Archive for the ‘Corporate tax returns’ Category

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 31 and so on
  • first quarterly payment is due by March 31 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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