dollar.  For U.S. tax purposes, the cost and selling price must be measured in U.S. dollars at the point when the transactions occurred.  For example, if a home cost $1,000,000 CDN when $1.00 CDN was worth $0.65 U.S., the cost would be $650,000 U.S.  If it were sold for the same CDN dollar amount 10 years later when the exchange rate was par, the proceeds (selling price) would be $1,000,000 U.S., leaving the taxpayer with a $350,000 U.S. gain for tax purposes.

In Canada, gains on a principal residence, if all criteria are met, do not create a tax liability.  Therefore, there is no Canadian tax paid with which to reduce U.S. tax liabilities via a foreign tax credit.

As reported in a January 22, 2015 Telegraph article, New York born Mayor of London, England, Boris Johnson, was caught by this rule and was required to pay an estimated 100,000 tax debt ahead of an upcoming business development trip to the U.S.  Mr. Johnson has since stated that he intends to renounce his American citizenship.    


DIRECT DEPOSIT: No More Government Cheques?


CRA has indicated that it is attempting to minimize the amount of cheques issued and, instead, encourages people to receive payments via direct deposit.  

CRA stated that when a taxpayer registers for direct deposit, the taxpayer is not authorizing CRA to withdraw money from their bank account.  CRA can only withdraw money from a taxpayer's account when a garnishment (legal procedure) is in place.

Registering to receive payments via direct deposit can be done by mail (by filling out the Direct Deposit Enrolment Form), online (by using My Account), or by phone (1-800-959-8281).

Businesses can sign up for direct deposit by filling out Form RC366, Direct Deposit Request for Businesses, and then mailing it to a Tax Centre   


TAX SCAMS: Caution!


On January 25, 2015, CRA updated their webpage entitled "Beware of Fraudulent Communications" to indicate that they have become aware of a new scam involving email money transfers.  CRA notes that they send payments only by direct deposit or cheque and never by email money transfer.

The reminder also notes that CRA does not:
  • request personal information of any kind from a taxpayer by email;
  • divulge taxpayer information to another person without formal authorization; and,
  • leave personal information on an answering machine.
The page also contains links to examples of fraudulent letters, emails and online refund forms.


GET CYBERSAFE: Protect your Business and Self


With the growing number of high profile cyber-attacks, now may be the time to review cyber security risks.  The Federal Government website, www.getcybersafe.gc.ca/ is a great resource for understanding such risks and the actions one may take to mitigate them.

The website identifies major risk areas such as banking and finance, email, social networking, downloading and file sharing, and online shopping.  

It also contains various publications such as a Guide for Small and Medium Business which provides practical advice on how to better protect businesses and their employees from cybercrime.

Beyond the business sphere, the site also provides a resource on cyber bullying for parents and teens.