Tax & Business News 

Trips, tips and traps

December 2015
In This Issue
Links For December


Latest info from StatsCan

Population estimate  35,851,774

CPI Annual Inflation 1 .0%  

Unemployment Rate 7 .1% 

GDP Monthly growth - 0.5%
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Liberal heaven? Toll roads, higher taxes, outrageous power costs, and a mandate to govern for the next 4 years. What could go wrong?

Ontarians are in for an interesting ride with the Federal and Provincial constellations in alignment. Even the NDP would be pleased.

Consider carefully some of the suggestions herein that will have you pay tax sooner, but a smaller amount than would be the case if you wait.

Best wishes for the holiday season to all our clients, colleagues and readers

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Calendar of Important Dates 
Corporations with a September year end, claiming the small business deduction must pay the balance of tax owing by the end of December.
Corporations with a November year end, not claiming the small business deduction must pay the balance of tax owing by the end of December.
Filing deadline for a June 30, 2015 year end is December 31 , 2015

Christmas Day - Friday, December 25, 2015

New Year's Day - Friday, January 1. 2016

  Next Issue - January 11, 2016

But you may have to file...
It is intuitive to conclude that a not-for-profit entity is exempt from filing tax returns as there is no taxable income on which to pay income tax. Logical?

Of course, logic and policy don't always lead to the same result.

Thus, if your NPO has over $200,000 in assets or more than $10,000 in investment income, you will need to file a T1044 NPO Information Return.

Non-filing penalties can amount to $2,500 per year or $25 per day.

Corporate T2 returns are also required for NPO's

Voluntary disclosure options may be available for NPO's that are in arrears of their filing obligations.


A promise kept...
So, starting in 2016, taxpayers earning over $200,000 will see over half their marginal income head for Ottawa.
Quoting from their web page:

To help pay for this middle class tax cut, the Government is
asking the wealthiest one per cent of Canadians to contribute
a little more. The motion therefore includes provisions to create a new top personal income tax rate of 33 per cent for individual taxable incomes in excess of $200,000.

Note the spin on the wording above suggesting this is an "ask" for a "little more."

The result is a top marginal tax rate of 53.53% for residents in Ontario.


Accelerating personal incomes for 2015 may result in tax savings if reported in the current year as tax rate increases will not take effect until January 1, 2016. Conversely, deferring deductions for RRSP's and utilization of losses may be more beneficial in 2016 and subsequent years against higher tax rates.    
Do the math...
The IRS has a "substantial presence test" by which the the residency of a visitor will be determined.
The formula is as follows:
  • the number of days in the US this year
  • 1/3 of the number of days in the US last year
  • 1/6 of the number of days in the US in the year prior
If the total is 183 days or more, you will be considered a resident for US tax purposes.
At that point, there are treaty and closer connection exemptions that may be available. 
At a minimum, there are lots of compliance issues to deal with if you exceed the number of days test including forms 8840, 8833, 1040NR, W7.
Filing deadlines exist for these forms. Taxation year 2013 were due the middle of last month and 2014 is due October 15, 2016. 
We are here to help!
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Tax implications...
An employee is generally  taxable on the value of a  benefit of  any kind whatsoever realized by virtue of their employment.  However, some benefits that  primarily benefit the employer, as well as certain other select cases,  may be considered  non-taxable to the employee. 
The following is a list of some recent CRA discussions on different employment benefits

  • Employee  housing at a location  distant from the employee's usual place of
    residence results in a  taxable benefit  unless the work is at a  remote location (CRA generally accepts a location at least  80 kilometers away from the nearest community with a  population of  at least 1,000 people) or at a  temporary work location , regardless of whether it is impractical or impossible for the employee to return to their regular place of residence between shifts.
  • Cell phone reimbursements for a reasonable basic plan required for employment purposes will not create a taxable benefit.  However, any form of allowance would be taxable, so payments to employees must be made with regards to actual costs incurred in order to remain non-taxable.  As well, any payment towards the cost of the cell phone itself would be taxable to the employee. 
  • Health programs reimbursing costs of physical activity will generally result in a taxable benefit unless the nature of the job carries unusual fitness requirements.  CRA may also consider the benefit non-taxable where the employer provides fitness facilities for all employees or owns a membership which permits all employees to use a fitness facility.
  • Uniforms are not a taxable benefit if they are either designed to protect the employee from on the job hazards (e.g. safety equipment) or are distinctive uniforms (e.g. clothing identifying the employer), but each component of the clothing must be considered separately. In one case reviewed, CRA indicated that specific footwear which did not meet either of the above criteria would result in a taxable benefit if paid for by the employer.
  • Income maintenance insurance benefits would be tax-free where all premiums were paid by the employee.
Note that the taxability of employee benefits can be a grey area.  There may be anomalies and exceptions even within the above examples.
Action Item: Consider reviewing employment compensation packages to ensure the most tax-efficient structures with no tax surprises for employees

