Tax & Business News 

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January 2016
In This Issue
Links For January 2016
  Federal Interest Rates Q1 
Latest info from StatsCan
Population estimate  35,985,751
CPI Annual Inflation 1 .4%  
Unemployment Rate 7 .1% 
GDP Monthly growth 0.0%
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Kudos to MoneySense who have analyzed the projected income tax changes promised by the new Liberal government. Click the link above for a complete analysis.

The biggest loser in this tax shuffle would be for a single taxpayer earning $250,000. The extra tax cost is $1,330.

The biggest winner is a couple with one wage earner grossing $40,000 with two children. They will be better off by $4,234.

Most of the calculations performed resulted in
less tax.

How the demographics will affect the total impact of these changes has not been divulged.

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RRIF Calculator    

Calendar of Important Dates 
Corporations with an October year end, claiming the small business deduction must pay the balance of tax owing by the end of January.
Corporations with a November year end, not claiming the small business deduction must pay the balance of tax owing by the end of January.
Filing deadline for a July 31, 2015 year end is January 31 , 2016
January 30, 2016 - Interest due on Spousal Loans   

  Next Issue - February 8, 2016 

Grant application assistance available...
Grant for Export Market Development
Government Funding for Companies with $300,000 to $500,000 in Sales

The Early Stage Exporters' Fund will contribute 50% up to $30,000 towards export related activities undertaken by companies who have been in business for two or more years, with sales between $300,000 to $500,000, and have at least 3 employees. Eligible activities include but are not limited to:
  • International tradeshows/ exhibitions: Travel, marketing materials, booth rentals, translation services.
  • Outgoing/Incoming missions: Airfare, travel and accommodations.
  • Promotions: Includes videos, pamphlets, billboards, as well as related translation services.
  • Market Research: To determine market trends, buying attitudes, developing a marketing plan, etc.
  • Foreign Bidding: Expenses associated with selling Ontario goods as well as services such as engineering, construction, architecture, and management consulting to ensure selection for an international project.
Companies in the following sectors will receive preference:
  • Advanced Manufacturing
  • Aerospace
  • Building Products and Construction
  • Clean technology (including renewable energy and environmental technologies)
  • Exportable Professional Services (e.g. architecture, engineering, urban planning)
  • ICT including digital media
  • Life Sciences
A maximum of two applications are allowed to be submitted within a 12-month period; a third application may be submitted after 12 months and after one project has been completed. Expenditures other than airfare and tradeshow registration/booth rentals are eligible only after a project has been approved for funding. There is no deadline to apply, however it takes approximately 6 weeks to receive approval for government funding.

Wage Incentive to Hire Young Workers!

Skills Link Program provides government financial support for hiring new employees. The maximum funding amount is 100% coverage of the minimum wage of a new employee up to $25,000/hire. Eligible costs include wages, completion bonuses, and costs related to employment such as travel and relocation. Those looking to hire must recruit at least 8 new employees and provide work experience and training that helps to ensure participants' future employability. To participate in the Skills Link Program, employees must be between 15 and 30 years of age, Canadian citizens, permanent residents, or have refugee status, be legally allowed to work in Canada, and not be receiving EI. As well, preference for will be given to candidates who face barriers to employment. Typically, projects covered by this government financing program last between 12-52 weeks, although the maximum duration is three years.

These Grants appeared first on INAC Services Limited.


NEW FOR 2016
Ontario's Accessibility for Ontarians with Disabilities Act 
All businesses in Ontario are expected to be in compliance with the Accessibility for Ontarians with Disabilities Act (AODA) which came into force in 2005. "All businesses" refers to any business offering goods, services, facilities, accommodation and has at least one employee.
There are 11 mandatory standards in force and the list can be found here

The Canadian Federation of Independent Businesses has many resources available to help their members comply with this legislation.

Employees are expected to be conversant with the requirements and the province has provided an on-line training course to help.

Compliance requirements for 2016:
  • Accessibility policies to be developed and implemented
  • Self-serve kiosks must have voice-activated and accessibility features available
  • Training for employees and volunteers
  • Procedures to receive and respond on feedback from employees and customers
  • Provide information in a manner requested by a person of disability

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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Tax implications of new protocol...
The Federal Liberals have proposed two significant tax changes as indicated on their election platform:
  • Reduction of the personal tax rate by 1.5% (drop from 22% to 20.5%) on income earned in the 2nd tax bracket (approximately $45,000 to 90,000). For individuals at the top end of this bracket, this results in a tax savings of approximately $670.
  • Increase on the personal tax rate by 4% (from 29% to 33%) on income commencing at $200,000.
The legislation relating to these changes has not yet been passed but it is expected that these changes will be effective in the 2016 year.
As such, individuals who will be earning income in excess of $200,000 for the next few years may wish to consider, if possible, incorporating more income in the 2015 year. In other words, by prepaying the personal income tax in 2015, individuals will avoid the 4% tax rate increase on amounts earned in excess of $200,000 in 2016 and onwards (until, and if, the rules change).
There are a variety of different ways to incorporate income in the 2015 year, or, alternatively to reduce income in 2016, such as, for example:
  • Taking additional earnings out of a corporation in 2015. There are generally two options - salaries or dividends. The best option depends on the applicable provincial/territorial tax rates, quantity of personal and corporate income, amongst other factors.
  • Realizing investments with a capital gain in 2015. Realizing investments with a capital loss in 2016.
  • Claiming RRSP contributions made in 2015 in the next tax year (2016).
  • Not claiming CCA on assets in a proprietorship in 2015, which can result in a higher CCA claim in 2016.
  • Withdrawing funds from an RRSP in 2015. Care should be given, however, to the loss in RRSP room based on the withdrawal.
Changes in your provincial/territorial rates may also impact the above decision. This is particularly applicable in Alberta where the tax on income over $125,000 will rise by additional amounts in 2016.
There are also some year-end planning possibilities available which do not specifically relate to the impending change in tax rates:
1)      Elect to pay out tax-free dividends from the "Capital Dividend Account". If, however, you are in the top tax bracket, you may want to pay out taxable dividends this year, and save the tax-free dividends for future years when the tax rates are higher.
2)      Consider paying taxable dividends to obtain a refund from the "Refundable Dividend Tax on Hand" account in the Corporation.
3)      Corporate earnings in excess of personal requirements could be left in the company to obtain a tax deferral (the tax is paid when cash is withdrawn from the company).

