Year: 2023

CRYPTOCURRENCY EXCHANGE CESSATION: Recordkeeping

Posted on by Edixon

A June 7, 2023, CryptoTaxLawyer.com article (Binance Bids Canada Bye-Bye! Canadian Tax Implications for Cryptocurrency Investors and Traders) reminded Canadians about the importance of maintaining an offline record of transactions as exchanges, such as Binance, shut down in Canada. On May 12, 2023, Binance announced that Canadian users will be required to close any open positions by September 30, 2023.

Once the exchange is closed to Canadians, there is the possibility that access to records will disappear. Such records are necessary to support tax positions and filings. The article also noted that records may need to be maintained well beyond six years, as they can support the determination of tax that may occur much farther into the future. For example, if a cryptocurrency was purchased in 2015, but is sold in 2025, records must be maintained to support the cost of the cryptocurrency sold for reporting purposes in 2025.

ACTION ITEM: Ensure records of transactions are retained offline in the event that they are no longer available online in the future.

Operating Costs: Ways Companies Can Reduce the Expenses

Posted on by Edixon

Organizations can fulfill their needs and position themselves for success while keeping operating expenses low by outsourcing non-core functions such as information technology, human resources, and financial accounting.

In this article from RSM Canada, they explore some of the ways that companies can reduce operating expenses while still capturing market growth.

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The Healthy Way to Hire the Kids

Posted on by Edixon

Most businesses have accounting, computer, and vacation policies. Why do so few have family employment policies?

Making decisions about hiring younger relatives can be difficult. Skills and talents may vary widely, or maybe there’s not a job for everyone.  And sometimes a family member just doesn’t work out as an employee.

Hiring the kids requires a lot of thought, and the time to do the thinking is before the next generation comes of age. Employment in a family business is not an entitlement; business needs and individual abilities must determine hiring decisions.  

When creating family employment policies, consider:

Experimentation:  Summer jobs can be a great way for kids to “try out” the family business and vice versa. Create a summer job policy outlining the type of work kids are expected to perform, along with personal learning goals.

Education:  Is a college degree required to work at the company?  Perhaps a graduate degree in a certain specialty?  If so, detail the company’s expectations before hiring family members.

Situation:   In what position will the children start?  Will they rotate through jobs in a training program?  Should they work outside the family business first?  Address these questions in writing.

Compensation:   Family members should be paid based on fair market value for their job responsibilities.  Detailing salary and bonus formulas will help to ensure that everyone is treated fairly.

Performance:   All employees, including family members, deserve regular performance reviews. Spell out review schedules and adhere to them.

Separation:   It’s imperative to consider a separation protocol for family members. Indicate performance requirements for continued employment, and include specific behaviors or actions that will not be tolerated.  Also, specify severance package details.

Human resources issues are complicated.  Having formal family employment policies in place can alleviate at least some of the emotion and angst inherited in mixing family and business.

 

DISABILITY TAX CREDIT (DTC): Electronic
Applications

Posted on by Edixon

The DTC is a non-refundable tax credit that provides tax relief for individuals (or those that support those individuals) who have a severe and prolonged impairment in physical or mental functions. To access the DTC, eligible individuals must apply for it by completing Form T2201, Disability Tax Certificate. Recently, CRA updated their services so that this application can be completed and submitted entirely electronically.

The patient can complete the non-medical portion (Part A) of Form T2201 online in CRA’s My Account with data prepopulated from CRA’s files. Doing so will generate a reference number that can be provided to the medical practitioner for entry when they complete the medical certification (Part B) within the existing digital application. The information is automatically submitted to CRA on completion of the medical certification (Part B), provided the medical practitioner has entered the reference number.

The reference number will remain on My Account until the medical certification (Part B) is completed. Representatives cannot currently complete the non-medical portion (Part A) through their Represent a Client account.

To use this new option, the patient (person applying for the DTC) must register for CRA’s My Account.

Alternatively, the non-medical portion (Part A) can be completed over the phone, either by calling the personal tax general enquiries line (1.800.959.8281) or through a new automated voice system (1.800.463.4421). The automated voice system indicates that it is intended to be used only by the disabled individual.

ACTION ITEM: To speed up and simplify the process for applying for the disability tax credit, consider using the electronic method.

Is it time to ditch the hourly billing model?

Posted on by Edixon

With an hourly-based billing model, there are only two ways to generate more revenue: 1) increase the bill rate per hour or 2) increase the number of hours worked. Most professional firms use this billing model. 

Modern technologies and AI are now putting hour-based billing into serious question and pressuring professional services firms to consider alternative billing models. In this article, written by RSM Canada, they will explore value-based billing and how the adoption of these models can help protect and grow future revenue.