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How to deal with CRA...
The CRA has special abilities to collect debts from taxpayers where amounts are left outstanding for too long. Some of the issues to be considered when dealing with CRA collections include:
  • CRA has the ability to garnish one's bank account or wages.
  • CRA can reduce government payments, such as CPP, when amounts are outstanding.
  • If a taxpayer is disputing an assessment or amount outstanding, payment of the assessed amount will not generally impact the success, or failure, of their objection.
  • It may be beneficial to pay the outstanding amount even if an assessment will be disputed. If the objection is successful, the CRA will pay taxable interest of 3% to individuals (1% to corporations). If unsuccessful, the taxpayer will avoid non-deductible interest CRA charges of 5%. These rates are re-evaluated quarterly.
  • In some cases, CRA is restricted intheir ability to collect where a taxpayer has objected or appealed. However, the Tax Act does not limit collections for debts such as source deductions, and GST/HST.
  • Collection restrictions may be lifted where a delay puts collection at risk.
  • Giving assets to non-arm's length parties (such as a spouse or child) in an attempt to prevent CRA from collecting, can cause the recipient to also be liable for a portion of the tax debt.

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Recent CRA Decisions
There is no escape from tax...
Taxpayer employed by Revenu Quebec in its Toronto offices - Taxpayer rented apartment in Toronto where he resided with his wife - Taxpayer in receipt of amounts from employer to assist him with his living costs in Toronto -
Whether taxpayer entitled to deduct his apartment rent as an employment related expense -

The taxpayer was employed by Revenu Quebec in its Toronto offices. He maintained an apartment in Toronto where he resided with his wife. During 2010, 2011, and 2012 he received from his employer amounts relating to the cost of his Toronto apartment, and to the additional tax payable with respect to those benefits. The total of these amounts (the "Benefits") was reported by him as income in his returns for the years in issue.
He attempted, however, to deduct the rent paid by him for his Toronto apartment (the "Rent Related Deductions) in computing his income for those years as "other expenses" related to his employment, but such deductions were disallowed by the Minister.

On appeal, the taxpayer abandoned his argument that the Rent Related Deductions were justified,
but instead, sought to exclude those same amounts from his employment income under the employment at special work site or remote location provisions of subsection 6(6) of the ITA.

In dismissing the taxpayer's appeal, the TCC concluded, in part, that: (a) deductions similar to the Rent Related Deductions initially claimed by the taxpayer in the present proceedings had been disallowed in the taxpayer's appeal relating to his 1999 taxation year by the FCA (see 2003 ACF 396); (b) the entire amount of the Benefits was properly included in the taxpayer's income for the years in issue under paragraph 6(1)(a) of the ITA; (c) the taxpayer's employment with Revenu Quebec
was not temporary, but had gone on uninterrupted from 2004 to 2015, and there was no distance between his work place and his principal residence; and (d) the special work site or remote location provisions of subsection 6(6) were therefore inapplicable. - ITA s. 6(1)(a), 6(6). 
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The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a commentary such as this, a further review should be done. Every effort has been made to ensure the accuracy of the information contained in this commentary. However, because of the nature of the subject, no person or firm involved in the distribution or preparation of this commentary accepts any liability for its contents or use.   
All you need to know...

Life in the Tax Lane - December 2015 (Episode 7)

Watch this 10-minute rapid-fire discussion of select recent developments in the wonderful world of Canadian tax by the Video Tax News Team.

Life in the Tax Lane - December 2015
Life in the Tax Lane - December 2015


Howard Render, CPA*CA