Archive for the ‘Corporate tax returns’ Category

COVID-19 Support for Canadian Businesses

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Our understanding of the most important provision of the current relief programs is summarized below.  This information is currently as of April 1, 2020 only.


Canadian Emergency Wage Subsidy (CEWS)

On April 1st, 2020 the government provided details on the 12-week wage subsidy. The subsidy is 75% of annual employee salary, up to an annual salary of $58,700 (i.e., up to $847 per week, per eligible employee). Here are some new details:

  • The CEWS subsidy will be available for both large and small employers that have lost at least 30% of revenue due to COVID-19, regardless of the number of employees.
  • The 30% reduction will be determined by comparing the employer’s gross revenue in March, April and May, 2020 to the same month in 2019. Each month that employers experience a 30% reduction in revenue must be applied for separately.

Eligibility would generally be determined by the change in an eligible employer’s monthly revenues, year-over-year, for the calendar month in which the period began.  In determining monthly revenues, the wage subsidy would NOT be considered in revenues.

The Eligible Periods are as follows:

Each month will be a separate application.  It may be possible that a company is not eligible for Period 1, but is eligible for Periods 2 and/or 3.

  • These changes will be retroactive starting from March 15, 2020 to June 6, 2020, and there is no overall limit on the amount of subsidy than an eligible employer may claim.
  • For qualifying employers to receive funds directly from CRA, they must provide CRA the pre-crisis income and the earnings actually paid per employee.
  • Application can be made through the My Business Account CRA portal, and the new links are expected to be available next week. All employers should be certain they have a My Business Account established with the CRA – your accountant CANNOT apply for this relief for you!
  • In the meantime, businesses should ensure they are set up for direct deposit with CRA to expedite the payment process.
  • The subsidy is fully taxable.

10% Temporary Wage Subsidy

Businesses who do not qualify for the CEWS, may still qualify for the previously announced temporary three-month taxable subsidy. This subsidy is available on up to 10% of eligible employee salaries from March 18 to June 20, 2020, with a cap of $1,375 per employee and a cap of $25,000 per employer. The subsidy is fully taxable.

For employers that are eligible for both the CEWS and the 10% Temporary Wage Subsidy for a period, any benefit from the 10% wage subsidy for remuneration paid in a specific period would generally reduce the amount available to be claimed under the CEWS in that same period. In other words, eligible employers can choose to reduce remittances up to 10% of the employee’s salary and then receive the CEWS. However, they cannot be added on top of each other. The benefit is limited to 75%, not 85%.


Credit Available to Small and Medium Size Business (SMEs)

Canada Emergency Business Account

This new account will provide interest-free loans of up to $40,000 to small businesses and not-for-profits, to help cover their operating costs during a period where their revenues have been temporarily reduced. To qualify, these organizations will need to demonstrate they paid between $50,000 to $1 million in total payroll in 2019.

Loan Guarantee

Export Development Canada (EDC) is working with financial institutions to issue new operating credit and cash flow term loans of up to $6.25 million to SMEs.

Co-Lending Program

Business Development Bank of Canada (BDC) is working with financial institutions to co-lend term loans to SMEs for their operational cash flow requirements.

Eligible businesses may obtain incremental credit amounts of up to $6.25 million through the program. These programs will roll out in the three weeks after March 27.


Tax Filing and Payment Flexibility

Income Tax Extension

The government is providing the following extensions for tax deadlines.

Employer Health Tax Support for Ontarians

The Ontario government increased the Employer Health Tax exemption for 2020 from $490,000 to $1 million and have introduced a five‑month relief period for Ontario businesses who are unable to file or remit their provincial taxes on time due to the special circumstances caused by the coronavirus (COVID‑19) in Ontario. This is effective March 20, 2020.

Deferral of Sales Tax Remittance and Customs Duty Payments

The government will allow businesses, including self-employed individuals, to defer until June 30, 2020 payments of the Goods and Services Tax / Harmonized Sales Tax (GST/HST), as well as customs duties owing on their imports.

  • HST Monthly Filers – the deferral will apply to GST/HST remittances for the February, March and April 2020 reporting periods.
  • HST Quarterly Filers – the January 1, 2020 through March 31, 2020 reporting period.
  • HST Annual Filers – the amounts collected and owing for their previous fiscal year and instalments of GST/HST in respect of the filer’s current fiscal year.
  • GST and Customs Duty Payments – deferral will include amounts owing for March, April and May. These amounts were normally due to be submitted to the Canada Revenue Agency and the Canada Border Services Agency as early as the end of this month.