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WITHDRAWING FROM FAMILY RESPs: Flexible Planning Possibilities

Posted on by Edixon

A July 21, 2021, Money Sense article (My three kids chose different educational paths. How do I withdraw RESP funds in a way that’s fair to them and avoids unnecessary taxes?, Allan Norman) considered some possibilities and strategies to discuss when withdrawing funds from a single RESP when children have different financial needs for their education.

Some of the key points included the following:

  • There is likely a minimum educational assistance payment (EAP) withdrawal that should be taken, even by the child that needs it least.
  • The EAP includes government grants (up to $7,200) and accumulated investment earnings on both the grants and taxpayer contributions.
  • The grants can be shared, but only up to $7,200 can be received per child, with unused amounts required to be returned to the government.
  • Only $8,000 ($5,000 in previous years) in EAPs can be withdrawn in the first 13 weeks of consecutive enrollment.
  • The withdrawal amount is not restricted by school costs. • The children are taxed on EAP withdrawals.
  • It is generally best to start withdrawing the EAP amounts as early in the child’s enrollment as possible, when the child’s taxable income is lowest. If the child is expected to experience lower income in later years, there is flexibility to withdraw EAP amounts in those later years instead.
  • The level of EAP withdrawn for each child can be adjusted. As individuals are taxed on the EAP withdrawals, planning should consider the children’s other expected income (e.g. targeting less EAPs for years in which they will be working, perhaps due to co-op programs or graduation). Consider having the EAP completely withdrawn before the year of the last spring semester as the child will likely have a higher income as they start to work later in the year.
  • To the extent that investment earnings remain after all EAP withdrawals for the children are complete, the excess can be received by the subscriber. However, these amounts are not only taxable, but are subject to an additional 20% tax. Alternatively, up to $50,000 in withdrawals can also be transferred to the RESP subscriber’s RRSP (if sufficient RRSP contribution room is available), thus eliminating the additional 20% tax. An immediate decision is not necessary as the funds can be retained in the RESP until the 36th year after it was opened.

ACTION ITEM: The type, timing, and amount of RESP withdrawals can significantly impact overall levels of taxation. Where an RESP is held for multiple children, greater flexibility exists. Consult a specialist to determine what should be withdrawn, at what time, and by whom.

Automate and Elevate: Driving Business Value to New Heights

Posted on by Edixon

Professional services firms face a number of similar challenges that include improving project profitability and margins, adapting to shifting customer expectations and reducing administrative tasks.

In this article from RSM Canada, they delve into the transformative potential of automation in the realm of professional services across all of the major business functions, such as accounting, time/expense tracking, project management, data analytics, sales and marketing, and human resources. Organizations willing to face these challenges head-on and holistically are in the optimum position for long-term success.

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Removal of GST on Purpose-Built Rentals in Canada

Posted on by Edixon

In a significant step toward improving housing affordability and accessibility, the Canadian government recently announced the removal the Goods and Services Tax (GST) on purpose-built rentals.  The GST is being removed by an increase to the GST New Residential Rental Property rebate from 36% to 100%.

Why Remove GST on Purpose-Built Rentals?

The decision to eliminate the GST on purpose-built rentals stems from the government’s commitment to address the housing crisis in many parts of Canada. High housing costs and limited availability have made it increasingly challenging for individuals and families to secure housing. Removing the GST on purpose-built rentals helps contribute to making housing more accessible and affordable for Canadians.

Impact on Property Developers

For property developers, the removal of the GST on purpose-built rentals encourages investment in rental properties, which were previously seen as less profitable due to the GST and HST burden, as neither were fully recoverable and therefore resulted in sunk cost.

This move could lead to an increase in the construction of purpose-built rental units, thus expanding the housing supply and helping to meet the growing demand of Canadians.

Impact on Renters

Canadian renters, especially those in urban areas, have grappled with the rising cost of housing. By eliminating the GST on purpose-built rentals, the government is helping to ease the financial burden on renters. This move will likely result in more affordable rents.

Important date – the enhanced rebate will apply to projects on or after September 14, 2023, and on or before December 31, 2030, and complete construction by December 31, 2035.

While this policy change alone may not solve all housing-related challenges, it is a step in the right direction.

CEBA Loan Repayments and Debt Forgiveness

Posted on by Edixon

****EXTENDED DEADLINES****

CEBA loans must be repaid by JANUARY 18, 2024 to be eligible for partial loan forgiveness.

For eligible CEBA borrowers in good standing, repaying the balance of the loan on or before January 18, 2024, will result in loan forgiveness of up to $20,000.

More specifically, where the outstanding principal other than the amount of potential loan forgiveness is repaid by January 18, 2024, the outstanding principal amount will be forgiven, provided no default under the loan has occurred.   

For example, if you borrowed $40,000 or less, repaying the outstanding balance of the loan (other than the amount available to be forgiven) on or before January 18, 2024, will result in loan forgiveness of 25% (up to a max of $10,000).

