Year: 2024

Reminder: Prompt Payment Toolkit and Resource Centre

Posted on by Edixon

Prompt payment and adjudication are processes provided under Ontario’s Construction Act to help contractors to get paid on time. Prompt payment legislates mandatory timelines for payment and adjudication.  It is a dispute resolution process that allows a contractor or subcontractor to enforce claims for payment in a more efficient and less expensive way than going through the court system.

To further support the process, the Council of Ontario Construction Associations (COCA) recently launched a Prompt Payment and Adjudication Toolkit as an online resource centre.

The Prompt Payment and Adjudication Toolkit features downloadable documents with clear, concise information for owners, contractors, and subcontractors alike. Prompt Payment Adjudication 101, provides an overview of the act in layman’s terms, covering information about holdbacks and proper invoicing. The webpage also has a prompt payment webinar and links to government resources.

The intention of the resource centre is to get contractors and owners familiar with the legislation so that they can create their own internal processes and easily access the tools if and when there is a dispute over payment.  The online resource centre is intended to provide information and should not be considered legal advice.  We encourage those with further questions to contact a lawyer.

For more information and to access the toolkit, please visit: https://www.coca.on.ca/advocacy-prompt-payment/

Valuing Economic Loss for Realtors in the Current Realty Market

Posted on by dflanagan

In calculating the economic loss for an employed, or self-employed individual, we typically compare the person’s pre-accident potential earnings (being what they would likely have earned had the accident not occurred) to their expected post-accident actual earnings (being what they will likely now be able to earn, if anything, given the injuries they suffered in the accident).

Under relatively normal and stable economic conditions, the potential earnings are often estimated based on what the person was earning at the time of the accident, or perhaps based on an inflation-adjusted average of their pre-accident earnings. However, given the large fluctuations in real estate markets over the last few years, determining the potential and expected actual earnings for real estate agents/ brokers, has become more complex and difficult to determine.

Earnings of real estate agents are typically based on commissions on the sale price of the residential and commercial units sold. Over the past few years, the sales prices of real estate have increased dramatically. The resulting commissions on those property sales have also increased dramatically. Therefore, real estate agents are typically earning much more per home/unit sold now, than they did before these increases.

A real estate agent injured in an accident likely can’t work to the same extent as they could before their accident. Therefore, they have likely suffered a loss due to the accident because they are selling fewer homes than they were before the accident. However, because their commission income per home/unit sale is now much higher, their income may not have actually decreased, even though they are selling fewer homes. That is, had they not been injured in the accident, they likely would have sold more homes/units than they did in their injured state, and thus, they have suffered a loss, even though they may have earned as much, or more, income than they did prior to their accident.

To add to the complexity, real estate agents have also experienced somewhat inconsistent sales volumes with the interest rate increases that began in March 2022, and remained at higher levels until the recent decreases in the middle of 2024. Other external factors may also apply, with the number of homes sold throughout the Golden Horseshoe area fluctuating significantly over the last few years. For example, the annual number of residential sales in the Hamilton area increased by about 8% in 2020, and almost 14% in 2021, before decreasing sharply by about 33% in 2022, and a further 15% in 2023. Based on this, it would likely not be reasonable to assume that any specific real estate agent’s sales would have remained constant throughout this period. Rather, it is likely that their number of sales would have fluctuated somewhat consistent with the market. We need to consider these fluctuations in estimating the person’s potential earnings.

Based on the above, when estimating a real estate agent’s potential earnings during this period, we would want to consider both the change in real estate prices (and thus commission income) and the fluctuations in the market. We can then compare this to the actual number of units sold, and income earned, by the real estate agent to estimate the loss suffered due to their injuries.

Ultimately, calculating the value of lost employment or self-employment income for economic loss purposes is a complicated issue, with each case presenting its own set of unique challenges. Our Financial Services Advisory Team (FSAT) has significant experience preparing these calculations. If you have any questions or require assistance with a calculation, please contact a member of our team.

