Sun, 20 May 2012 23:21:25 -0800WeeblySun, 22 Apr 2012 10:31:33 -0800http://accentuateconsulting.com/2/post/2012/04/resolving-disputes-with-the-cra.htmlIf you are in a dispute with the Canada Revenue Agency (CRA), there are various levels / stages at which you can resolve your dispute. We have outlined these levels / stages below:

AUDIT

You are dealing with an auditor (income tax or GST) who proposes to issue an assessment or reassessment. Normally the auditor will write you a letter and give you the time to reply. You can get an extension of time if necessary. It is important to make your case properly and professionally to the auditor. Very often the case can be solved at this level if you do it properly. And solving it at this level eliminates any further costs in professional fees. 

OBJECTION

Once an assessment or reassessment is issued, you must file a Notice of Objection, normally within 90 days (the deadline could be different for individuals and testamentary trusts). If you miss this deadline, you may be out of luck, although an extension of time of up to one year may be available in limited circumstances. Your objection will be dealt with by an Appeals Officer, who is a CRA official. Again, if your case is properly presented it could be resolved at this stage. This is an informal process; the Appeals Officer will simply discuss the case with you and your representative, and does not hold any kind of "hearing". 

APPEAL TO TAX COURT

If the assessment or reassessment is confirmed, you can appeal to the Tax Court of Canada. All GST appeals, and income tax appeals with less than a certain specified threshold of federal tax and penalty at stake, generally go under the "Informal Procedure", which is less costly than the Court's "General Procedure".

During the appeal process, there is an opportunity for you or your representative to settle the case with the Department of Justice lawyer who is handling the file. Cases can often be settled at this stage without going to Court.

If you do not settle, then your case will go before a Judge of the Tax Court of Canada. Normally you have to prove that the assessment is wrong. This requires two things:

-proving the facts necessary to show that the assessment is wrong; and

-showing how the law (e.g., the Income Tax Act or the Excise Tax Act) applies to the facts you have proven.

Every case depends on its facts, and it is impossible to generalize as to what the result of your case will be. Only by a careful review and analysis of the facts can, one can determine the prospects of success.

If you or your business is being audited by the CRA, we strongly suggest that you seek professional advice in the matter. Without the appropriate professional advice, matters can become worse. We know the tax rules and have the required experience to deal with the tax authorities. We have been involved in and have successfully resolved disputes with the CRA on behalf of our clients. We are transparent and forthright in our approach; we lay out the facts and the options available to our clients and let them decide. In short, we know what we are talking about. We not only talk the talk but also walk the walk.

Don’t take a chance – contact us.

]]>Wed, 28 Mar 2012 10:26:58 -0800http://accentuateconsulting.com/2/post/2012/03/salary-vs-dividends-which-is-right-for-you.htmlOur personal and corporate income tax structure is as fair as it has ever been. It is what accountants refer to as being “fully integrated”. This means that at the end of the day, whether you pay yourself a salary or a dividend, when you take the income taxes paid at the corporate level and those paid personally, the combined taxes should be the same whether you take all salary, all dividends, or a combination of the two. That being said, nothing in life is perfect and, in almost all cases, there is a discrepancy of one or two percentage points that can work for you or against you and potentially influence your decision on how you compensate yourself.

Dividends - The Difference

Salaries are an expense to the company and thus all tax is borne by the individual on their personal tax return. Dividends are paid out of retained corporate income that has already been subject to corporate tax. When dividends are received by the shareholders and included on their personal income tax returns, they will receive a dividend tax credit essentially equal to the taxes already paid at the corporate level to prevent any “double-dipping” by the tax man.

Dividends are investment income – a return on your shares. As such, they are not subject to normal payroll deductions and charges such as CPP and EI premiums, provincial payroll/health taxes, workers’ compensation premiums, etc. They are also not subject to a withholding tax at source if the recipient is a Canadian resident. Dividends are a very clean source of compensation in this regard.

The Benefits

As an added benefit, in many provinces dividends from income taxed at the lowest corporate tax rate results in an all out tax savings of a couple percentage points. When combined with the avoidance of the CPP premiums, the savings can quickly add up, significantly influencing many people’s compensation decision.

Another benefit to dividends is that unlike salary, they are an effective means of income splitting with family members who may own shares in the corporation directly, or indirectly through a family trust. Dividends are not subject to the same reasonability test as salaries are, which limits the amount you can pay family members to an amount similar to that which you would pay an arm’s length person for performing the same duties. Basically, dividends are a much more flexible and defendable vehicle for income splitting within the family. Caution that dividends should not be paid to children under the age of 18 to avoid the punitive “kiddie tax”.

