Personal tax returns Archive - SCARROW YURMAN & CO

Archive for the ‘Personal tax returns’ Category

CRA COLLECTIONS: Potential Impact on Business

As some businesses struggle with cash flow, they may be motivated to prioritize suppliers and other creditors ahead of CRA.

A recent court case demonstrates CRA’s power to collect tax arrears and the impact of CRA exercising this power on a business. In a June 11, 2021 Court of Queen’s Bench of Alberta case, the taxpayer had fallen into arrears in respect of both GST/HST and payroll remittances. Payment arrangements were entered into with CRA to assist in meeting the obligations. However, after failing to meet the agreed-upon terms, requirements to pay (RTPs) were issued to several of the taxpayer’s clients. RTPs are legal documents that require recipients (the taxpayer’s clients in this case) to submit payment to CRA rather than the taxpayer. The RTP gives priority to CRA over most other creditors. After the taxpayer had renegotiated a new payment plan, all RTPs were cancelled except for the one to its largest client. After struggling to meet the new payment plan and facing a new withholding liability, CRA once again issued RTPs. Shortly after, the taxpayer lost its largest client (the one that the sole RTP had been issued to previously). The taxpayer advised CRA that it was considering receivership, which led to the seizure of assets and issuance of more RTPs. One client sent a letter to the taxpayer that noted that CRA had visited them personally to serve the RTP and implied that the taxpayer could be out of business or shut down. Further, the client noted that they were asked by CRA whether they could get their parts from alternate suppliers, and the client indicated that they were now considering doing so.

Taxpayer loses.

The court found that CRA and its agents did not owe a duty of care to the taxpayer, that there was no negligence, and that the government’s actions did not unlawfully interfere with the economic relations of the taxpayer.

ACTION ITEM:

CRA can collect your tax liability by requiring your clients to pay them rather than you. To limit the business and operational issues arising from an RTP, steps should be taken proactively to communicate with CRA collections.

COVID-19 Interest Relief for Personal Taxpayers – But Penalties Still Apply!

Under normal circumstances, CRA will be begin charging compound daily interest starting May 1st, 2021 on unpaid taxes owing for the 2020 tax year. However, due to COVID-19, CRA introduced temporary interest relief if all eligibility criteria listed below are met. If eligible, you will not have to pay interest on any taxes owing from your 2020 taxes until April 30, 2022 – essentially a deferral of tax payment by one year without cost. Please note that you still need to file your taxes by April 30th, 2021 to avoid paying late filing penalties.

Interest relief will automatically be applied on 2020 taxes owing if all of the following conditions are met:

Your total 2020 taxable income is $75,000 or less
You have received at least one of the following COVID-19 benefits in 2020:
- Canada Emergency Response Benefit (CERB)
- Canada Emergency Student Benefit (CESB)
- Canada Recovery Benefit (CRB)
- Canada Recovery Caregiving Benefit (CRCB)
- Employee Insurance (EI) benefit
- Provincial or territorial emergency benefits
You filed your 2020 income tax and benefit return

It is important to note that this interest relief will only apply to your taxes owing on your 2020 tax return and not on previous or other amounts outstanding with the CRA. Penalty charges (such as false statement, omission or late filing) are not included as part of this interest relief. Therefore, it is crucial to file your personal tax by April 30, 2021.

If you file your return late, the CRA will impose a penalty of 5% of your taxes owing and unpaid on May 1, 2021. This penalty will increase by 1% for each month filed late, up to a maximum of 12 months, i.e. an additional 17% maximum penalty on your 2020 balance owing.

For individuals with business income, you have until June 15 to file your tax return and late filing penalty will not start until June 16, 2021.

Filing taxes on time will save you unnecessary penalties and will ensure any benefits and credit payments that you are entitled will not be disrupted.

Income Tax Payment Deadlines Extended AGAIN!

The New Payment Deadline is now September 30, 2020!

The CRA initially extended the payment deadlines for individual, corporate and trust income tax returns to September 1, 2020. The CRA has now extended the payment deadlines once again to September 30, 2020.

That means the CRA will waive any late filing penalties and interest for returns filed after their normal filing deadline – as long as you file the return and pay the taxes owing the return by September 30, 2020. This includes any elections, forms and schedules that are to be filed with the return (i.e. T106, T1135).