If you received a $40,000 loan and subsequently received the $20,000 expansion, repaying the outstanding balance of the loan (other than the amount available to be forgiven) on or before January 18, 2024, will result in loan forgiveness up to $20,000 based on a blended rate:

  • 25% on the first $40,000; plus
  • 50% on amounts above $40,000 and up to $60,000.

For loans outstanding on January 19, 2024, during the period of January 19, 2024 to December 31, 2026, you will be required to pay interest on your CEBA loan and be subject to the following repayment terms:

  • 0% per annum interest until January 18, 2024.
  • No principal repayment required before January 18, 2024.
  • Automatic conversion to a three-year term loan beginning January 19, 2024.
  • 5% per annum interest starting on January 19, 2024; interest payment frequency to be determined by your financial institution.
  • Only interest payments are required to be paid on the term loan beginning January 19, 2024, however, the full principal is due on December 31, 2026.

CEBA loan holders who submit a refinancing application with their financial institution by January 18, 2024, may qualify for an extension of the partial loan forgiveness repayment deadline to March 28, 2024.

We suggest that you contact your financial institution to assist you with making a payment towards your CEBA loan or to submit a refinance application well in advance of the January 18, 2024, deadline.

Replacement Property Rules Pertaining to Real Estate and Business Properties

Posted on by Edixon

When a taxpayer (including a corporation) disposes of real estate for more than its cost, the capital gain must be reported on the taxpayer’s income tax return.  If the taxpayer previously claimed capital cost allowance (CCA) on the building, then that CCA will be recaptured and included in income as well.  However, the Income Tax Act permits a taxpayer, in certain conditions, to elect to defer the recognition of recapture of CCA or capital gains where a property was involuntarily disposed of, or a former business property was voluntarily disposed of, and a replacement property is acquired.  

Requirements for the replacement property rules to apply

There are a number of requirements in order to take advantage of the replacement property rules.  They are as follows:

  • A replacement property can be acquired before or after the former property, as long as it meets the other conditions.
  • For involuntary dispositions such as an expropriation, the replacement property must be acquired before the later of:
    • the end of the second tax year following the year proceeds become receivable for the former property; and
    • 24 months after the end of the year those proceeds become receivable.
  • For voluntary dispositions of a former business property, the replacement property must be acquired before the later of:
    • the end of the first tax year following the year proceeds become receivable for the former property; and
    • 12 months after the end of the year those proceeds become receivable.
  • To qualify as a former business property, the property must be used by the taxpayer or a person related to the taxpayer primarily for the purpose of gaining or producing income from a business. A rental property does not qualify as a former business property unless it was rented in the year of disposition to a related person who used the property principally for gaining or producing business income.
  • The replacement property must be acquired to replace the former property, have the same or similar use as the former property and, if the former property was used for the purpose of gaining or producing income from a business, the replacement property must be acquired for the purpose of producing income from the same or a similar business.
  • A taxpayer must make a valid election to use the replacement property rules.
Reporting requirements

A taxpayer is required to report any recaptured CCA or taxable capital gain arising from the disposition of a former property in the year of disposition. However, where a replacement property is acquired in a subsequent tax year and within specified time limits, the taxpayer may request a reassessment of the income tax return for the year of disposition of the former property. This will generate a refund in respect of the income tax paid on income arising on the disposition.

Election to use the replacement property rules

A taxpayer must elect to have the replacement property rules apply. The election should be made as follows:

  • If the disposition and replacement take place in the same year, the taxpayer’s calculation (in the income tax return for that year) of the recaptured CCA or the capital gain by virtue of subsection 44(1) will be considered to constitute an election.
  • If the property is not replaced until a subsequent year, the election should take the form of a letter attached to the income tax return for the year the replacement property is acquired. The letter should include a description of the replacement property and the former property, a request for an adjustment to the recapture of capital cost or the taxable capital gain reported, and a calculation of the revised recapture or taxable capital gain.
  • If the replacement property is acquired prior to the year of disposition of the property, the election should take the form of a letter attached to the income tax return for the year in which the replacement property is acquired. The letter should include descriptions of the replacement property and the property that is to be replaced. If the taxpayer late-files such an election, it will be accepted if it is filed in the income tax return for the year in which the former property is disposed of, provided it is evident that the new property qualifies as a replacement property.

The calculation of the tax deferral can be complicated.  The new capital cost of the replacement property is reduced by the capital gain of the former property that was deferred. As a result, when the replacement property is eventually sold in the future, the now lower capital cost is used in determining the capital gain to be realized.  The amount eligible for capital cost allowance purposes will also be reduced, as it is affected by both the deferred capital gain and the deferred recapture.  We at DJB are here to help you work through this complicated tax filing to give you the best tax filing position.