All HST returns must continue to be filed on time.

If you have any questions regarding any of the above information, please feel free to contact us.

Personal and Corporate Tax Instalments

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An instalment payment is a partial payment of the total amount of tax payable for the year.  Instalments are not paid in advance; they are paid during the calendar year in which you are earning the taxable income.

 Personal Tax Instalments

Not every person is subject to paying by instalments. If you have net tax owing that is more than $3,000 in your upcoming tax return, and in either of your previous two tax returns, then you have to pay your income tax by instalments.

These quarterly payments are due March 15, June 15, September 15, and December 15 prior to the income tax deadline date of April 30.

Corporate Tax Instalments

Generally, corporations have to pay their taxes in instalments. The Income Tax Act requires corporations to make instalment payments so that they are treated the same as taxpayers who have tax deducted from their income at source. In a similar manner as an individual, if the entity’s net tax owing is more than $3,000 in its upcoming tax return, and in either of its previous two tax returns, then it has to pay its income tax by instalments.

Corporations however, can pay instalments either monthly or quarterly. The due dates are dependent on the start and end of the fiscal year.

As an example,

If start of the tax year is January 1:

  • first monthly payment is due by January 32 and so on
  • first quarterly payment is due by March 32 and so on

If start of the tax year is April 1:

  • first monthly payment is April 30, and so on
  • first quarterly payment is June 30, and so on

T1135 New Simplified Reporting Method

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Commencing in 2015, the Canada Revenue Agency has implemented changes to reporting foreign property on Form T1135. The changes include a simplified method for reporting foreign property rather than having to provide the detail of each property. A taxpayer qualifies to use the new simplified reporting method if they own specified foreign property with an adjusted cost base of more than $100,000 and less than $250,000 at any time during the year. This simplified reporting can be found on Part A of Form T1135. You are required to report on only the top three countries based on cost during the year. However, if a taxpayer owns specified foreign property with an adjusted cost base of more than $250,000 at any time in the year, Part B of T1135 must be filled out in more detail.

A caution for the 2015 taxation year is that, due to the appreciation of the US$, some properties that were under CDN$100,000 in 2014 might be worth over CDN$100,000 due to the exchange rate increase.

More good news is that you can still EFILE or NETFILE for the 2014 and subsequent taxation years. Also, the period for reassessing the return has been extended by three years if you have failed to report income from a specified foreign property and form T1135 was either not filed, not filed on time, or was filed inaccurately.

If you would like more information on filing the T1135, please visit the CRA website http://www.cra-arc.gc.ca/tx/nnrsdnts/cmmn/frgn/1135_fq-eng.html.

Tax Rates Effective March 2016

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On February 15, 2016, Finance Minister Charles Sousa delivered the 2016 Ontario Budget. Please find below some highlights from that release that we thought would be beneficial for you to review. If you would like more detailed information, please visit the Government of Ontario’s web site: http://www.fin.gov.on.ca/en/budget/ontariobudgets/2016.

 

PERSONAL TAX RATES AND BRACKETS

Federal Ontario
15.00% 5.05%
45,282 20.50% 41,536 9.15%
90,563 26.00% 83,075 11.16%
140,388 29.00% 150,000 12.16%
200,000 33.00% 220,000 13.16%

Surtax of 20.00% on Ontario tax over 4,484

Surtax of 36.00% on Ontario tax over 5,739

 

MAXIMUM COMBINED PERSONAL RATES AND TAX FREE DIVIDENDS

  Eligible Dividends Other than eligible dividends Capital gains Other income
FEDERAL / ONTARIO RATES 39.34% 45.30% 26.76% 53.53%
TAX FREE DIVIDENDS* 51,474 32,847

*This table assumes that only the dividend is earned, and includes federal and provincial taxes and surtaxes – reflecting basic personal amounts, dividend tax credits, and provincial tax rate reductions.

Ontario Health Premium of $600 on eligible dividends, and $446 on other than eligible dividend applies.

 

CORPORATE TAXES – COMBINED FEDERAL AND PROVINCIAL TAX RATES

  SBD limit UP to SBD limit M&P rate General rate CCPC investment income rate Personal services business rate
FEDERAL / ONTARIO 500,000 13.50% 12.00% – 17.50% 30.00% 53.67% 48.00%

For a CCPC with a tax year of January 1 to December 31. Rates may vary for non-calendar tax years.

