Canada Revenue Agency (CRA) considers travel between an employee’s residence and a regular place of employment (RPE) to be personal travel and not part of the employee’s office or employment duties; therefore, any reimbursement or allowance relating to this travel is a taxable benefit
In this article, authored by RSM Canada, they explore in the era of remote work, what is considered to be a RPE.
The tax-free FHSA was introduced in 2023 to help first-time home buyers save up to $40,000 for a home purchase.
Individuals eligible to open an FHSA must be at least 18 years of age and resident in Canada. The individual must also have not lived in a home that they or their spouse owned jointly or otherwise at any time in the year or the preceding four calendar years.
Contributions to an FHSA are deductible (like an RRSP). Income earned in an FHSA and qualifying withdrawals from an FHSA made to purchase a first home are non-taxable (like a TFSA).
The lifetime limit on contributions is $40,000, subject to an annual contribution limit of $8,000, both of which apply at the individual level. Each spouse (or commonlaw partner) could invest $40,000 and withdraw the full value (including investment income and growth) tax-free to acquire their first home. Individuals can carry forward unused portions of their annual contribution limit up to a maximum of $8,000.
Individuals can also transfer funds from their RRSP to an FHSA tax-free, subject to the $40,000 lifetime and $8,000 annual contribution limits. The maximum participation period for an FHSA ends at the earliest of:
Any funds remaining in the plan after the maximum participation period could be transferred tax-free into a RRIF or an RRSP without eroding contribution room. Otherwise, the funds will have to be withdrawn on a taxable basis.
A June 28, 2023, Advisor’s Edge article (How to properly plan the opening of an FHSA, Charles-Antoine Gohier) discussed the impact of individuals purchasing homes later in life on FHSA planning.
The article quoted a study from 2020 that estimated that the average age to buy a home in Canada is 36. If an individual opens an account at age 18, the plan must be closed no later than 15 years later, that is, when the individual is 33. If the individual contributes the annual maximum of $8,000 for the first five years to reach the maximum contribution of $40,000, assuming a 4.5% return, the balance of the FHSA would be $74,221 at the end of 15 years. If not used for a home, the individual must either withdraw the balance on a taxable basis or roll the balance into their RRSP on a tax-free basis. While rolling the FHSA into the individual’s RRSP does not erode their RRSP contribution room, no tax-free withdrawal would be possible for subsequent use of the funds to purchase a first home. Up to $35,000 could be withdrawn from the RRSP under the home buyers’ plan, but this would be subject to repayment conditions. Where sufficient funds are available in the RRSP, the home buyers’ plan can be used in conjunction with a tax-free FHSA withdrawal.
In a May 15, 2023, French Technical Interpretation, CRA was asked whether an individual could withdraw $8,000 under the HBP and contribute the funds to a tax-free FHSA, knowing they would purchase a qualifying home the following month.
CRA first noted that the HBP and FHSA can be used for the same home purchase. Provided that the relevant requirements of both plans were complied with, the taxpayer could contribute the HBP withdrawal as a deductible FHSA contribution, then take a qualifying withdrawal from the FHSA in respect of the same home purchase.
This would be an alternative to rolling funds from the RRSP to the FHSA. Using the HBP approach would provide an immediate deduction for the FHSA contribution (a rollover would generate no deduction) but would also require the HBP withdrawal to be repaid to the RRSP in future years to avoid tax. The legislation does not impose any minimum period that contributions must remain in an FHSA before being withdrawn to acquire a home.
A May 23, 2023, Advisor’s Edge article (What are the FHSA qualifying withdrawal rules?, Rudy Mezzetta) discussed the conditions for a qualifying withdrawal.
The taxpayer holding the FHSA must be a resident of Canada at the time of withdrawal and remain so until the qualifying home is acquired.
The taxpayer must also have a written agreement to buy or build a qualifying home before October 1 of the year following the first qualifying withdrawal. Further, they must occupy or intend to occupy the qualifying home as a principal place of residence within one year after buying or building it. The article indicated that CRA had confirmed, in an email, that there is no minimum amount of time that the taxpayer must live in the qualifying home. The article also noted that if the acquisition of the home before October 1 of the following year was frustrated by unforeseen events, the taxpayer may have to provide evidence supporting their intent to occupy the property to avoid the withdrawal being subject to tax.
The individual must also be a first-time home buyer, defined as someone who has not owned or jointly owned their principal place of residence in the current year or any of the previous four years, to make a qualifying tax-free withdrawal. Unlike the requirements for opening an FHSA, home ownership by the individual’s spouse or common-law partner is not considered in the definition of a qualifying withdrawal. The individual may own the qualifying home for up to 30 days prior to the qualifying withdrawal and still be a first-time home buyer.
