Seasons Greetings

Cheryl, Trevor, Pat and the staff at Deverdenne Davis Cyr LLP wish you and your family a Merry Christmas and a happy, healthy and successful New Year.

Holiday Season Office Hours

Our office will be closed for the holidays December 25th through January 1st. We will resume our regular office hours 8:30am - 4:30pm on Tuesday, January 2nd, 2024. Please note this closure if you have a December 31st tax filing or payment deadline to consider.

In Our Community

For our annual Christmas community sponsorship we have chosen to support families through Helping Hands of Grande Prairie. We donated gifts and groceries to enhance the Christmas season for families in our community. Helping Hands of Grande Prairie began as a Christmas hamper program and has grown into a year round operation to provide food and other necessities to help people in need.

Year End Payroll Reminder

We suggest that you reconcile your 2023 payroll source deductions to your CRA payroll account prior to the payment of your final 2023 remittance. Also confirm that your CPP and EI deductions are correct for the year. The 2023 CPP maximum annual pensionable earnings are $66,600 with the employee maximum contribution of $3,754.45. The EI maximum annual insurable earnings are $61,500. and the EI maximum annual premiums are $1,002.45 for the employee portion and $1,403.43 employer portion.

If your business made payments to employees or shareholders for employment income, commissions, taxable benefits, dividends, interest or for other services during the year, the income may need to be reported to CRA on a T4, T4A, T5 or other slip. The deadline to file these slips is February 29th, 2024.

Tax Tidbits

Some quick points to consider...

• As of January 1, 2024, where more than five information returns of a particular type (such as T4s, T5s, T3s, T4As, NR4s and T5018s) are filed on paper (as opposed to electronically) for a particular filer, a penalty of $125/form will apply. Businesses filing five or fewer forms can still do so on paper without penalty.
• Renovations to create a safe play and therapy area for a child with a mental impairment could be eligible for the home accessibility tax credit.

CEBA Repayment Deadline Extended: Some Issues

On September 14, 2023, the Department of Finance provided details on extending the deadline for Canada Emergency Business Account (CEBA) repayments, including the following key elements:

• the deadline to qualify for partial loan forgiveness (by paying the non-forgivable portion) has been extended from December 31, 2023 to January 18, 2024;
• if a refinancing application is made with the financial institution that provided the CEBA loan by January 18, 2024, the deadline to qualify for partial loan forgiveness will be extended to March 28, 2024;
• as of January 19, 2024, outstanding loans will convert to three-year term loans subject to a 5% annual interest rate regardless of whether refinancing is sought; and
• the previous final repayment deadline of December 31, 2025 has been extended to December 31, 2026.

Financial institutions will contact CEBA loan holders directly regarding their loans. The above changes also apply to CEBA-equivalent lending through the Regional Relief and Recovery Fund.

Enhanced GST Residential Rental Rebate: Increased Incentives

On September 14, 2023, the Department of Finance provided details on a proposal to enhance the existing GST rental rebate. In general, the existing rebate provides a 36% rebate of the GST component of the price paid by landlords to construct, or purchase newly constructed, rental property. The existing rebate begins to be phased out for properties valued at over $350,000 and is eliminated at $450,000.

The proposal would increase the rebate from 36% to 100% and remove the phase-out thresholds for properties with a value over $350,000. The proposal would apply to certain rental housing projects that begin construction between September 14, 2023 and December 31, 2030, inclusive, and complete construction by December 31, 2035.

To qualify for the enhanced rebate, new residential units would need to meet the requirements for the existing rental rebate and be in buildings meeting the following criteria:

• the property must contain at least four private apartment units (units must have a private kitchen, bathroom and living area) or at least 10 private rooms or suites (examples of residences for students, seniors and people with disabilities were provided); and
• at least 90% of the residential units in the building must be designated for long-term rental.

Projects that convert existing non-residential real estate, such as an office building, into a residential complex would also be eligible if all other conditions are met. Public service bodies would also be eligible to access the enhanced rebate.

The enhanced rebate will not apply to other properties, such as individually owned condominium units, single-unit housing, duplexes, triplexes or housing co-ops; however, the existing rebate would still be available. Substantial renovations of existing residential complexes would not be eligible.

On September 21, 2023, the Bill to enact these measures was introduced in the House of Commons. This Bill did not include all the criteria for eligible projects but provided that the remaining specifics would be set by regulation in the future.