The CRA is also waiving any arrears interest on existing tax debts related to individual, corporate, and trust tax returns from April 1, 2020 to September 30, 2020. For GST/HST returns from April 1, 2020, to June 30, 2020. (NOTE: This does not include penalties and interest incurred prior to this period.)

In the case of financial difficulties, it’s still important to file the return by September 30 to avoid an additional 5% late filing penalty on top of what you may already owe. In fact, the CRA is still encouraging Canadians to file their income tax returns as soon as possible even though the deadlines have been extended. We agree! Let’s get this done!

COVID-19 Support for Canadian Businesses

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 1^st, 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.

Tax Season – Overcome Stress by Being Perpared!

Yes, it’s tax season – AGAIN. Navigating the sea of life’s daily stresses can be challenging enough. What can help us cope with the added challenge of tax season? Being prepared! Here are some tips to help you get organized so you can keep a step ahead of stress.

Mark deadlines in your calendar

For individuals, the deadline is Thursday, April 30, 2020. Sole proprietors have until June 15, 2020 but, regardless of the deadline, taxes owed should be paid to CRA by April 30, 2020.

Communicate with your accountant

Even if you think you know what documents your accountant needs to file your return, it’s worth a conversation to ensure you have not forgot something important.

For example:

It is vital that you disclose all sources of income. One tricky disclosure form is a T1135. If you had any foreign assets costing more than Cdn$100,000 dollars, you are required to disclose this. Ask your investment advisor or financial institution for a T1135 report and avoid unnecessary fines.
If you were only partially reimbursed for dental and other claims, be sure to provide a summary from your insurance provider so your accountant can add the unclaimed portion as a medical expense. (Travel insurance can be claimed as a medical expense.)
Forward any donation receipts that you forgot to claim in the past 5 years. You may still be able to claim them.

Follow up on missing tax slips or receipts

T4 and T5 slips should be received by the first few days of March. You should expect to receive T3 slips by the end of March. If you haven’t received these slips by these times, contact your employer or financial institution asap.
Donation Receipts that you have not yet received for 2019 should be requested by contacting the registered charity.
Medical Receipts can easily be missed. There’s no need to collect all those pesky little prescription receipts. Just ask your pharmacy to provide you with a summary of all the prescriptions you paid for 2019 – it’s usually free of charge. This assures you don’t miss any!

Ensure students in a post-secondary institution file their taxes

Post-Secondary institutions issue T2202A slips that can be used against current or future taxes. Best of all, these credits are transferrable to parents at a maximum of $5,000! Students may also be eligible for additional credits such as the ON-BEN and GST/HST Credits which could mean more money in their pocket throughout the year.

Get your refund faster with direct deposit

Direct deposit ensures your refund is directly deposited into your personal bank account. All CRA needs is your Social Insurance Number, the name of your financial institution, branch/transit number and your account number. It’s super easy to set up, but if you’re unsure, ask your accountant for assistance.

Prepare ahead if you owe tax

If you expect to be paying taxes on April 30, ensure you have set aside some money to pay off your tax liability. It may be good to speak with your accountant, perhaps they can help you develop a tax plan that works for you.

Best wishes from Scarrow Yurman & Co. as you prepare to make this personal tax season the best one ever!

Curb the Clutter Crisis – Start Housekeeping Now!

Regular housekeeping is good for us mentally, physically and emotionally – especially when managing our personal tax paperwork. How so? Well, suppose you got a notice today from CRA asking for your 2017 tax return and all supporting documentation. Would that notice send you into panic mode wondering where you put everything? It has for many taxpayers. If your paperwork is scattered from here to oblivion, now is the time to sort through the clutter. Where should you start?

Sorting Through the Madness

This can actually be fun and very liberating. Book a date with yourself and start pulling out all your files, shoe boxes, envelopes or folders and sort your tax documents by calendar year. In Canada, it is important to keep personal tax information and all supporting documents for at least 6 years, in case of the dreaded CRA review. Any older tax information can, and should, be shredded. YUP – toss it! Just think of how Zen you’ll feel without all the extra clutter. In fact, why not pass on the “Zen” by getting all last year’s documents organized and ready for your accountant.