Salary - The Difference

Salary, on the other hand, is subject to all of the deductions/charges mentioned above but does offer some benefits in terms of providing pensionable earnings for CPP purposes, generating RRSP/IPP deduction room (which dividends do not since they are investment income and not earned income) and qualifying for the basic non-refundable employment tax credit on your annual personal income tax return. Some form of salary also helps to justify non-taxable benefits provided to the owner-manager such as health and dental insurance coverage.

The Benefits

With salary comes the ability to contribute to an RRSP/IPP, and with those investment vehicles comes creditor protection, which may be more important to professionals and certain other business owners who have limited means of creditors proofing their assets.

A Word of Caution

One word of caution is that regardless of which compensation method or combination you choose, ensure your disability insurance coverage is not inadvertently impacted as a result of any change.

Some common compensation strategies we tend to see are:

•Only dividends to inactive family members

•Only dividends to owners who aren’t keen on paying into the CPP and are fine with using their operating company (or better yet, a holding company) to accumulate their retirement savings on a tax-deferred basis. In this case, consider giving a nominal salary of at least $5,000 per year to qualify for the non-refundable employment tax credit on their annual personal income tax return as well as to provide a base level of disability insurance coverage through the nominal CPP premiums that will be triggered as a result.

•Salary of at least $130,000 to the owner (often professionals) to maximize RRSP/IPP deduction room with any excess compensation requirements coming out in the form of dividends, often to an inactive spouse as well as to the professional.

Clearly, there is no one right answer in the salary vs. dividends debate, but speaking with us will help confirm which strategy is right for you.

]]>Sun, 12 Feb 2012 11:12:16 -0800http://accentuateconsulting.com/2/post/2012/02/tax-free-savings-account-overview-how-it-works.htmlOverview of the Tax-Free Savings Account (“TFSA”)

In order to encourage Canadians to increase their savings, in 2009 Finance Canada and Canada Revenue Agency ("CRA") introduced a new type of savings vehicle: the Tax-Free Savings Account ("TFSA"). Any interest, capital gains and other investment income that you earn in your TFSA is exempt from income tax both while it stays in the TFSA as well as when you withdraw the income from your account.

Every Canadian resident, who is at least 18 years old, and has a Social Insurance Number, is eligible to open a TFSA, and can contribute up to $5,000 per calendar year. You can accumulate contribution room if you don't contribute the full amount in a year, meaning that if you have not used your full contribution room in previous years, you can carryforward the unused amount to future years.

Most banks now offer a savings account product that qualifies as a TFSA. However, the TFSA program is not limited to bank accounts - certain mutual funds and brokerage accounts also qualify.

Difference between TFSAs and RRSPs

TFSAs and RRSPs both shelter your investments from tax while they are held in the account. However, the treatment of contributions and withdrawals differs.

RRSP contributions come from before-tax dollars, because these contributions reduce your taxable income in the year of the contribution. Furthermore, when you withdraw contributions and investment income from your RRSP, your withdrawals are fully taxable as income in the year of withdrawal. For example: in 2011, your net income is $50,000. If you contribute $5,000 to your RRSP, your taxable income is reduced to $45,000. Further assume that by 2021 your $5,000 RRSP investment has grown to $7,000. If you withdraw the $7,000 in 2021, the full amount of $7,000 will be added to your taxable income in 2021.

In contrast, TFSA contributions are made with after-tax dollars, and do not reduce your taxable income in the year of the contribution. However, when you withdraw contributions and investment income from your TFSA, the withdrawals do not increase your taxable income – in other words, TFSA withdrawals are tax-free. For example: in 2011, your net income is $50,000. You contribute $5,000 to your TFSA. Your taxable income is unaffected, and remains at $50,000. Assuming that in 2021 your $5,000 TFSA investment has grown to $7,000, and you withdraw the $7,000 in 2021, the full amount of $7,000 will be tax-free to you in 2021.

We can assist you in deciding between investing in an RRSP or a TFSA.

