ASPE – Classification of Retractable or Mandatorily Redeemable Shares Issued in a TaxPlanning AgreementPosted 4/5/2024 Overview
Retractable or mandatorily redeemable shares (ROMRS) normally hold the following
If the above conditions are not met, then the ROMRS must be classified as a liability at the full
Presentation and Disclosure of ROMRS Classified as a Liability
Impact of the New Reporting Standards Underused Housing Tax ArticlePosted 3/10/2023 What is the Underused Housing Tax? Effective January 1, 2022, the Underused Housing Tax (UHT) was introduced by the Canadian federal government with the objective of applying a one percent annual tax on the value of vacant or underused residential properties located in Canada. The goal of the newly implemented legislation is to mainly penalize non-resident, non-Canadian owners of vacant or underused residential property. As a result, the tax generally applies to residential property owned by foreign individuals who are not Canadian citizens or permanent residents – in certain circumstances, the rule may also apply to residential real estate owned by Canadian entities. 1 This UHT was implemented on June 9, 2022 and applies to those who own residential property as of December 31, 2022. 2 What Types of Properties are Affected by the Underused Housing Tax? According to the Government of Canada, the UHT applies to Canadian residential
Who Needs to File the Underused Housing Tax? Under the UHT, all affected owners of residential property in Canada on or before December 31, 2022 must file an Underused Housing Tax return (UHT-2900) by April 30 of the subsequent calendar year. 4 Affected owners, unless qualified for an exemption, are required to pay the one percent tax of the property’s value (calculated as the greater of the property’s assessed value or most recent sale price) multiplied by the ownership percentage.5 It is important to note that even if an affected owner’s residential property qualifies for a tax exemption, he or she is still required to file a UHT-2900. Excluded owners of residential property, on the other hand, are not required to file an Underused Housing Tax return. Who Qualifies as an Affected Owner? As previously stated, all affected owners of residential property are required to file an Underused Housing Tax return. The following criteria below applies to affected owners: 6
Who Qualifies as an Excluded Owner? Excluded owners are not obligated to file a UHT-2900. To qualify as an excluded owner, one of the following criteria must be met: 7
What are the Exemptions to the UHT? Although an individual may be an affected owner of the UHT, he or she may be eligible for an exemption which is strictly dependent on: 8 Type of Ownership Exemption The first exemption is based on the type of ownership of the residential property. To
Occupancy of the Property Exemption The second exemption is based on the nature of the occupancy of the property. To fall
Availability of the Property Exemption This exemption is based on the availability of the residential property, where the exemption may be claimed provided that the property is: 11
Location and Use of the Property Exemption The final exemption relates to the location and use of the residential property, where an
How to File the UHT and Penalties for Late Filing The UHT may be filed either by mail or electronically. If elected to file by main, the UHT- For those with address of residences located in any of the following locations, the form may be mailed to the Winnipeg Tax Centre: 12
Winnipeg Tax Centre
Sudbury Tax Centre
1 https://www.canada.ca/en/services/taxes/excise-taxes-duties-and-levies/underused-housing-tax.html
Deductibility of Business Expenses ArticlePosted 1/4/2023 How to Determine the Deductibility of Business Expenses? The determination of the deductibility of certain business expenses for taxation purposes has often boggled the mind of numerous business owners. To appropriately determine the deductibility of a business expense, the first and foremost procedure is to determine whether the expense is of a personal or business nature. In accordance to paragraph 18(1)(a) of the Income Tax Act, business expenses that are eligible for a deduction are only limited to those that are incurred “for the purpose of gaining on producing income from [a] business or property”. ¹ In addition, paragraph 18(1)(h) further states that personal expenses are not eligible for a deduction with the exception of travel expenses incurred in the course of generating business income. ² In other words, deductible business expenses are only limited to expenses incurred for the purpose of income-generating activities while personal expenses are deemed non-eligible deductions. Moreover, it is important to note that business expenses that qualify for a deduction must be reasonable in amount. While this criterion is rather subjective in nature, the general rule for determining the reasonableness of a business expense relates to the question: Provided the circumstances, would an ordinary person in the course of business not pay such an amount? ³ If the answer to the question is yes, then the amount is likely to be unreasonable. For example, cleaning services for the purpose of property maintenance is considered a legitimate business expense incurred for income-generating purposes. A business owner may also decide to employ a family member to perform these services once a week for three hours while paying that individual a salary for the service performed. In this case, the amount paid must be reasonable taking into consideration the prevailing market rate for such services – offering a wage of $100 an hour may seem unreasonable provided that the average rate for cleaning services in a certain jurisdiction is equivalent to $25 an hour. What Expenses Qualify for a Tax Deduction? As a general rule, personal and living expenses are prohibited from tax deductions as only expenses that are incurred for the purpose of generating business income are eligible for deductions. The list below is comprised of business expenses that are generally eligible for a deduction 4:
What Expenses Do Not Qualify for a Tax Deduction? In contrary to the above listed deductible business expenses, the following list below outlines some common non-deductible business expenses 5 :
What the CRA Looks for During Business Audits In order to verify the legitimacy of business expenses, the CRA conducts regular business audits of the expenses incurred in a business. In particular, the CRA will be on the look out for personal expenses claimed as business expenses, with red flags including 6 :
Tips to Track Business Expenses To facilitate the recordkeeping process for business expenses, it is important to develop good habits to track these expenses. First of all, it is mandatory to keep all records associated with your business expenses, including but not limited to receipts, invoices, monthly bank and credit card statements, as well as a record of each automobile used for business purposes. Below are some tips to help make the recordkeeping process simpler and more efficient:
1 J. Andre Rachert, "Proving Business Expenses: Checklists and Commentary," in 2012 British Columbia Tax Conference (Toronto: Canadian Tax Foundation, 2012), 11:1-26. 4 https://www.canada.ca/en/revenue-agency/services/tax/businesses/small-businesses-self-employed-income/business-income-tax-reporting/business-expenses/types-operating-expenses.html 5 https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/business-expenses.html 6 J. Andre Rachert, "Proving Business Expenses: Checklists and Commentary," in 2012 British Columbia Tax Conference (Toronto: Canadian Tax Foundation, 2012), 11:1-26.