Enhanced First-Year CCA: Phase-Out After December 31, 2023

Over the past several years, several incentives permitting enhanced CCA claims in the year property first becomes available for use have been implemented. Claiming the enhanced first-year CCA provides a tax deferral by accelerating the deduction. The phase-out of these incentives will begin for assets that become available for use after December 31, 2023.

Immediate expensing property (IEP)

Many capital assets, other than those with particularly long lives (such as buildings), are eligible IEP. This includes assets used in a business such as vehicles and equipment. CCPCs that acquire IEP that becomes available for use by December 31, 2023, can claim up to 100% CCA on the IEP. The same end date applies to property acquired by eligible Canadian partnerships that had at least one member that was not an individual. No claim is available under this provision after this date.

For individuals and other eligible Canadian partnerships (where all members are eligible individuals), the property must be made available for use by December 31, 2024.

Accelerated investment incentive property (AIIP) - general

Most capital assets are eligible AIIP. AIIP property that is not manufacturing and processing (M&P) or clean energy equipment is eligible for triple the usual CCA claim available in the year of acquisition. For property that becomes available for use after December 31, 2023, this will decline to twice the usual CCA available in the first year. For property made available for use after December 31, 2027, no enhancement will be available.

Zero-emission property and manufacturing and processing (M&P) or clean energy equipment

The 100% CCA deduction applicable to zero-emission vehicles, zero-emission automotive equipment and AIIP that is either M&P or clean energy equipment is only available for property that becomes available for use by December 31, 2023. Property that becomes available for use by December 31, 2025 will be subject to a maximum 75% first-year CCA deduction. Property that becomes available for use in the following two years will be subject to a 55% maximum.

Surcharge To Accept Payment Via Credit Card: GST/HST?

As of October 2022, merchants could charge an additional fee for accepting payment via credit card. In a March 28, 2023 Technical Interpretation, CRA opined that the additional fee would be a separate exempt supply of a financial service and, therefore, not subject to GST/HST if all of the following conditions are met:

• the fee is charged to the cardholder solely for the acceptance of the use of the credit card as a payment method and is not charged if another payment method is used;
• the fee is imposed by (and is thus the revenue of) the merchant who provides to the cardholder the property or service that is purchased with the use of the credit card and not by a person who acts as a billing agent or payment service provider in facilitating the payment;
• the fee is subject to the relevant credit card network rules relating to surcharging, including rules regarding the calculation and level of the surcharge; and
• the fee is shown and charged separately to the cardholder.

Business Purchasing from Non-Residents: GST/HST?

Certain non-resident vendors are required to register for and collect GST/HST under a new simplified GST/HST registration regime that commenced July 1, 2021. While the rules are very complex under the simplified regime, GST/HST is not required to be collected on the supply of goods or services to customers registered for GST/HST. To avoid being charged GST/HST, the customer must provide their GST/HST registration number to the non-resident vendor. Where GST/HST is paid in error to a non-resident vendor registered under the simplified regime, the amount is not recoverable by claiming an input tax credit or filing a claim for tax paid in error.

One challenge business customers face is determining whether a non-resident vendor is registered under this simplified regime.

In the summer of 2023, CRA announced that non-residents registered under the simplified method would have their GST/HST accounts automatically transitioned from an RT0001 identifier to RT9999. This new identifier should be noted on all receipts. When a GST/HST registrant purchases from a vendor with this identifier, the purchaser should provide the vendor with its GST/HST number to prevent being charged GST/HST. 

Mandatory Disclosure Rules: Increased CRA Disclosures

The requirement for taxpayers and their advisors to disclose reportable transactions to CRA has been expanded for transactions entered into after June 21, 2023. This change is part of a broader suite of changes requiring the disclosure of tax strategies considered aggressive by the government. Similar requirements exist in other countries, including the United States, the United Kingdom, the European Union and Australia.

Transactions that must be reported

A transaction or series of transactions must be reported if it is an avoidance transaction and if one hallmark of aggressive tax planning (contingent fee, contractual protection or confidential protection) is present. Where there are no hallmarks, the transaction is not reportable, even if there is a tax benefit.

Avoidance transaction

An avoidance transaction is one where it can be reasonably considered that obtaining a tax benefit was one of the main purposes. This could capture many normal transactions as tax (either alone or with other motivators) is often a main factor.

Contingent fee arrangements hallmark

This hallmark is present if an advisor or promoter (or non-arm’s length person to them) has or had entitlement immediately or in the future and either absolutely or contingently, to a fee based on, or contingent on, a tax benefit.