Shareholder Loan Account: Proper Bookkeeping

Posted on by dflanagan

A July 31, 2024, Tax Court of Canada case reviewed whether payments made by a corporation in 2013 and 2014 of $24,249 and $41,680, respectively, were taxable as shareholder benefits on the basis that they were for the personal expenses of the shareholder. The Court also reviewed whether payments of $13,693 and $28,131 in 2013 and 2014 were taxable to the shareholder as indirect payments on the basis that they were made on behalf of the shareholder’s son for personal mortgage payments and day-to-day expenses. The taxpayer argued that all these payments constituted non-taxable shareholder loan repayments.

Starting in 2001, and continuing over several years, the taxpayer loaned a newly incorporated entity, of which the taxpayer and his spouse were shareholders, over $600,000. The loans enabled the corporation to acquire and operate a tire/auto detailing business managed by the taxpayer’s son. As the corporation could not afford a professional to prepare the corporation’s tax returns, the taxpayer compiled the returns, although he had no accounting training other than a personal tax preparation course he took 40 years prior. In 2018, the corporation ceased operations due to financial problems.

Taxpayer loses – shareholder benefit

The Court acknowledged that the taxpayer had made a bona fide loan to the corporation. However, the Court observed that payments the taxpayer received from the corporation were not properly recorded via a debit entry to the shareholder loan account as a repayment of the shareholder loan. The taxpayer argued that he did not know how to record payments for personal expenses in the shareholder loan account. The Court found that this was not a sufficient reason for not debiting the shareholder loan account for the repayments of the shareholder loan. The Court noted that the choice was to pay for professional assistance for the books and records or learn how to do it properly, neither of which the taxpayer selected. The shareholder benefit income inclusion was upheld.

Taxpayer loses – indirect payment

The Court noted that all of the following conditions were met in respect of payments to or for the benefit of the taxpayer’s son:

  • the payments were made to a person (the son) other than the reassessed taxpayer (the shareholder);
  • the allocations were at the direction or with the concurrence of the reassessed taxpayer (the shareholder);
  • the payments were made for the benefit of the reassessed taxpayer (the shareholder) or for the benefit of another person (the son) whom the reassessed taxpayer wished to benefit; and
  • the payments would have been included in the reassessed taxpayer’s income (the shareholder’s income) if they had been received by them.

The taxpayer was, therefore, required to pay tax on the indirect payments benefiting his son.

Ensure that all loans to a corporation and associated repayments are properly recorded in the books and records of the corporation.

Employment Expenses: Salary to Spouse

Posted on by dflanagan

A June 17, 2024, Tax Court of Canada case reviewed a commission salesperson’s deduction for remuneration paid to their spouse for general administrative services as a self-employed contractor.

Taxpayer loses

The annual deductions of $20,000 for services, including arranging appointments with prospective clients (who completed preprinted forms at a kiosk to express interest in a salesperson’s products/services), were not supported by a contract or by any documentation such as a log or list of customers contacted. The taxpayer testified that payment was made in the form of joint household expenses that did not directly match the amounts deducted. The taxpayer testified that he left the determination of the amount deducted to his accountant.

The Court agreed that the onus was on the taxpayer to maintain books and records, such as a contract for services or actual payments for those services, to document expenses claimed. His verbal testimony alone was not adequate to support the deductions claimed – they were properly denied.

Employment expenses – regular vs. commission employee

The scope of deductible employment expenses for employees earning commission income is much broader than for non-commission employees. Expenses incurred to earn commission income are deductible provided that they are not specifically prohibited (purchase of capital assets, personal expenses or payments that reduced a taxable employment benefit) and provided that the other standard conditions for deduction are met. In contrast, only expenses specifically listed as deductible can be deducted against non-commission employment income. For example, a non-commission employee can deduct salaries paid to an assistant only if the employment contract specifically requires them to pay for an assistant; however, no provision would permit a deduction for fees paid to a self-employed assistant.

If paying an assistant such that you can earn commission income, ensure to properly pay and retain documentation to support the claim­.

Achieving Fiscal Sustainability for Not-for-Profits

Posted on by dflanagan

In recent years, donor behavior has become less predictable, many Not-for-Profit organizations have experienced a decline in contributions and are experiencing a more discerning approach from large donors. This shift means that they can no longer rely solely on one-time donations from fundraising drives, and younger generations of historically philanthropic families may not give as automatically as their predecessors.