Determination of Fiscal Year-end of Canadian CorporationsPosted 10/7/2022 We will cover the fiscal year-end determination in regard to the following situations:
New Corporations: Setting up a Tax Year and Filing a Corporate Income Tax Return Setting up a new corporation can be an exciting yet stressful time for many new business owners. Taxation implications, in particular, constitute one of the most important yet problematic issues of which new corporations must be aware. First and foremost, corporations must decide on a tax-year. Under Canadian taxation law, the tax year for a corporation is equivalent to its fiscal period and cannot be greater than 53 weeks or 371 days. For instance, suppose that a new corporation’s incorporation date is March 25, 2021. For its fiscal year end, the company may choose any date no longer than 53 weeks or 371 days from its incorporation date as its fiscal year end, or in other words, any date before March 31, 2022. Although a newly incorporated corporation is free to choose any date as its fiscal year end, in practice it is recommended that corporations choose the end of a month as its fiscal year end. For individual income tax purposes, the tax-year end is December 31. However, for corporation income tax purposes, a corporation may decide not to use December 31 as its fiscal year end, which in turn results in a time difference when filing income for individual and corporate tax purposes. In the example above, suppose that the corporation chooses March 31, 2022, as its fiscal year end. Since the March 31 year end is different from the December 31 year end for individual income tax filing, this may result in those shareholders receiving dividends, bonuses, and other compensation to report these incentives on their individual income tax return the subsequent year. Therefore, corporations should contact their accountant prior to their fiscal year end in order for the accountant to gain a better understanding of the corporation’s financial situation and make appropriate recommendations. On the other hand, it is worth mentioning that for group companies or otherwise known as multiple corporations controlled by a sole shareholder or same group, it is recommended to talk with your accountant in regard to your group company’s tax planning. Inactive Corporations A corporation that has not conducted any business operations during the fiscal year is deemed inactive. A common misconception is held by many businessowners in relation to filing taxes for an inactive corporation, simply believing that because the corporation has not generated any business activity for the fiscal year, it is therefore not required to file corporate taxes. However, this is not the case as the CRA requires that regardless of a corporation’s activity, it is still required to file a tax return as long as it is incorporated. One thing to note is that inactive corporations that do not have any information on their statement of financial position or statement of earnings are not required to fill out schedules 100, 125, 141 on their corporate tax return. Change of fiscal year end If under any circumstances that a corporation decides to change its fiscal year end, the corporation must submit a letter to the CRA for approval, citing a full explanation of the details and an effective date for the proposed change. In certain circumstances, such as the change of the fiscal year end occurred automatically, then approval from the CRA is not required. Other Special Situations Change of Control First, when a formal share purchase agreement is signed, a deemed year end will occur due to the loss of CCPC status. Afterwards, when the CCPC shares purchase actually occur, this will subsequently result in a second deemed year end subject to ss.249(4). For more detailed information regarding these changes, CRA Technical Interpretation 2011-0424446E5 can be used as a guide. Winding-up / dissolution In the course of winding-up of a corporation, the corporation’s fiscal year ends at dissolution. Note: A corporation with the status 'intent to dissolve' or 'in the process of dissolution' must file as long as they are not entirely dissolved. Emigration Meals Entertainment DeductionPosted 9/7/2022 What is the Special Tax Deduction for Meals and Entertainment? 50% Generally speaking, businesses are entitled to a special deduction for meals and entertainment incurred for income generating purposes. When filing the T2 form for corporate income taxes, the allowable deduction would be added back to net income on Schedule 1 to arrive at income for tax purposes. More specifically, s.67.1 of the ITA allows only 50% of the expense in respect of the human consumption of food or beverages or the enjoyment of entertainment to be deductible for corporate income tax purposes. This section does not apply when it relates to a fundraising event of which the primary purpose is to benefit a registered charity [p.67.1 (2)(b)]. The deduction is equivalent to the lesser of: o 50% of the total amount, or 100% From CRA “Your business regularly provides food, beverages, or entertainment to customers for compensation (for example, a restaurant, hotel).” From CRA “You bill your client or customer for the meal and entertainment costs and "For example, a self-employed individual expends a reasonable amount for meals while away from home. This amount is ultimately billed to a client and is identified in the account submitted to the client as an expense relating to meals. The self-employed individual would be entitled to fully deduct the meal expenses. The 50% limitation would, however, apply to the client." “You are traveling by plane, train or bus and the cost of meals, beverages, and entertainment is included in the travel fee. It's a different case if you’re traveling by other transportations though; in that case, you can only claim 50 percent of any food, beverages and/or entertainment.” From CRA “You include the amount of the meal and entertainment expenses in an employee's income or would include them if the employee did not work at a remote or special work location.” “You incur meal and entertainment expenses for a Christmas party or similar event, and you invite all your employees from a particular location.( Note that the event doesn’t have to be held at your place of business); the guest list has to be democratic, If NOT, your expense deductions are limited to 50 percent. Note, too, that you can only claim expenses for six such events a year.” FROM CRA “The meal and entertainment expenses you incur are for a fund-raising event that was mainly for the benefit of a registered charity.” But be cautious: you can only claim 100 percent of these expenses if the event is a fund-raising event, not if the event is "of the regular activities of a registered charity to accomplish its objectives."