Contractual protection hallmark

This hallmark is present if the taxpayer, another person who entered into the transaction for the benefit of the taxpayer, an advisor or a promoter or a non-arm’s length person to any of these persons has or had contractual protection in respect of the transaction or series.

Contractual protection means any form of insurance (other than standard professional liability insurance) or other protection. For example, this could include an indemnity, compensation or a guarantee. The insurance or protection must protect against a failure to achieve the tax benefit or provide support in the course of a dispute related to the tax benefit.

Confidential protection hallmark

This hallmark is present if an advisor or promoter (or non-arm’s length person to them) obtains or obtained confidential protection in respect of a tax treatment related to the avoidance transaction or series from a person they sold the plan to or provided assistance or advice to.

Confidential protection prohibits disclosing the details or structure of the transaction or series to any person (including CRA). Disclaiming or restricting an advisor’s liability is not confidential protection if it does not prohibit the disclosure of the details or structure of the transaction or series.

CRA opined that the protection of trade secrets that do not relate to tax does not constitute the presence of the confidential protection hallmark.

Deadline

The deadline for reporting is 90 days after the earlier of the transaction or becoming contractually obligated to undertake the transaction.

Penalties

Penalties of $500 per week, up to the greater of 25% of the tax benefit and $25,000, apply to most taxpayers. For corporations with at least $50 million of assets, the penalty is $2,000 per week up to the greater of 25% of the tax benefit and $100,000.

Revival of a Corporation: Tax Collection

A June 12, 2023 Court of King’s Bench of Alberta case reviewed CRA’s application to revive a corporation dissolved in 2020. The former sole shareholder opposed the application. The corporation’s capital losses (as quantified during an audit of the 2013 and 2014 years) were used in 2017 and 2018. CRA sought to revive the corporation and issue notices of assessment for 2017 and 2018.

Revival granted

Under the Alberta Business Corporations Act, a creditor has standing to ask that a dissolved corporation be revived. While taxpayers remain liable for tax when income is earned, the liability does not become a debt until taxes are assessed. As no notice of assessment had been issued, CRA had no standing as a creditor. They would only become a creditor if they issued a notice of assessment. This created a circularity issue as an assessment could not be issued to a dissolved corporation. However, the Court has the power to designate someone as an “interested person,” allowing the designated person to revive a dissolved corporation.

The Court found that CRA had a valid interest in the revival and sought this remedy to further its interest; that is, to issue a notice of assessment to convert the taxpayer’s liability for taxes into a debt.

While the revived corporation would have no assets, no property, no directors and no shareholders, a dissolved corporation that has been revived is deemed to always have existed. CRA argued that they could pursue the former shareholders on the basis that assets were transferred on dissolution to non-arm’s length parties for less than fair market value consideration.

Similar rules are applicable in other provinces.

Employment Insurance: Misconduct

An August 24, 2023 Federal Court of Canada case reviewed whether the taxpayer’s employment had ceased due to misconduct, which would render the taxpayer ineligible for employment insurance. The taxpayer worked at a community health care centre that required all employees to provide proof of full vaccination against COVID-19 unless they provided evidence of a valid medical reason or they had a valid human rights reason (including religion) in accordance with the Ontario Human Rights Code for not being vaccinated. The Social Security Tribunal found that the taxpayer lost his employment due to his own misconduct because he was aware of his employer’s vaccination policy and the consequences of not complying. The Court found that this decision was not unreasonable.

Year End Tax Planning

December 31st, 2023 is fast approaching… see below for a list of tax planning considerations. Please contact us for further details or to discuss whether these may apply to your tax situation.

