Posts Tagged ‘tax free’

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.

Tax Free Savings Accounts (TFSA)

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The Tax Free Savings Account (TFSA) is a savings account that allows any individual over the age of 18 and who has a valid Canadian SIN to invest in assets and earn tax-free investment income.

 

Contribution limit, accumulation, and penalties

There is a limit to the amount you can contribute to the account. In previous years from 2009 to 2012, the contribution limit was $5,000 per year. In 2013 and 2014, the limit has increased to $5,500 per year. Then in 2015, the limit increased again to $10,000. However, starting Jan 1, 2016, the limit was decreased to $5,500.

Investment income earned and changes in the value of TFSA investments will not affect your TFSA contribution room for the current or future years.

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. Any amounts that exceed the contribution room will be subject to a monthly penalty tax of 1% of the excess amount, until the excess is withdrawn.

On the other hand, if your contribution for the year did not meet the limit, the unused portion is carried forward to future years. This increases your contribution limit for next year.

 

Withdrawals

Withdrawals from your TFSA are tax-free, regardless of the amount. These can generally be done any time you want, depending on your investments. Withdrawals will be added to your TFSA contribution room at the beginning of the following year. For example, if you withdraw $2,000 from you TFSA in 2015, your 2016 contribution room will be $7,500 ($5,500+$2,000).

Re-contributing your withdrawals is also allowed – however this will not change your contribution room for the year. For example, in 2016 taxpayer opened his/her TFSA and contributed maximum amount allowed of $46,500. Later in 2016, the taxpayer withdrew $8,000. The date that a taxpayer can re-contribute the $8,000 without incurring penalties is Jan 1, 2017. Therefore any re-contribution should be done carefully to avoid penalties from over-contributing.

 

Transfers

Funds given to your spouse or common law partner to contribute to their own TFSA is permitted, without any restrictions or tax consequences.

Fund transfers between your own accounts or to ex-spouse/ex-common law partner are considered qualifying transfers. These can be done without any tax consequences, as long as they are directly transferred by your financial institution.

 

Death of a TFSA holder

 

A TFSA holder may:

  • Name a successor holder for the account-the survivor automatically becomes the holder of the account at the time of the former holder’s death.
  • Designate a beneficiary for the account – the account will cease to exist and the funds will be distributed to the beneficiary.

 

 Tax implications

 

Successor holder

The TFSA holder may only appointed his/ her survivor (i.e., the holder’s spouse or common-law partner at the time of death) as the successor holder for the account. Any income earned after the death of the holder will continue to accrue on a tax-free basis in the TFSA and the deceased’s spouse of common-law partner may make withdrawals from the TFSA free from tax.

Where the success holder has their own TFSA, they may choose to consolidate the two plans by the direct transfer of all or part of the assets of the holder’s plan to their own plan. In general, the direct transfer will not affect the successor holder’s TFSA contribution room.

Going forward, the successor holder may make additional contributions to the combined TFSA based only on their own unused contributing room.

 

Beneficiary

In general, the fair market value at the date of death may be viewed as a non-taxable capital receipt to the designed beneficiary and maybe withdrawn free of tax. Any accretion in value after death will be subject to tax in the hands of the designated beneficiary.

If the TFSA holder’s spouse or common-law partner was designated as beneficiary, the situation is more complicated. When the estate is settled, the full value of the TFSA will be paid to his/her spouse. Deceased’s spouse or common-law partner has option to contribute all or portion of the funds received from the former holder’s TFSA to their own TFSA as an exempt contribution without affecting their own unused contribution room.

In order to do this, the exempt contribution payment must be made before the end of the calendar year following the year of death, the payment may not excessed the fair value of the holder’s TFSA at the date of death and the prescribed designation election from must be filed within 30 days after the contribution is made. In addition to the above requirements, any income or growth earned by the TFSA after the former TFSA holder dies is fully taxable to his/her spouse.

TFSA is a great tool to take advantage of, to save for the future. In order to make sure that the TFSA passes to your spouse of common-law partner as simply and as tax-effectively as possible, the successor holder method will allow for it in a less complicated manner.

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