Keep Organized Going Forward

Once you’re in a happy place with your files – follow good housekeeping habits going forward. If you think it’s easier to throw your invoices or receipts in your car, wallet, or on your desk, think again! Receipts can easily get lost, damaged or destroyed this way. Instead, best practice is to designate ONE location where you keep all personal tax documents, then deal with each document ONCE. Knowing where they are and scheduling time regularly to address each one will ensure nothing gets lost and you will stay up to date. Also, take advantage of businesses that offer e-receipts and ensure you have a file on your computer, or on the cloud, to store these as well. In fact, it’s a good idea to scan all your other receipts and keep them altogether electronically.

Hubdoc – The Housekeeping Specialist

If you’re self-employed or a small business owner with loads of receipts and supporting tax documents, you’ll want to check out Hubdoc to manage and organize your records and receipts in softcopy – liberating you from drowning in endless paperwork.

Benefits Await You

Face a CRA review with confidence
Avoid late penalties (with CRA or other vendors)
Increase your tax return refund
Keep your accountant happy
Peace of mind going forward

Now’s the time to kick clutter to the curb! Get organized today and you’ll reap good housekeeping benefits now and for years to come.

Tax Season – Four Steps to Help You Get Organized

It’s hard to believe that we’ve entered another personal tax season. In fact, April 30^th is just 42 days away! To make tax season as stress free as possible, here are four steps to help you get organized.

STEP #1 – READ YOUR PERSONAL TAX LETTER

A few weeks ago, we sent an email to our clients with a personalized tax letter attached. That letter outlined items that were applicable for your return last year that may also be pertinent this year. This is a great start to ensure you don’t miss sending us anything important. If you don’t remember receiving this letter, please contact us so we can provide you with a copy.

STEP #2 – ORGANIZE YOUR DOCUMENTS

Tax slips – Based on last year’s slips, determine the slips that are applicable this year. For missing slips, contact the issuer or your investment advisor immediately.
Medical expenses and donations – Prepare a summary of all medical expenses and donations and be sure to provide us receipts for backup. If you have medical expenses from pharmacies, the pharmacist can provide you with a summarized print-out. This removes the worry of misplaced prescription receipts.
Self-employed or rental income information – When providing current year figures, please highlight them clearly so they stand out. This saves valuable time as we sort through it all.

Once you have all your documents organized, place them in an envelope or folder. Include a note for any slips that are no longer applicable or any new slips for this year. We suggest you create a separate envelope/folder for each family member as this avoids confusion.

STEP #3 – NOTE CHANGES TO PERSONAL INFORMATION

If you have a change of address, marital status, employment, or new family members, be sure to include reference to this in your package.
We also need to know if you sold your principal residence during the year. This must be reported to the CRA even if the gain on your sale is tax exempt. Failure to report the sale means big problems for you, so keep us posted!
Please include information for children now in post-secondary school or who are earning part-time income so we can prepare their tax returns. If they’re paying rent, property taxes or have minimal income, they may be eligible for certain government benefits. That spells cash in your child’s pocket.

STEP #4 – SEND US YOUR DOCUMENTS ASAP

For your convenience, our office hours are extended until April 30, so feel free to drop off your documents in person. You can also courier them to us or send them online through ShareFile. Whatever your preference, it is imperative that we receive your documents as soon as possible. This puts us in the best position to efile your return on time and avoid late filing penalties.

Following these steps will reduces stress, saves us time and you money! If you have any questions as you get organized, our team is just a phone call or email away. Let’s work together to make this the best personal tax season yet!

TFSAs – Do You Have Room?

In November 2016, we blogged about Tax Free Savings Accounts. Since inception, CRA has been auditing TFSA accounts and this has resulted in penalties to taxpayers who have unknowingly over-contributed. How can you be sure you have room for your TFSA contributions? Here are some tips.

Understand TFSA Withdrawals

Let’s say you’ve withdrawn funds from your TFSA. This has left room to re-contribute later, right? Not necessarily. If you withdraw funds from your TFSA, you must remember that this does not create corresponding contribution room until the next calendar year. If you contribute sooner – you could be penalized.