To consistently generate the necessary funding, focus should be placed on creating a solid, diversified funding base. This involves demonstrating their impact, providing transparency on how donor funds are used, and calling upon their most valuable resources: their stakeholders.

Technology, especially AI, plays a crucial role in this new landscape. Donors now expect concrete data and evidence of an organization’s success. AI can help Not-for-Profit organizations manage data more effectively, gain insights into donor behavior, and tailor communications to individual donors, making outreach more personal and effective.

Diversifying revenue streams is also critical. Not-for-Profits should look beyond individual donations to corporate sponsorships, government grants, endowment funds, and earned income strategies and consider collaborating with similar organizations can also help achieve economies of scale.

For more details on how Not-for-Profits can achieve fiscal sustainability, we invite you to read this insightful article written by RSM Canada.

Read Article

Ontario Made Manufacturing Investment Tax Credit

Posted on by dflanagan
Overview

The Ontario made manufacturing investment tax credit was passed alongside Ontario 85 bill on May 18, 2023. It is a refundable investment tax credit designed to support manufacturers in Ontario. Eligible Canadian-controlled private corporations (CCPCs) can receive a 10% tax credit on qualifying investments in manufacturing and processing (M&P) property, up to a maximum $2 million per year. For investments of up to $20 million annually, corporations can claim this credit to reduce their tax liability and reinvest in their business.

Qualification Criteria: Does your corporation qualify?

The corporation must meet ALL the following criteria to claim the credit:

  1. Be a CCPC throughout the tax year;
  2. Have a permanent establishment in Ontario, actively carrying on business throughout the year;
  3. Not be exempt from Ontario corporate tax during the year
Eligible vs Ineligible Purchases

For corporations to qualify for the credit they must ensure that purchases are NOT excluded property as these properties are considered ineligible for the tax credit claim. From a general standpoint, M&P properties purchased from a third party are considered eligible. Provided below is a more detailed outlook of the M&P property purchases that are customarily considered acceptable:

There are two main classes of investment purchases that qualify for claim of this credit. These include capital cost allowances (CCA) classes 1 and 53. Below is a detailed look of the requirements for each class:

Class 1

  1. Includes buildings that become available for use after March 22, 2023.
  2. Consists of buildings that are primarily used (at least 90% of the floor space) for manufacturing or processing purposes at the end of the year. The credit may also apply to buildings under construction or undergoing renovations, provided they meet the manufacturing use requirement.
  3. The building must also be eligible for an additional 6% CCA claim.
    • To satisfy this requirement the corporation must make an election under regulation 1101(5b.1) of the Federal Income Tax Act.

Class 53

  1. Includes machinery and equipment that became available for use after March 22, 2023.
  2. Machinery and equipment that are used in Ontario for manufacturing or processing of the goods for lease or sale.
  3. Property that the corporation leases in the ordinary course of business that is used primarily for manufacturing or processing of goods for lease or sale will also qualify.

 

Ineligible Claims & Excluded Property

A claim will be deemed ineligible if the expenditure was acquired by the following means:

  1. If there is an existing contract with a non-arm’s length individual or partnership at the time of acquisition.
  2. For the case of amalgamation, if the predecessor corporation was deemed as a non-qualifying corporation prior to amalgamation.

An M&P property will be deemed an excluded property and will be ineligible to claim the Ontario made manufacturing investment credit if one of the following criteria are met:

  1. If at any time during the properties existence the property was owned by a non-arm’s length party or purchased from a non-arm’s length party.
  2. If the credit was previously claimed by an associated corporation or the qualifying corporation.
  3. If the reason for holding the property was for a leasehold interest by an associated corporation or the qualifying corporation.
  4. If the property was leased to a non-profit organization or a registered charity or any other property that is considered exempt from paying tax under section 149 of the Federal Income Tax Act.
  5. If the M&P property was purchased from a seller who has a right or option to either lease or acquire a portion or all the property.
  6. If the corporation that qualifies for the exemption provides a buyer with an option or right to purchase the property.
  7. If the property was transferred following an election from a Class 1 asset to a Class 2 or 12.
How To Claim the Credit

Corporations must file Schedule 572 with their corporate income tax return to claim the Ontario Made Manufacturing Investment Tax Credit. It is essential to file within 6 months after the end of the corporation’s tax year to ensure eligibility. Late filings may result in the credit being denied.

