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In a March 30, 2012 Technical Interpretation, CRA notes that the taxable income of an Organization that is a Club, Society or Association is exempt from tax for a period throughout which the Organization meets all of the following conditions:

•    it is not a charity;

•    it is organized and operated exclusively for social welfare, civic improvement, pleasure, recreation or any other purpose except profit; and

•    it does not distribute, or otherwise make available for the personal benefit of a member or shareholder, any of its income, unless...

                        In this case, CRA was advised that the Association earned income from a variety of sources including sponsorships and advertising rights, both throughout the year and previously.  The Association had a large increase in income which resulted in a significant increase in Members’ equity.  The increase in Members’ equity has remained steady since that time.  In each year under review, the Association recorded a surplus which was distributed evenly to the Members’ accounts.

CRA noted that Paragraph 149(1)(l) does not mean that an Organization cannot earn a profit; it can, but the profit must be incidental and must result from activities undertaken to support the Organization’s not-for-profit objectives.  The earning of profit cannot be, or become, a purpose of the Organization.

In this case, the Organization provided financial assistance to its Members out of surplus derived from third parties.  CRA noted that these amounts do not appear to be incidental in relation to the overall income and scope of operations, particularly when it appears that the Association is generating a surplus on a regular basis.  Additionally, all of this income was received from third parties and was actively pursued through the use of an agency.

CRA concluded that the Association was likely operating for a profit purpose (together with its not-for-profit purposes) and its NPO status is in jeopardy[S1] .


 [S1]Is the tax status of your non profit association protected?

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HAPPY NEW YEAR!!

Dec 31, 2012

Whether you think it is lucky or not, the number 13 brings luck of some sort to the minds of most people.  Stay positive, take opportunities when they arise and make your own good luck in 2013.  Happy New Year!1

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                      Under new CPP rules, individuals that start receiving their CPP before age 65 (as early as age 60) will suffer a greater penalty but, will have increased benefits if they defer past age 65 (as late as age 70).

For example, if an individual started receiving CPP payments early, previously the penalty was 0.5% per month or 6% per annum.  If a person started five years early at age 60, he/she would suffer a 30% penalty.  This 0.5% per month penalty has been increased to 0.6% to be phased in up to the year 2016.  The benefit for deferring a receipt of CPP payments past 65 is proposed to increase from 0.5% to 0.7% per month and is phased in by 2013.

Therefore, if he/she commenced to receive this at age 60, the amounts that would be received would be 36% less (60 months x .6%). If they waited until age 70, they would receive 42% more (60 months x .7%).

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                      The IRS has paved the way for non-resident, non-filing U.S. taxpayers to comply with their unmet U.S. tax filing obligations with less administrative burdens. The procedure is available for U.S. taxpayers who have resided outside the U.S. since January 1, 2009 and who haven’t filed a U.S. tax return during the same period.

Compliance Risk Assessment

The new procedure is specifically designed for taxpayers who present a low compliance risk.”  For these taxpayers, retroactive relief for failure to timely elect income deferral on RRSPs/RRIFs (Form 8891) is also available.  Submissions that present high compliance risk aren’t eligible for the streamlined processing procedure and may be subject to a full examination. 

Participation

In order to participate, a taxpayer must: (1) file delinquent tax returns, with appropriate related information returns (e.g. Form 3520 or 5471), for the past 3 years, (2) file FBARs (Form TD F 90-22.1) for the past 6 years, (3) pay any tax and interest along with the delinquent tax returns, and (4) submit a questionnaire, signed under penalties of perjury, with 20 “yes or no” questions outlining the factors considered in the initial risk assessment.

Specialized U.S. tax advice is needed in this area.

 

 

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Some 2012 year-end tax planning tips include:

1.    Certain expenditures made by individuals by December 31, 2012 will be eligible for 2012 tax deductions or credits including: moving expenses, child care expenses, safety deposit box fees, charitable donations, political contributions, medical expenses, alimony, eligible employment expenses, union professional or like dues, carrying charges and interest expenses, certain public transit amounts, and children’s fitness and arts amounts.

2.    You have until March 1, 2013 to make tax deductible Registered Retirement Savings Plan (RRSP) contributions for the 2012 year.

       Consider contributing to a spousal RRSP to achieve income splitting in the future.

3.  If you own a business, consider paying a reasonable salary to family members for services rendered to the business.

4.  An individual whose 2012 net income exceeds $69,562 will lose all, or part, of their old age security.

     Senior citizens will begin to lose their income tax age credit if net income exceeds $33,884.

     Contact your professional advisors for assistance in managing 2012 personal income.

5.  Consider purchasing assets eligible for capital cost allowance before the year-end.

6.  Consider selling capital properties with an underlying capital loss prior to the year-end if you had taxable capital gains in the year, or any of the preceding three years.  This capital loss may be offset against the capital gains.