Ensure TFSA Transfers Are Done Correctly

If you wish to transfer funds from one TFSA to another, the transaction should be processed as a “direct transfer” by your financial institution. Otherwise, it could be viewed as a “funds withdrawn” and “funds contributed” scenario. When the latter happens, contribution room for the withdrawal will not be reinstated until the next calendar year. So, when funds are not transferred correctly, and you contribute too soon – penalties may also apply.

Keep Up-to-date with Changing TFSA Room Limits

You can have more than one TFSA at any given time, but the total amount you contribute to all your TFSAs cannot be more than your available TFSA contribution room for that year or you could get dinged with a penalty. It’s good to check each year to see if the annual limit has changed:

https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/tax-free-savings-account/contributions.html.

Always Be Aware of Your TFSA Balance

CRA has made it easy to ensure that we don’t over-contribute. Before you contribute, log into CRA’s My Account for Individuals > Click RRSP and TFSA tab > Contribution Room > Next.

This takes you to your TFSA page where you can find out your contribution room as of the current taxation year.

Following these simple tips can help you save money without worrying about unexpected penalties. Happy saving!

Do You Need a Financial Advisor?

Costco, Superstore and Wal-Mart have got us used to the efficiency and convenience of one stop shopping. However, should this same concept be applied to your financial needs? Not necessarily.

At Scarrow Yurman & Co. we do our best to attend to the tax needs of our clients. We go beyond simply fulfilling their legal obligations and are proud to provide advice for buying and selling businesses, corporate restructuring, estate and succession planning and even retirement planning.

However, depending on the complexity of the situation or the scope of business, we feel that a “one-size-fits-all” approach is not always in the best interest of our clients. That’s why there are situations where we encourage our clients to expand their financial team to include a Financial Advisor. Having a broader support group with complementary financial services can help move a client in the right direction and give them peace of mind.

Types of Financial Advisors
Bank Financial Advisors
Financial Coaches
Financial Planners
Insurance Advisors
Investment Advisors
Mutual Fund Representatives
Stock Brokers (Investment Representatives)

Recently, we have become aware that some of our clients would like to know more about financial planning strategies including portfolio management, stocks and life insurance. We also realize that there is a sea of financial advisors out there and we want to ensure that our clients find the right fit for their unique personal and business needs. Therefore, if you are not sure you require a Financial Advisor, or would like us to recommend one, please contact us today.

Let’s get your questions answered together.

Tax Credits vs Tax Deductions – What’s the Difference?

Although these two terms are used interchangeably, when you’re discussing tax credits and tax deductions you’re not comparing apples to apples. They are very different and knowing the differences is helpful.

Tax we owe in any given year is not based solely on our income but is also affected by the various tax dedications and tax credits we are entitled to for that year.

Tax Deductions – Reduce Taxable Income

Tax deductions reduce taxes differently depending on the marginal tax bracket you’re in. For example, if you are in the bottom marginal tax bracket and your marginal tax rate is 15%, then a $100 tax deduction will save you $15. However, let’s say you were in a higher marginal tax bracket and your marginal tax rate is 20%, then that same $100 tax deduction will save you $20 instead. Although tax deductions will generally benefit everyone, tax deductions are more effective in saving tax for those that make a higher income and are subject to higher tax rates.

Common tax deductions include:

RRSP Contributions
Childcare Expenses
Moving Expenses

Tax Credits – Directly Reduce Tax Liability Otherwise Calculated

Once your marginal tax rate is applied to your taxable income and the taxes owing is calculated, tax credits are applied in the final stage of this calculation to lower taxes owing even further. Tax credits differ from tax deductions because they reduce taxes independent of the marginal tax bracket you belong in. Tax credits are calculated using the bottom marginal tax rate. In other words, whether you have a taxable income of $30,000 or $200,000, a $100 tax credit will save you the same amount in taxes. Tax credits might bring your final tax owing to $Nil but are generally not going to create a tax refund.

Common tax credits include:

Medical Expenses
Charitable Donations
Post-secondary Tuition

Bottom line is, tax deductions will save more taxes than tax credits if you are in the higher marginal tax brackets. So remember, you aren’t deducting that medical expense, you’re claiming a non-refundable tax credit.

We hope this brief explanation of the differences between tax deductions and tax credits will help you better understand what’s going on inside your tax return. Please call us if you have any other questions or comments.