The effect on the "Qualified Small Business Corporation" status should be reviewed before selling the shares where large amounts of capital have accumulated.

4)      Dividend income, as opposed to a salary, will reduce an individual's cumulative net investment loss balance thereby possibly providing greater access to the capital gain exemption.

5)      Excessive personal income may reduce receipts and credits, such as Old Age Security, the age credit, child tax benefits, and GST credits.
It may be advantageous to defer receiving Old Age Security receipts (for up to 60 months) if it would otherwise be eroded due to high income levels (greater than $72,809 for 2015).
6)      Salary payments require source deductions (such as CPP, EI and payroll taxes) to be remitted to CRA on a timely basis.
7)      Individuals that wish to contribute to the CPP or a RRSP may require a salary to create "earned income".
RRSP contribution room increases by 18% of the previous years' "earned income" up to a yearly prescribed maximum ($24,930 for 2015; $25,370 for 2016).
8)      Spouses may jointly elect to have up to 50% of certain pension income reported by the other spouse.
9)      If you are providing services to a small number of clients through a corporation (which would otherwise be considered your employer), CRA could classify the corporation as a Personal Service Business. There are significant negative tax implications of such a classification. In such scenarios, consider discussing risk and exposure minimization strategies with your professional advisor.

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Stats Can reports:

Persons aged 65 years and older outnumber children 0 to 14 years

On July 1, 2015, preliminary estimates show that, for the first time, there were more persons aged 65 years and older in Canada than children aged 0 to 14 years. Nearly one in six Canadians (16.1%)-a record 5,780,900 Canadian s-was at least 65 years old, compared with 5,749,400 children aged 0 to 14 years (16.0%).

According to the most recent population projections, the share of persons aged 65 years and older will continue to increase and should account for 20.1% of the population on July 1, 2024, while the share of children aged 0 to 14 years should account for 16.3%.

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Recent CRA Decisions
There is no escape from tax...

Deductions - Bad debts - Whether taxpayer's belief that a certain debt owing to her had become a "bad debt" was reasonable

In dismissing the taxpayer's appeal from the Minister's reassessments for 2003 and 2004, the TCC concluded that the taxpayer had
failed to establish that a certain debt owing to her by a corporation (the "Debt") was a "bad debt" for the purposes of paragraph 50(1)(a) of the ITA.

In dismissing the taxpayer's further appeal, the FCA concluded that: (a) a bad debt analysis requires the creditor to personally consider all of the relevant factors, and then to determine, honestly and reasonably, that the debt is bad (see Rich v. The Queen 2003 FCA 38); and (b) the TCC determined, in this case that, while the taxpayer's honesty was not in dispute, she failed to establish that her belief that the Debt was bad was reasonable; and (c) this finding involved no palpable and overriding error, so that no appellate intervention was necessary. - ITA s. 50(1)(a).


Minister seeing documents for audit - Whether documents requested were available to taxpayer - Whether taxpayers could be ordered to produce documentation -

The taxpayer, ACMS, was a member of the Amdocs Group of companies that provided software and related services in over eighty countries to communications, media and entertainment service providers. ACMS provided IT services to telecommunication companies. It was subject to various audits for its 2011 and 2012 taxation years.

The CRA was conducting a transfer pricing audit ("TPA") to determine if ACMS carried out its cross-border transactions involving non-resident corporations at arm's length. Of the sixteen queries for information, three remained outstanding. MNR was seeking a compliance order requiring ACMS to provide documentation regarding the three queries. It was seeking (1) a detailed functional organizational chart for all Amdocs entities involved in transactions with ACMS, (2) detailed working papers and financial statements related to management fees charged to ACMS by Amdocs Management Limited, and (3) detailed working papers and financial statements for Amdocs to support back office charges made to ACMS.

MNR argued that the documents provided by ACMS were not detailed enough to enable it to carry out the audit. ACMS contended that it provided all the information it was able to obtain, that the organizational charge asked for did not exist and that the MNR had all the documentation necessary to conduct the audit. The determination as to what documentation is needed is to be made by the Minister.

The MNR established that ACMS did not provide the documentation that was sought but the issue to be determined is whether ACMS is required to provide the information. ACMS provided all the information it was able to obtain. The information sought by the MNR either did not exist or was not in the power, possession or control of ACMS. ACMS made all reasonable efforts to obtain the information and the Court will not exercise its discretion to order ACMS to provide information that it does not have. The application for a compliance order was dismissed.    
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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 - January 2016 (Episode 8)

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 - January 2016
Life in the Tax Lane - January 2016



Howard Render, CPA*CA