ACTION: Consider whether opening up and contributing to an FHSA is an option for you or a family member
Under new Canadian legislation, bare trust arrangements are now subject to the filing requirements of a T3 Trust Income Tax and Information return. This new legislation applies to trusts with tax years ending on or after December 31, 2023, with significant penalties for failure to comply.
In this important tax alert, authored by RSM Canada, they highlight what information is required to be reported, the deadlines, penalties for non-compliance, and which trusts may be exempt from filing.
The multigenerational home renovation tax credit is a refundable tax credit applicable to the costs of constructing a secondary suite for an eligible person (generally a relative either age 65 or over, or eligible for the disability tax credit) to live with a qualifying relation. The tax credit is available on up to $50,000 of eligible expenditures incurred after 2022 at a rate of 15%.
In a March 6, 2023, Technical Interpretation, CRA confirmed that the eligible person must ordinarily inhabit, or be intended to ordinarily inhabit, the new dwelling unit constructed, but does not have to reside with the qualifying relation before the renovations are undertaken.
In a second March 6, 2023, Technical Interpretation, CRA was asked whether the construction of a separate, detached housing unit on the same parcel of land as a principal housing unit, such as a carriage house or laneway house, would be eligible. CRA noted that a qualifying renovation must enable the qualifying individual to reside in the dwelling by establishing a secondary unit within the dwelling. CRA indicated that a second detached housing unit located on the same parcel of land as the primary dwelling unit would be considered to be located within the dwelling (that is, the dwelling would be considered to include the subjacent land) and would qualify for the credit.
CRA noted that all other requirements must be met, cautioning that this includes the second property being permitted under local law and regulations, as many municipalities do not permit detached secondary units.
ACTION ITEM: If building a secondary suite for a family member 65 years of age or older, or eligible for the disability tax credit, check whether you can claim this new credit.
This article, authored by RSM Canada, highlights the international aspects of the recent amendments to Bill C-47 in Canada’s Income Tax Act.
The article covers the expansion of withholding tax obligations for non-residents, the narrowing of the money lending business exception, and the introduction of a new functional currency and broader stop-loss provision.
The aforementioned changes have compliance implications for companies that conduct business across borders.
Traders or dealers in securities must report to CRA the disposition of securities, such as publicly traded shares, mutual fund units, bonds, and T-bills, of their clients on a T5008.
A November 4, 2022, French Federal Court case summarized CRA’s administrative policy where a taxpayer has not filed a tax return, but a T5008 was issued, reporting the disposition of property that does not include the cost of the property disposed. In this case, CRA will assess the taxpayer with unreported income by estimating the capital gain to be a percentage of the total proceeds of disposition based on the stock market performance for the year in question (details on how the calculation was made were not provided in the Court case).
In 2015, CRA applied this policy and assessed the taxpayer for his 2008 year with a $967,806 capital gain (taxable capital gain of $483,903) computed as 20% of all proceeds of disposition reported on the T5008. CRA assessed the taxpayer’s income for 2009 at $141,798. The taxpayer did not object to either of these assessments.
In 2019, the taxpayer filed his 2008 and 2009 returns reporting much lower income than CRA had assessed in 2015. As the 2008 return was filed (essentially requesting adjustments to the original assessment) more than 10 calendar years after the end of the year (December 31, 2008), no adjustments could be made to this year. The taxpayer relief provisions only allow an individual to request an adjustment up to ten calendar years after the relevant year. As such, CRA confirmed their 2015 assessment. The taxpayer then tried to argue that the excess of capital gains assessed by CRA over his actual gains for 2008 should be treated as a capital loss carried forward to offset his gains realized in 2009. CRA refused to reassess the 2009 return for this adjustment.
The Court found that the taxpayer could not indirectly reduce the impact of the capital gain on his 2008 return by claiming a capital loss on his 2009 return.
It is typical for brokers not to include the cost base of securities disposed on the T5008 as they may not have the accurate information. Also, even if an amount is reported on a T5008, the transaction may not always result in a gain; some dispositions may be in a loss or break-even position. For example, money market fund dispositions are often reported; however, there is normally no gain or loss.
ACTION ITEM: Ensure to report all gains from the disposition of securities fully; should dispositions not be reported, CRA may assess the taxpayer with unreported income much higher than the actual gain.
Contact one of our Taxation team members for more tax tips and advice.
Generally, healthcare professionals are not registered for GST/HST due to the fact that the majority, if not all, of their services supplied to their patients are exempt from GST/HST. Changes made back in 2013 caused medical practitioners to have some taxable services, and therefore, there was a need to register for GST/HST. From speaking with practitioners, there still seems to be some misunderstanding of these changes.
Under the provisions in the Excise Tax Act (ETA), services that are provided solely for non-healthcare purposes, even if supplied by healthcare professionals, are not considered to be basic healthcare and are not intended to be eligible for the exemption. For instance, the GST/HST legislation specifies that all supplies for purely cosmetic procedures are a taxable supply, and thus subject to the GST/HST. Given a number of past court cases, the scope of the GST/HST exemption was expanded beyond the original legislative policy intent to limit the GST/HST exemption to basic health care services.