Per proposed section 123.5 of the Income Tax Act, there will be an additional 5% tax on personal services business income.

Mandatory Requirements For Efiling Personal & Corporate Tax Returns

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Starting in January 2013, CRA requires tax returns to be filed electronically. This applies to both T1 individual income tax returns and T2 corporation income tax returns for 2012 and subsequent tax years.

If the taxpayer does not comply, a penalty will be charged of $25 for each T1 personal tax return that is paper-filed and $100 for each T2 corporation return that is paper-filed.  Also, a further penalty will be charged to corporations eligible for efiling who paper-filed the corporate tax return.  The penalty for tax years ending in 2012 is $500. For tax years ending in 2013 and subsequent, the penalty is $1,000. I I guess this means that the CRA is serious about having all incoming returns in electronic form.

The following returns do not need to be filed electronically:

  • Tax returns for tax years before 2012;
  • excluded T1 personal tax returns – such as non-resident tax returns, returns that are     “multiple jurisdiction” returns where income is allocated amongst provinces for self employed individuals; and
  • T2 corporation returns with “restrictions” – very rare.

Please refer to the CRA website, link below, for further information on this mandatory requirement as well as a list of T1 personal tax return exclusions and T2 corporation return restrictions. Scarrow and Company will of course get your returns e-filed as appropriate so having any of these penalties should never be a problem you run into.

http://www.cra-arc.gc.ca/esrvc-srvce/tx/prprrs/mndtrylctrncflng-eng.html

Incorporation Of The Business; The Advantages

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  • limited liability – separates your personal assets from business and limits legal liability exposure to business assets only. Becomes even stronger factor if consider expanding the operations and hiring more staff.
  • allows for flexibility in choice of compensation:
    • timing of income – instead of getting your income when it’s received, being incorporated allows you to take your income at a time when you’ll pay less in tax
    • dividends – may offer overall income tax savings vs. salary (on a side note by taking the compensation in dividends you are not accumulating RRSP contribution room)
    • you may choose the compensation on a year-by-year basis (i.e. can switch between the 2 options)
  • small business tax rates – with this flat rate of federal and provincial tax on active business income, a maximum of $500,000 of active business income qualifies for the 15.5% flat corporate tax rate – lower than personal tax rates in Ontario.
  • continuance– unlike a sole proprietorship, a corporation has an unlimited life span; the corporation will continue to exist even if the ownership of the business changes- in case of the future buy out/partnership arrangement
  • flexibility in share structure
    • income splitting, family tax planning
    • in the case of the sale of the business, a sale of shares allows for the possibility to take advantage of lifetime $750,000 capital gains exemption on Qualified Small Business Corporation shares

While incorporation has the advantages listed it also requires additional compliance costs associates with accounting and tax return filings.

This is just high-level overview and more detailed tax planning will be based on your individual goals and situation at the time.

Year End Tax Loss Selling

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One often reads or hears about year end tax loss selling and the deadline to execute these kinds of trades that comes along each December.  Here’s what it’s all about.

Taxpayers who have taxable capital gains in the current year from selling securities or who own mutual funds or income trusts that will allocate taxable capital gains to them on the income tax slips they receive, must report this type of income on their 2012 tax return and of course pay tax. There is an opportunity to eliminate the tax that will otherwise be owed on these gains if losses can be triggered.  Any unrealized losses in your portfolio cannot be used against these gains unless the losses become “realized”.  To trigger the losses, the investment position must be sold, and not repurchased for at least 30 days. You can’t wait to do this until the last day the markets are open in December, because the date you tell your investment advisor to sell the position is not the date the sale is settled.  Speak to your investment advisor to find out what date is the last day in December to execute a sale where the settlement date will still fall within the calendar year.  Don’t wait to the last minute – do it a bit early!

One you have triggered the loss, it can be used to offset any gains you have for the year on a dollar for dollar basis.

This strategy is quite popular and gives rise to a phenomenon called “tax loss selling season” – typically in mid to late December.

Speak to your investment advisor about whether you should be doing this or not. The investment considerations may be at odds with the simple desire to reduce taxes on capital gains.  And please remember; don’t let the tax dog wag the investor’s tail!

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