How The Credit Is Calculated

The credit is calculated as 10% of the total eligible expenditures for the year, up to a maximum of $2 million. If a corporation (or group of associated corporations) makes qualifying investments exceeding $20 million, the total credit claimed is still capped at $2 million annually.

Example:

A manufacturing corporation invests $12 million in a new manufacturing facility and $8 million in machinery during the year, for a total investment of $20 million. The corporation can claim a 10% credit on the total qualifying expenditures, resulting in a $2 million tax credit.

If this corporation is associated with another company, the total credit of $2 million must be shared between them, and the total qualifying expenditures (up to $20 million) must be allocated across both companies.

Key Takeways

The Ontario Made Manufacturing Investment Tax Credit provides a significant opportunity for manufacturing businesses or reduce their tax burden on qualifying investments in Ontario. With a refundable tax credit of up to $2 million annually, this incentive can help corporations reinvest in their operations. While there is no immediate deadline for the credit, the Ontario government plans to review the review the program in three years, which may lead to future changes.

Below are key considerations to keep in mind when applying for the Ontario made manufacturing investment tax credit:

  1. The investment limit will be prorated for short taxation years.
  2. The amount of the $20 million expenditure limit must be allocated among all associated corporations.
  3. The total claim for the credit is 10% of the amount of eligible qualifying investments for a maximum of up to $2 million dollars per year.

The Ontario Made Manufacturing Investment Tax Credit is considered a government inducement, subsidy or grant.  Therefore, the resulting refund would be considered taxable income and would need to be reported in the year it is received.  For more detailed advice on how your business can benefit from this credit, please contact one of our trusted advisors.

 

Psychotherapy and Counselling Therapy: GST/ HST?

Posted on by dflanagan

As of June 20, 2024, certain psychotherapy and counselling therapy services have become exempt from GST/HST. This means that those providing these exempt services are no longer required to collect GST/HST on their services, and these service providers are no longer able to claim input tax credits (ITCs) on inputs acquired to provide these services.

Psychotherapy and counselling therapy services are now exempt if the provider:

  • is licensed with a provincial body responsible for the regulation of psychotherapy services (regulated only in Ontario) or counselling therapy services (regulated only in New Brunswick, Nova Scotia, and Prince Edward Island); or
  • operates in a province with no regulatory body but has the equivalent qualifications required to meet the licensing requirements in a regulated province.

In addition, to be exempt from GST/ HST, those providing the services must do so within the profession’s scope of practice in the respective regulated province.

If all of a registrant’s services are GST/ HST exempt, they may close their GST/ HST account with CRA. If only some of their services are exempt, they must keep their account open and continue to charge GST/HST on nonexempt services and goods.

In addition, on June 20, 2024, there may be a deemed sale and repurchase of certain capital property (e.g. computers, furniture) used in the provision of these services due to the change from a taxable to exempt supply. This generally means that the taxpayer will have to repay all or part of the GST/HST they claimed (or were entitled to claim) as an ITC when they bought the property and when they made any improvements to it. The required repayment of GST/HST is adjusted if the assets have declined in value since the acquisition.

If psychotherapy or counselling therapy services are provided, consideration should be provided to determine if the supply is now exempt.

Agribusiness Labour Force Management Initiative Summary

Posted on by dflanagan

The governments of Canada and Ontario have created the Labour Force Management Strategies Initiative to attract and retain Ontario agri-food workers. This $4-million investment, funded by the Sustainable Canadian Agricultural Partnership (Sustainable CAP), will strengthen Ontario’s agri-food workforce for years.

Producers and processors can receive up to 50% cost-share support, with a maximum of $40,000 per project. Industry organizations can receive up to a maximum of $100,000 per project.