The 2013 Federal Budget provided some clarity in the fact that GST/HST will apply to reports, examinations, and other services that are not performed for the purpose of the protection, maintenance, or restoration of the health of a person or for palliative care. For example, taxable supplies for GST/HST purposes include reports, examinations, and other services performed solely for the purpose of determining liability in a court proceeding or under an insurance policy. They may also include the preparation of back-to-work notes and the completion of disability tax credit forms. Supplies of property and services in respect of a taxable report, examination, or other service would also be taxable.
A report, examination, or other service will continue to be exempt if it is performed for use in the protection, maintenance, or restoration of the health of a person or use in palliative care. As well, reports, examinations, or other services paid for by a provincial or territorial health insurance plan will continue to be exempt.
Overall, what this means is that it is no longer safe to assume that just because a service is provided by a healthcare professional that it will not be subject to GST/HST. If you are a medical practitioner and are providing services that are not direct to your patients, you should discuss all of your revenue streams with your local CPA to ensure you do not have a GST/HST liability. If you need assistance, please don’t hesitate to call a DJB Professional.
On June 22, 2023, new mandatory disclosure rules were passed into law comprised of three sections: reportable transactions, notifiable transactions, and reportable uncertain tax treatment.
These rules are intended to tackle aggressive tax planning, it is important to note that ordinary tax planning done by middle market companies will be captured under the scope of these new rules. Review the following article as written by RSM Canada outlining the requirements to remain in compliance.
Taxpayers who may have reporting requirements under the new mandatory disclosure rules should review the linked forms below carefully.
Form RC312 is used to report reportable and notifiable transactions and Form RC3133 is used to disclose reportable uncertain tax treatment (RUTT). Further details can be found here.
As with all new legislation and reporting forms, there will likely be adjustments as the CRA, tax practitioners, and taxpayers have the opportunity to have practical experience with the new forms and rules. Failure to file the required forms could result in monetary penalties and extended periods for the CRA to reassess the taxpayer.
Earnings in a TFSA are typically not taxable. However, earnings in a TFSA become taxable when they are earned from carrying on a securities trading business.
In a February 6, 2023, Tax Court of Canada case, CRA had assessed the TFSA on the basis that it was carrying on a business and was therefore taxable on its income for the 2009 through 2012 taxation years. The TFSA holder was a professional investment advisor who had engaged in aggressive trading in non-dividend-paying speculative penny stocks, all of which were qualified investments. The total income assessed was $569,481, earned from annual contributions of $5,000 in each of 2009, 2010, and 2011.
The taxpayer argued that the TFSA should be treated in the same manner as an RRSP and not taxed on income from a business of trading in qualified investments. The taxpayer further argued that the traditional tests used to determine whether a business of trading in securities was being carried on were inappropriate for application to TFSAs. The taxpayer referred to an earlier Court case that had suggested registered accounts trading in qualified investments are not carrying on a business.
The Court noted that TFSAs are one of several statutory schemes, each with its own detailed provisions. Their components are not interchangeable. In comparing TFSAs to RRSPs specifically, the Court cited ten significant differences between the two schemes other than the treatment of business income. The Court further noted that the judicial test for carrying on a business of securities trading was well established when TFSAs were introduced in 2008 and would have been known to Parliament when they legislated taxation of income from carrying on a business in a TFSA. This indicated thatthe existing test was considered appropriate for this purpose.
Parliament provided that income earned from carrying on a business within a TFSA would be taxable to the TFSA. If Parliament intended to exclude a business of trading qualified investments, it would have included the same exception provided for RRSPs.
The TFSA, directed by its holder, traded frequently, had an extensive history of buying and selling shares that were speculative in nature and held the shares for short periods. The holder was a knowledgeable and experienced investment professional and spent considerable time researching securities markets. There was no doubt that the TFSA carried on a business of trading qualified investments throughout the period at issue.
ACTION ITEM: Carrying on a business of trading securities in a TFSA leads to full taxable income inclusion rather than tax-free amounts. Caution should be afforded when considering such activities.
The Canadian Federation of Independent Businesses (CFIB) released a report on January 10, 2023, focused on succession expectations for small businesses. It included the following survey responses:
There are many hurdles and opportunities in selling a business. Many can be addressed in advance, leading to significant improvements in the sale process and an increase in sale price. Often, several years are needed to position the business for sale or transition sufficiently, so planning should start as early as possible, even if the owner has not definitively determined if and when the sale will occur. In many cases, simply preparing for a sale can lead to increased profitability, efficient processes and reduced stress for the owner, such that they are in a better position even if they eventually decide not to sell.
ACTION: If you are considering selling or transitioning your business in the near to medium term, start planning now to ensure a smooth transition.