Some 2023 Year-End Tax Planning Tips Include

1. Certain expenditures made by individuals by December 31, 2023 will be eligible for 2023 tax deductions or credits, including digital news subscriptions, moving expenses, labour mobility tax credit expenditures, multigenerational home renovation expenditures (NEW), child care expenses, charitable donations, political contributions, registered journalism organization contributions, medical expenses, alimony, eligible employment expenses, union, professional or like dues, carrying charges and interest expense. Ensure you keep all receipts that may relate to these expenses.
2. A senior whose 2023 net income exceeds $86,912 will lose all, or part, of their old age security pension. Senior citizens will also begin to lose their age credit if their net income exceeds $42,335. Consider limiting income over these amounts, if possible. Another option would be to defer receiving old age security receipts (for up to 60 months) if it would otherwise be eroded due to high-income levels.
3. If you own a business or rental property, consider making a capital asset purchase by the end of the year. Many capital assets purchased and made available for use in 2023 will be eligible for a 100% CCA write-off under the immediate expensing rules. Some zero-emission electric vehicles purchased by businesses may be eligible for a 100% write-off (limited in some cases to the first $61,000). Alternatively, zero-emission vehicles purchased in 2023 may be eligible for a federal incentive rebate of up to $5,000.
4. Consider selling non-registered securities, such as a stock, mutual fund or exchange-traded fund, that have declined in value since it was bought to trigger a capital loss that can offset capital gains in the year. Anti-avoidance rules may apply when selling and buying the same security, even where the same security is held in different brokerage accounts. 
5. Consider restructuring your investment portfolio to convert non-deductible interest into deductible interest. It may also be possible to convert personal interest expense, such as interest on a house mortgage or personal vehicle, into deductible interest.
6. If you have equity investments or loans to a Canadian small business that has become insolvent or bankrupt, an allowable business investment loss (ABIL) may be available. For loans to corporations to be eligible, the borrower must act at arm’s length. ABILs can offset income beyond capital gains, such as interest, business or employment income.
7. If a commercial debt you owe (generally a business loan) has been forgiven, special rules apply that may result in additional taxes or other adjustments to the tax return.
8. You have until Thursday, February 29, 2024, to make tax-deductible registered retirement savings plan (RRSP) contributions for the 2023 year. Consider having the higher income earning individual contribute to their spouse’s RRSP via a “spousal RRSP” for greater tax savings.
9. NEW! As of April 2023, individuals can contribute to the new tax-free first home savings account (FHSA). Eligible contributions are deductible, and withdrawals to purchase a first home are not taxable. Up to $8,000 can be contributed annually, to a maximum lifetime limit of $40,000. Contributions must be made in 2023 to be deducted against 2023 income.
10. Individuals 18 and older may deposit up to $6,500 into a tax-free savings account in 2023. An additional $7,000 may be contributed starting on January 1, 2024. Consider a catch-up contribution if you have not contributed the maximum amount for prior years. For those who have never contributed to their TFSA and have been building room since 2009, the total maximum contribution room in 2024 will reach $95,000. An individual’s contribution room can be found online on CRA’s My Account.
11. A Canada education savings grant for registered education savings plan (RESP) contributions equal to 20% of annual contributions for children (maximum $500 per child per year) is available. In addition, lower-income families may be eligible to receive the Canada learning bond.
12. A registered disability savings plan (RDSP) may be established for a person under 60 eligible for the disability tax credit. Non-deductible contributions to a lifetime maximum of $200,000 are permitted. Grants, bonds and investment income earned in the plan are included in the beneficiary's income when paid out of the RDSP.
13. Canada pension plan (CPP) receipts may be split between spouses aged 65 or over (application to CRA is required). Also, it may be advantageous to apply to receive CPP early (age 60-65) or late (age 65-70).
14. Are you a U.S. resident, citizen or green card holder? Consider U.S. filing obligations concerning income and financial asset holdings. Filing obligations may also apply if you were born in the U.S. Information exchange agreements have increased the flow of information between CRA and the IRS. Collection agreements enable CRA to collect amounts on behalf of the IRS.
15. If income forms or elections have been missed in the past, a voluntary disclosure to CRA may be available to avoid penalties.
16. Interest free loans of up to $40,000 are available to homeowners and landlords who undertake retrofits identified through an authorized EnerGuide energy assessment.
17. Underused Housing Tax (UHT) – The UHT is an annual 1% tax intended to apply to the value of residential real estate owned by non-residents that is considered to be vacant or underused. However, many Canadian individuals on the title of a residential property on December 31 may also need to file UHT returns. This can occur if a person is holding the property in trust for another (such as when a person is on the title but is not the true owner) or if a person is holding the property as a partner for a partnership. NEW! The government has proposed changes that would exclude many of these individuals from filings for the 2023 year (i.e. for those on title as of December 31, 2023). However, the relieving measures are not proposed to apply to those on title for the 2022 year. Filings for both the 2022 and 2023 years are due on April 30, 2024.
18. Tax free Canada dental benefit payments of up to $650 per child per year are available to cover dental expenses for children under 12 if they do not have dental insurance coverage. The benefit is available to families with an adjusted net income of less than $90,000. Applications can be made online through CRA's MyAccount. NEW! If no benefit was claimed for the first application period (ending June 30, 2023), an additional payment may be available for the second period (ending June 30, 2024).
19. NEW! The 2023 Fall Economic Statement proposed to deny income tax deductions for expenses, including interest expenses, incurred to earn short term rental income when that income is earned in provinces and municipalities that have prohibited short term rentals and when short term rental operators are not compliant with the applicable provincial or municipal licensing, permitting or registration requirements, effective for expenses incurred January 1, 2024 and onwards. While this does not affect 2023 filings, it may impact the financial considerations surrounding these assets in 2024.