For example, treating a client out to dinner to discuss business matters would be considered an allowable business expense and thus entitled to the 50% write off. To make it simple, meal expenses incurred by an employee alone can be deducted given that the employee was away for at least 12 consecutive hours from the area of the business location where the employee ordinarily works. “Food and beverage expenses related to conventions and seminars you attend for business purposes are treated differently. You can deduct the cost of attending up to two conventions a year. “ “If you attend a convention, conference or seminar where you are provided with meals or entertainment, and no amount of the fee you pay is specifically allocated to the costs of those food, meals or entertainment, you must claim $50 a day as an entertainment and meal expense, but this is subject to the 50 percent limit, so in reality, you can only claim half of this amount, or $25, each day.” The matter gets quite complicated when the meal involves only a single individual – for instance, an employee going out for lunch alone at a restaurant nearby his office because he forgot to bring his lunch would not be eligible for the deduction since the meal was not incurred for the purpose of generating income. However, under s.8(1)(h) of the ITA, it is still possible for a single employee to a deduct travel expenses such as meals, provided that the following conditions are satisfied:
“Long-haul truckers can claim 80 percent of the food and beverages they consume during eligible travel periods, defined as a period of at least 24 continuous hours away from where they live and transporting goods at least 160 kilometers away.” GST Registrants For GST registrants, eligible businesses may claim input tax credits (ITCs) for the purpose of recovering the GST paid on meals and entertainment expenses [s.67 1, 12(1)(x), 20(1)(hh), 248(18)]. 3 The allowable ITC claim is equivalent to 50% of the GST paid. For example, suppose that the total cost incurred for a meal is sums up to $105 ($100 meal, $5 GST). In this case, the registrant would only be entitled to claim half of the GST paid, or $2.50 as an ITC. Keeping Track of Expenses Tips for Clients: It is critical to develop a habit of documenting all relevant business expenses for
"Records should be maintained of the names and business addresses of the customers or other persons being entertained, together with the relevant places, dates, times and amounts supported by such vouchers as are reasonably obtainable." Bookkeeping Tips for New BusinessPosted 2/7/2022 When you start your business with your passion and vision, do you have any plan on your accounting records management? It will be wise to consider it when the business is started. Tips:
In the meantime, there might be shareholder's out-of-pocket payments for business expenses. A reimbursement form will be helpful to list the payments by the shareholder to withdraw the equivalent amount from the company. If the amount is not reimbursed yet at the year end, the expenses should be recorded in the company's books. The unpaid balance by the company will be the short-term shareholder loan.
There are other things that the shareholder who is actively involved in the business should be aware of. For example, how to track the GAS expenses for business? Are all meals and entertainment deductible for business purposes? What if the shareholder works at home for business? When the shareholder needs to get a new phone and how it record it appropriately for the company? 2021 Individual Income Tax FilingPosted 1/7/2022 It's time to get your 2021 tax return prepared and filed on time. We hope the checklist can help you have gather the required tax information to complete your tax return. Please feel free to contact us if you have any questions. We will be able to help you for additional information like moving expenses, more detailed information needed for rental income reporting etc.
| CSRS4200The new Canadian Standard on Related Services (CSRS) 4200, Compilation Engagements replaces Section 9200, compilation engagements and Assurance and Related Services Guideline AuG-5, Compilation Engagements - Financial Statement Disclosures. CSRS4200 is effective for compiled financial information for periods ending on or after December 14, 2021. Learn more
Basis of Accounting
A note describing the basis of accounting applied is required to improve the understandability of financial information. Management is required to obtain third party approval of the expected basis of accounting. Learn more |