Over-Contributions to TFSA

As noted earlier, you are allowed to contribute up to $5,000 to your TFSA in each year. However, withdrawals from your TFSA do not affect your contribution limit within the same year. For example, let's say you contributed $5,000 to your TFSA in June 2009, and then withdrew $2,000 in September 2009. Although you would only be left with a balance of $3,000 in your TFSA, you would still have used up your $5,000 contribution room for 2009. If you were to redeposit the $2,000 in October 2009, you would have contributed a total of $7,000 in the 2009 taxation year, even though your TFSA account balance would then be sitting at $5,000. While withdrawals do not make space for additional contributions within the same year, your contribution room is corrected for withdrawals in the following year. In the situation described here, CRA would consider you to have made an over-contribution of $2,000, and would charge you a penalty tax. CRA strictly enforces the penalty taxes for over-contribution. This penalty tax is calculated based upon the highest excess balance in the TFSA in each month, and the penalty is 1% of this amount each month. As such, it is very important to keep track of your contributions in a year, and ensure that they do not exceed the contribution room you have available.

After you file a tax return, your Notice of Assessment issued by CRA will state the amount of TFSA contribution room available to you as of the date of the assessment, and this amount should be adjusted to compensate for any withdrawals made in the previous year.

Transfers between TFSAs

It is possible to transfer amounts between two TFSAs held by the same taxpayer, without affecting the taxpayer’s TFSA contribution room.  However, in order to avoid over-contribution penalties, these transfers must be made directly from TFSA #1 to TFSA #2.  If you withdraw from TFSA #1 into your chequing account, and then transfer from your chequing account into TFSA #2, this transfer will be considered to be a new TFSA contribution.  If you have already used up your contribution room for the year, this will then constitute an over-contribution and attract penalties.

It is also possible to transfer amounts between the TFSAs of separated/former spouses, without affecting the spouses’ TFSA contribution room.  This is only permitted if the spouses are living apart, and the transfer is pursuant to a court order or a written separation agreement.  This transfer must also be made directly from one TFSA to the other.  If the transfer is made indirectly, via non-TFSA accounts, the spouses’ contribution room will be affected, and the transfer may attract penalty tax.

Conclusion

If you have not yet opened a TFSA, you should have $20,000 in available contribution room for 2012.  This is a great opportunity to earn interest or investment income tax-free. 

If you have any questions regarding compliance with the TFSA rules, feel free to contact us by clicking here.

]]>Sun, 22 Jan 2012 11:56:08 -0800http://accentuateconsulting.com/2/post/2012/01/how-the-goods-and-services-tax-gst-harmonized-sales-tax-hst-works.htmlThe GST is a tax that applies to the supply of most property and services in Canada. The provinces of Nova Scotia, New Brunswick, and Newfoundland and Labrador, referred to as the participating provinces, harmonized their provincial sales tax with the GST to create the HST. Generally, the HST applies to the same base of property and services as the GST. In some participating provinces, there are point-of-sale rebates equivalent to the provincial part of the HST on designated items.

As of July 1, 2010, Ontario harmonized its retail sales tax with the GST to implement the HST at the rate of 13% and British Columbia harmonized its provincial sales tax with the GST to implement the HST at the rate of 12% although, the HST in BC has now been repealed. Also, as of July 1, 2010, Nova Scotia increased its HST rate from 13% to 15%.

Almost everyone has to pay the GST/HST on purchases of taxable supplies of property and services (other than zero-rated supplies). A limited number of sales or supplies are exempt from GST/HST.

Although the consumer pays the tax, businesses are generally responsible for collecting and remitting it to the government. Businesses that are required to have a GST/HST registration number are called registrants.

Registrants collect the GST/HST on most of their sales and pay the GST/HST on most purchases they make to operate their business. They can claim an input tax credit, to recover the GST/HST paid or payable on the purchases they use in their commercial activities.

GST/HST registrants must meet certain responsibilities. Generally, they must file returns on a regular basis, collect the tax on taxable supplies they make in Canada, and remit any resulting net tax owing.

Taxable, zero-rated, and exempt supplies?

It is important to know which property and services are taxable and at what rate. You also need to know which property and services are exempt from the GST/HST.

Taxable supplies

Most supplies of property and services supplied in or imported into Canada are subject to the GST/HST.

The GST is a tax that applies to the supply of most property and services in Alberta, Manitoba, North West Territories, Nunavut, Prince Edward Island, Quebec, Saskatchewan and the Yukon. The GST rate for these provinces and territories is 5%.

The HST is a tax that applies to the supply of most property and services in participating provinces of Nova Scotia, New Brunswick, Newfoundland and Labrador and Ontario. The HST is composed of the GST and their respective provincial tax. Generally, the HST applies to the same base of property and services as the GST. In some participating provinces, there are point-of-sale rebates equivalent to the provincial part of the HST on designated items.