2023 Remuneration

Higher personal income levels are taxed at higher personal rates, while lower levels are taxed at lower rates. Therefore, individuals may want to, where possible, adjust income out of high income years and into low income years. This is particularly useful if the taxpayer is expecting a large fluctuation in income due to, for example, an impending:

• maternity/paternity leave
• large bonus/dividend, or
• sale of a company or investment assets.

In addition to increases in marginal tax rates, individuals should consider other costs of additional income. For example, an individual with a child may receive reduced Canada child benefit (CCB) payments. Likewise, excessive personal income may reduce the receipt of OAS, GIS, GST/HST credit and other provincial/territorial programs.

There are various ways to smooth income over several years to ensure an individual is maximizing access to the lowest marginal tax rates.

• Taking more or less earnings out of the corporation (in respect of owner-managed companies).
• Realizing capital gains/losses by selling investments.
• Deciding whether to claim RRSP contributions made in the current year or carry forward the contributions.
• Withdrawing funds from an RRSP to increase income. However, care should be given to the loss in the RRSP room based on the withdrawal.
• Deciding whether or not to claim CCA on assts used to earn rental/business income.

Dividends paid to shareholders of a corporation that do not "meaningfully contribute" to the business may result in higher taxes due to the "tax on split income" rules.

Year-end planning considerations not specifically related to changes in income levels and marginal tax rates include:

1. NEW! The alternative minimum tax (AMT) regime is proposed to change for 2024. Individuals may find themselves subject to a larger AMT liability in 2024 and onwards if they have high earnings (above approximately $173,000) and experience certain events with tax-advantaged benefits, such as large capital gains (including the use of the lifetime capital gains deduction) and significant charitable donations. In some cases, triggering transactions in 2023 may be advantageous.
2. Corporate earnings in excess of personal requirements could be left in the company to obtain a tax deferral (the personal 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. In addition, changes that may limit access to the small business deduction where significant corporate passive passive investment income is earned should be reviewed.
3. If dividends are paid out of a struggling business with a tax debt that cannot be paid, the recipient could be held liable for a portion of the corporation's tax debt, not exceeding the value of the dividend.
4. Individuals who wish to contribute to the CPP or an RRSP may require a salary to generate earned income. RRSP contribution room increases by 18% of the previous year’s earned income up to a yearly prescribed maximum ($30,780 for 2023; $31,560 for 2024).
5. Consider paying taxable dividends to obtain a refund from the refundable dividend tax on hand account in the corporation. The refund amount may be restricted if eligible dividends are paid. Eligible dividends are subject to lower personal tax rates.
6. It is costlier, from a tax perspective, to earn income in a corporation from sales to other private corporations in which the seller or a non-arm’s length person has an interest. As such, consideration may be given to paying a bonus to the shareholder and specifically tracking it to those higher-taxed sales. Such a payment may reduce the total income taxed at higher rates.
7. Access to the corporate federal small business deduction is reduced where more than $50,000 of passive income is earned in the corporation. Consider whether it is appropriate to remove passive income-generating assets from the corporation and whether a shift in the types of passive assets held is appropriate. In some provinces, it may actually be beneficial to have access to the federal small business deduction reduced. As many variables affect these decisions, consultation with a professional advisor is suggested.
8. If you provide services to a small number of clients through a corporation (that would otherwise be considered your employer), CRA could classify the business as a personal services business. There are significant negative tax implications of such a classification. Consider discussing risk and exposure minimization strategies (such as paying a salary to the incorporated worker) with a professional advisor in such scenarios.
9. NEW! Effective January 1, 2023, all gains arising from the disposition of residential property (including assignment sales) owned for less than 365 days are deemed to be business income (taxed at the full rate and not eligible for the principal residence deduction) unless a particular exception is met. Consider holding such properties for more than 365 days to avoid the application of these rules. Gains on such dispositions later than 365 days may still be classified as business income under the traditional rules, depending on the nature of the transaction.