7.  Registered Education Savings Plan (RESP)

     A Canada Education Savings Grant (CESG) for RESP contributions will be permitted equal to 20% of annual contributions for children (maximum $500 per child per year).

8.  Health and dental premiums for the self-employed

     Individuals will be allowed to deduct amounts payable for Private Health Service Plan coverage in computing business income provided they meet certain criteria.

9.    A refund of Employment Insurance paid for non-arm’s length employees may be available upon application to CRA.

10.       Taxpayers that receive eligibledividends from private and public corporations may have a significantly lower tax rate on the dividends.  Notification from the corporation to the shareholder is required.

11.   Eligible public transit passes will be entitled to a tax credit.

12.   A Registered Disability Savings Plan may be established for a person who is eligible for the Disability Tax Credit.  Non-deductible contributions to a lifetime maximum of $200,000 are permitted which are eligible for tax-deferred grants and bonds.  Please contact your professional advisors for details.

13.   If required income or Forms have not been reported in the past to the CRA, a Voluntary Disclosure to the CRA may be available to avoid penalties.  Contact us for details.

Tax Tips & Traps 2012

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BC MSP premiums are NOT deductible on your personal income tax return as a medical expense.  However you may be able to save some dollars if you qualify for premium assistance based on your taxable income filed in the previous year.  You can check it out at this link.

 

https://www.health.gov.bc.ca/exforms/msp/premium_assistance.html

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ONLINE TRADING

In a March 29, 2012 Tax Court of Canada case, the issue was whether CRA was correct in disallowing the taxpayer’s claim for business losses on his online share trading activities for the 2001, 2002, 2003 and 2004 taxation years on the basis that they were on account of capital.

Taxpayer Wins!

The Court noted that:

1.  The Appellant has met his onus of showing he was engaged in an adventure in the nature of trade.

2.  The CRA was correct in arguing that the taxpayer lacked the special knowledge necessary to make him a “trader”, however, the telling feature of the Appellant’s conduct is the feverish nature of his trading activities.

3.  The Court noted that if the tables were turned and he had managed to make the profits he dreamed of, the Court could not for one moment imagine CRA characterizing his activities as being consistent with an intention to acquire the shares as a long-term capital investment.

4.  Whenever the Appellant did have some funds, he was back online trading.

Tax Tips & Traps 2012

 

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In a May 10, 2012 Technical Interpretation  CRA notes that under certain conditions, gifts and non-cash awards received by an employee may not be a taxable benefit.

However, the policy does not apply to gifts and awards in cash or cash equivalents.

CRA also considers that reimbursements by the employer of any property purchased by the employee, or a service paid by the employee, is a cash equivalent.  This is also the case for a property or service chosen by the employee but purchased by the employer (unless the number of goods or services that can be selected is very limited).

Similarly, CRA generally considers that where an employee can earn points and exchange them for items of a catalogue, this is not covered by the tax-free policy on awards and gifts.  Tax Tips & Traps 2012

From the CRA website:

You may give an employee an unlimited number of non-cash gifts and awards with a combined total value of $500 or less annually. If the FMV (Fair Market Value) of the gifts and awards you give your employee is greater than $500, the amount over $500 must be included in the employee’s income. For example, if you give gifts and awards with a total value of $650, there is a taxable benefit of $150 ($650 – $500).

 

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In a September 6, 2012 Tax Court of Canada case, the Appellant operated a business that specialized in supplying custom window coverings and, in 2007 and 2008, deducted the amounts of $18,000 and $7,000, respectively, for wages paid to her two children (aged 15-16 and 13-14) for services that they provided to the business.

Rather than pay wages, the Appellant paid for some of the children’s extraordinary expenditures to reflect the wages.

Taxpayer wins! -partly

The Court concluded that it is likely that the expenditures have both business and personal elements.

Based on the evidence, the Court allowed a deduction for 50% of the amounts claimed.

Tax Tips & Traps 2012

Of further note in this case, the judge stated that there is nothing wrong with parents having veto over the expenditures made by their children, and the reason for limiting the tax deduction to 50% of the expenditures was the lack of sufficient records to defend the amounts claimed.

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In a May 30, 2012 Tax Court of Canada case, the issue was whether the child care provider was an employee (contract of service) or self-employed (contract for services).

The Court found that the child care provider was an employee and noted that the work was executed under a contract of service because of its regularity, continuity and permanent work; supervision; the beginning and end of work decided exclusively by the payer; the lack of autonomy of the guardian; and exclusivity.

Also, the form of compensation, the power to intervene and/or unilateral control held by the payer and inequality in a contractual relationship all indicated an employment relationship.  The parties were not equal in negotiations.

Therefore, the parents were required to remit Employment Insurance (EI) on behalf of their employee and, the employee was entitled to apply for EITax Tips & Traps 2012

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