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TAX TICKLERS… some quick points to consider…

 

  • Canada Pension Plan (CPP) – The Federal Government has been consulting on, and intends to continue examining possibilities to enhance the CPP.

  • Principal Residence Exemption (PRE) – A vacation property, even if situated outside of Canada, may be eligible for the PRE.

  • U.S. Real Estate – Sales of U.S. real estate by non-residents are now generally subject to a 15% U.S. Federal withholding tax (previously at 10%) if a waiver certificate is not obtained.

  • Canada Child Benefit (CCB) – The new CCB will replace the Canada Child Tax Benefit and Universal Child Care Benefit commencing July 2016, providing a maximum annual benefit of $6,400/child under age 6, and $5,400/child aged 6-17. The benefit will be phased out dependent on adjusted family net income.

  • Teachers and Early Childhood Educator School Supply Tax Credit – This new 15% refundable tax credit (maximum value of $150/year) proposed to commence in 2016 is based on up to $1,000 of eligible expenditures, such as amounts paid out-of-pocket for classroom supplies.

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EMPLOYEE EXPENSES: Not Deductible?

                         In a July 9, 2013 Tax Court of Canada case, a group home counselor took residents of the group home shopping, to medical appointments, and to recreational activities as part of his employment duties.  The employee argued that it was an implicit term of his contract that he incurs expenses for the use of his own personal vehicle and, therefore, the amounts should be deductible on his personal tax return.

 

Taxpayer loses

The taxpayer’s manager noted that many employees do not use their own vehicle for transporting residents and instead take a taxi or public transportation.

 

Because the employee was not required under his contract of employment to use his vehicle, the Court disallowed the expenses.

 

Consideration Item:  This may apply to a wide range of employees, including those who have received T2200s from their employers.  A T2200 (Declaration of Conditions of Employment) is the form signed by employers that allow employees to deduct certain employment expenses from his or her income.

 

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In a November 8, 2012 Tax Court of Canada case, CRA disallowed as a medical expense $14,883 of travel costs related to 101 round trips that Mr. Jordan made from Weyburn to Regina to assist his wife in recovering from an aneurysm.

Taxpayer wins!!

The Court allowed the deductions on the basis that they were incurred while his wife was receiving medical treatment and, therefore, should not be restricted to just the initial trip from Weyburn to Regina.

 

Tax Tips & Traps 2013

 

The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a newsletter such as this, a further review should be done by a qualified professional

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Are you a director?

Jul 10, 2013

 

DIRECTOR LIABILITY

In an October 16, 2012 Tax Court of Canada case, the issue was whether the Appellant, as a director of the corporation, was personally liable for the unremitted GST of $2,512.

Taxpayer wins!!

The Court noted that he had effectively lost control over the corporation’s affairs.

It was also noted that the individual is not necessarily personally liable if external constraints (such as psychological, economic and social control) were such that a reasonable person who was a victim of the same control would have done nothing.

 

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CAYMAN ISLANDS

                        Effective September 1, 2012, the Cayman Islands have introduced a new 10% payroll levy on expatriates who earn more than $36,000 a year.  This would affect approximately 5,875 expatriates living and working in the Cayman Islands.

Tax Tips & Traps 2013

 

The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a newsletter such as this, a further review should be done by a qualified professional.

Although every reasonable effort has been made to ensure the accuracy of the information contained in this newsletter, no individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents.

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Taxpayers moving to start a job or business or to begin full-time attendance at an educational institution may be entitled to claim eligible moving expenses.

When taxpayers move, they commonly incur significant costs, many of which are deductible as moving expenses, including:

  • Transportation and storage costs (packing, hauling, in-transit storage and insurance) for possessions and household contents;
  • Reasonable travelling costs (vehicle expenses, meals, accommodation) to move you and your family;
  • Temporary living costs near the old or new location (meals, accommodation) for up to 15 days;
  • Lease cancellation costs;
  • Temporary home costs while trying to sell your vacant residence (interest, property taxes, insurance premiums, heat and utilities) after you have moved out to a maximum of $5,000;
  • Transaction costs of selling of your old house (real estate commissions, advertising, legal fees, and mortgage penalties);
  • Transaction costs of buying a new house (legal fees and land transfer taxes excluding GST/HST) if the old house is sold due to the move;
  • Costs incidental to the move (connecting and disconnecting utilities, changing legal documents such as a driver’s license or automobile registration).

TAX TIPS & TRAPS 2013

The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a newsletter such as this, a further review should be done by a qualified professional.

Although every reasonable effort has been made to ensure the accuracy of the information contained in this newsletter, no individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents.

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                      INPUT TAX CREDITS (ITCs) - TRAVEL ALLOWANCES

In a January 17, 2013 Tax Court of Canada case, ITCs of $126,339 were claimed with regards to travel allowances paid to employed sales representatives for the estimated number of kilometers driven.

Taxpayer loses

The Tax Court noted that:

1.   The allowances paid were based on an estimate of the kilometres to be travelled and not on the actual kilometres driven for business.

2.   The Excise Tax Act (ETA) permits ITCs related to non-taxable allowances, however, the allowance must be based on the actual number of kilometres driven.

3.   The requirements were not met, and the ITCs were not allowed.

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In a September 6, 2012 Tax Court of Canada case, the taxpayer was a police officer who had three unreported sales of family homes built in 2004, 2005 and 2007 in which CRA assessed business income of $31,068, $44,729 and $29,872 and also assessed gross negligence penalties.

For the three properties, the ownership period between the date of purchase of the land and the date listed for sale varied between 67 and 110 days.

Taxpayer loses

The Court found that these homes were acquired and built with the intention of selling and were, therefore, business income and, that there was gross negligence in not reporting the income.

Tax Tips & Traps 2013

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Supplies

CRA notes that an employee can deduct the cost of supplies paid if the employee meets all of the following conditions:

  • Under your contract of employment, you had to provide and pay for the supplies.
  • You used the supplies directly in your work.
  • Your employer has not repaid and will not repay you for these expenses.
  • You keep with your records a copy of Form T2200, Declaration of Conditions of Employment, which has been completed and signed by your employer.

                        Supplies are only materials used directly in your work, and for no other purpose.

Supplies include items such as stationery, stamps, toner, ink cartridges, street maps, and directories.  Supplies do not include items such as briefcases or calculators.

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CANADIAN SNOWBIRDS - TIME SPENT IN THE U.S.

If an individual spends 183 days or more in the U.S. they will be considered to be a U.S. resident (subject to some very minor exceptions).  As such, he/she will be subject to U.S. taxation on worldwide income and may need to file several other forms although some relief may be available if the individual is considered a Canadian resident under the Canada-U.S. Treaty.

If an individual spends less than 183 days in the U.S. in the year, but the total of their time as determined by the following formula (substantial presence test) is 183 days or greater, they would be considered U.S. residents.

The total of:

•      All the days you were present in the current year, and

•      1/3 of the days you were present in the first year before the current year, and

•      1/6 of the days you were present in the second year before the current year.

If determined to be a resident under this scenario, the individual would be subject to the same considerations as discussed in the “presence of 183 days or more” scenario above.

If an individual is in the U.S. for less than 183 days but is considered a resident under the substantial presence test, they may complete Form 8840 - Closer Connection Exception Statement for Aliens to except themselves from residency.

Editors’ Comment

Specific U.S. advice may be needed in these areas.

Tax Tips & Traps 2013

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