The key components of the initiative include:

  • funding for job training and recruitment marketing campaigns;
  • introduction of worker supports such as ridesharing programs and language training; and
  • support for on-site amenities and recreational facilities.

Applications are now being accepted for eligible primary producers, processors, and industry organizations. The deadline to submit applications is September 2, 2025.

For more information about this new initiative:

Governments investing in initiatives to attract and retain agri-food labour – Canada.ca

Labour Force Management Strategies Initiative | ontario.ca

CEBA: Collection Process

Posted on by dflanagan

Where borrowers cannot repay their CEBA loan in full when it becomes due, the loan may be assigned from the taxpayer’s financial institution to the CEBA program for collection. CRA is assisting with the collection of loans that are assigned and began said work in the Spring of 2024. Loans may have been assigned if they are in default for reasons such as:

  • not repaying the principal or interest when due;
  • becoming insolvent; or
  • failing to observe the terms of the loan.

When a loan is assigned, a loan assignment notice will be mailed to the taxpayer containing details on how to make payments and how to set up a payment arrangement with CRA. A 12-digit CEBA identification number commencing with “967” will be issued for use in registering for a CEBA portal account. The portal provides information on the outstanding balance, the payment arrangement, payment history, charge history, monthly statements, and contact information. Payment and charge history for only the period that commenced with the assignment to the CEBA program is available on the portal.

While CRA may contact the taxpayer to set up a payment arrangement, taxpayers may also initiate communications by contacting the CRA CEBA contact centre (1.800.361.2808) once the loan assignment notice has been issued.

Payments made to an assigned CEBA loan are applied in the following order:

  • fees outstanding;
  • interest outstanding;
  • principal outstanding; and finally
  • interest accrued.

Authorized third parties, such as a family member, accountant, or lawyer, can request information about the loan through the general CEBA call centre (1.888.324.4201), but they cannot access the loan or sign into the taxpayer’s CEBA portal account. To authorize new third parties or manage existing third parties, the taxpayer must contact the CRA CEBA contact centre.

The CEBA program also provided the following guidance in respect of changes to an entity’s business.

  • Business closure – Taxpayers must repay the loan even if the business is closed.
  • Ownership change – The impact of a change in ownership of the borrower depends on the business’s legal structure (e.g. whether the business is a sole proprietor or a corporation) and the type of ownership change. The general CEBA call centre should be contacted for more information once loans are assigned.
  • Insolvency – The CEBA FAQ stated that the CEBA program cannot provide insolvency advice.
  • Bankruptcy/consumer proposal/ receivership – If a business has filed for bankruptcy, the appointed licensed insolvency trustee can contact the CEBA call centre. The process for entering into payment arrangements does not apply to insolvent taxpayers.

Ensure that a reasonable repayment schedule is established if satisfying the full outstanding CEBA loan immediately is problematic.

Tax Planning: 2024 Year-end Considerations for Businesses and Individuals

Posted on by dflanagan

RSM Canada’s 2024 year-end tax guide summarizes the key federal, provincial, and territorial tax updates that may create risk or opportunity for middle market taxpayers going into 2025.

Tax trends and topics discussed as the Canadian economy moves into 2025 include:

  • Increase to the capital gains inclusion rate
  • Introduction of the Digital Services Tax Act and Global Minimum Tax Act
  • Enactment of the excessive interest and financing expense rules
  • Updates to the general anti-avoidance rule
As year-end approaches, companies and individuals alike must carefully consider tax-planning opportunities in light of economic uncertainty and evolving tax legislation and regulations. Learn more in the year-end planner.  
 
 
Download the Guide
 
Federal and Provincial Tax Rates

Federal and provincial tax rates, limits and phase-outs directly affect your business and personal tax planning strategies. Download the federal and provincial/territorial rate cards.

 

Download the Rate Cards

 

Canadian Tax Integration of Private Company Income

Tax integration is achieved when a particular stream of income is subject to the same or similar total tax rate once it reaches the individual taxpayer level. These tables provide an illustration of how the Canadian income tax integration system works.

 
Learn More