Zero-rated supplies

Some supplies of property and services are taxable at the rate of 0% (zero-rated). This means that you do not charge GST/HST on these supplies. Some common examples of zero-rated supplies of property and services are:

•basic groceries such as milk, bread, and vegetables;

•agricultural products such as grain, raw wool;

•prescription drugs and drug-dispensing fees; and

•medical devices such as hearing aids and artificial teeth.

Exempt supplies

A small number of supplies of property and services are exempt from the GST/HST. This means the GST/HST is not charged. Some common examples of exempt supplies of property and services are:

•used residential housing;

•most health care and dental services;

•certain childcare services; and

•many educational services.

 

If you require further information or assistance, we can help. Contact us by clicking here. ]]>Sun, 25 Dec 2011 01:10:22 -0800http://accentuateconsulting.com/2/post/2011/12/research-and-development-tax-benefits.htmlCanada supports innovation and entrepreneurship through one of the most favourable and efficient tax treatments for scientific research and experimental development (SR&ED) expenditures in the world. This is especially true when combined with the provincial SR&ED tax incentives. An average benefit rate on research and development (R&D) investment is 30 per cent for the corporation. Reducing R&D costs Canada’s SR&ED tax incentive program is the largest R&D support program aimed at the private sector. All companies based in Canada that invest in R&D can qualify, irrespective of their size, industry sector or technology area they represent – as long as they perform qualified R&D. Based on the 2009 data, the total value of federal SR&ED tax credit expenditure is approximately $ 3.5 billion.

Generally, in addition to full tax deduction of current SR&ED expenditures, a tax credit is also available based on qualifying SR&ED expenditures carried out in Canada. Other distinct advantages of the SR&ED program include eligibility of deducting the full cost of R&D machinery and equipment, no limits on subcontracting, and ability to defray part of the R&D expenses incurred abroad on Canadian R&D projects.

For large Canadian corporations and foreign controlled corporations, regardless of size or whether they are public or private, the rate of the tax credit is 20% and is non-refundable. A non-refundable tax credit can be used to offset Canadian federal taxes payable in the current year, in the previous three years, and/or in the next 20 years. There are no ceilings on R&D expenditures, taxable income or taxable capital for companies claiming the 20% tax credit rate.

On the other hand, small Canadian-controlled private corporations (CCPCs), with taxable income of up to $500,000 and taxable capital of up to a specified level, can receive a refundable tax credit of 35% of qualifying current and capital SR&ED expenditures, to a maximum of $3 million of expenditures per year. Over the $3 million SR&ED expenditure threshold, the credit rate is reduced to 20%, of which 40% may be refundable.

To top all of this off, various provinces have their own additional tax incentive programs for SR&ED activities carried out in their respective provinces. Although the provincial R&D tax credits must be deducted from a base for federal SR&ED tax credit, the net benefit is essentially one and a half times higher than the benefit of federal SR&ED tax credit alone. In addition, many provinces make the refund of their R&D tax credit available for foreign-owned corporations.

How can foreign companies qualify for the Canadian SR&ED tax benefits?

(a) Through a Canadian subsidiary of a foreign parent
The Canadian subsidiary can carry out qualifying SR&ED activities in Canada and, through deducting the expenditures and claiming the 20% tax credit, the subsidiary can significantly reduce or even eliminate Canadian taxes payable. The foreign parent can contract the Canadian subsidiary to carry out the SR&ED activities on their behalf, in which case the foreign parent will own the rights to the SR&ED, and the Canadian subsidiary can still make use of the SR&ED tax incentive program.

(b) Through a Canadian-controlled private corporation
A foreign corporation can set up a CCPC in Canada as long as it owns 50% or less of the company’s shares and the shares do not have any special rights attached to them. Traditionally, non-residents set up CCPCs in Canada by having a Canadian investor such as a venture-capital firm or research institution hold the remaining shares.

Eligibility

Eligible activities include experimental development, applied research, basic research, and support work. Up to 10% of R&D wages and salaries of Canadian resident employees incurred abroad by a Canadian-based company are also eligible. The activities outside Canada must be in support of SR&ED carried on in Canada directly by the company. In general, activities not eligible for benefits under the SR&ED program include research in the social sciences or humanities; commercial production of a new or improved product; routine data collection; and prospecting for or producing minerals, petroleum or natural gas.

If you require further information or assistance, we can help. Contact us by clicking here. ]]>