Category: General Business

How to Make a Payment with Canada Revenue Agency for Your Business

Posted on by Edixon

Online Banking Payments

Make a payment to the CRA through online banking, the same way you pay your phone or hydro bill.

  • Sign in to your financial institution’s online business banking service.
  • Under “Add a payee,” look for an option such as:
    • Federal – Corporation Tax Payments – TXINS
    • Federal – GST/HST Payment – GST-P (GST-P)
    • Federal Payroll Deductions – Regular/Quarterly – EMPTX – (PD7A)
    • Federal Payroll Deductions – Threshold 1 – EMPTX – (PD7A)
    • Federal Payroll Deductions – Threshold 2 – EMPTX – (PD7A)
    • Federal – Canada emergency wage subsidy repayment
    • Luxury Tax
    • Underused Housing Tax (UHT)
  • Enter your 15 digit business number as your CRA account number.

You are responsible for any fees that may be charged by your financial institution.

Debit Card Payments Via ‘My Payment’

Make a payment with your Visa® Debit,  or Debit MasterCard® . 

My Payment is an electronic payment service offered by the CRA that uses Visa® Debit, Debit MasterCard® for businesses to make payments directly to the CRA using their bank access cards.  The CRA does not charge a fee for using the My Payment service. Credit Cards not accepted with this service.

To use My Payment you need a card with a Visa Debit logo or Debit MasterCard logo from a participating Canadian financial institution.

Before you start ask your financial institution about your daily or weekly transaction limit and any fees for making online payments. The CRA does not charge a fee for using this service.

CRA’s My Payment Webpage

Pay Through a Canadian Financial Institution

To make a payment at your Canadian financial institution, you will need a personalized remittance voucher. Financial institutions will not accept photocopies of remittance vouchers or payment forms.

You can make a payment in foreign funds.  The exchange rate you receive for converting the payment to Canadian dollars is determined by the financial institution handling your transaction on that day. You are responsible for any fees that are incurred.

Arrangements will need to be made with your financial institution if you are making a payment of more than $25 million.

Be sure to provide accurate information to help the CRA apply your payment to the intended account.  A personalized remittance voucher will help CRA apply your payment properly.  You can request personalized remittance vouchers online or by phone.

Mailing Your Payment

The government released legislation, effective January 1, 2024, that any tax payment or remittance made by a corporation to the CRA exceeding $10,000 must be done through electronic means.

If your tax payments exceed $10,000, you should no longer make these payments using a cheque.

It is highly encouraged to remit payments to the CRA electronically even if the amount is less than $10,000 as electronic payments are processed quicker. This will also significantly reduce the risk of lost or misapplied payments. Furthermore, it is usually far easier and faster for the CRA to trace a lost or misapplied electronic payment than a cheque mailed to the CRA.

If you still wish to send a cheque or money order, make it payable to the Receiver General for Canada and include your remittance voucher. Note: Payment is considered received on the date CRA receives the cheque, not the postmark date.

Mailing address:
Canada Revenue Agency
PO Box 3800 STN A
Sudbury ON P3A 0C3

Payment by Pre-Authorized Debit (PAD)

Set up a pre-authorized debit agreement and eliminate the need for postdated cheques.

Pre-authorized debit (PAD) is a secure, online, self-service payment option for individuals and businesses. This option lets you set the payment amount that you authorize the CRA to withdraw from your Canadian chequing account to pay your taxes on a date, or dates, of your choosing.

Due to the processes that must take place between the CRA and the financial institution, the taxpayer’s selected payment date must be at least 5-business days from the date their PAD agreement is created or managed.

See Federal holidays for a list of non-business days.

There is a ‘pay by pre-authorized debit’ option through GST/HST netfile available for an amount owing.

A PAD agreement can only be set up online, not over the phone.

Steps to create a pre-authorized debit agreement for businesses

To create a PAD you have to be registered for My Business Account.  Click on ‘CRA register’ or ‘Continue to Sign-In Partner’ and complete the steps.  Once completed, your official access code will be sent to you by mail.  Once you enter the access code into My Business Account you will have full access, which allows you to view, create, modify, cancel, or skip a payment.

This option is not designed to be used frequently due to the limitations on payments and the fees involved.

Steps to create a pre-authorized debit agreement for individuals

To create a PAD, you must to be registered for My Account. Once signed in:

  • Select the ‘Proceed to pay’ button and select the ‘Pay later’ option to create a PAD agreement.
  • Access ‘Manage pre-authorized debit’ under the Related services within the Accounts and payments section to view, modify, cancel, or skip a payment.
  • A PAD agreement can also be created within MyCRA, for an amount owing, by selecting the ‘Proceed to pay’ button and the ‘Pay later’ option. Your credentials are the same as in My Account.

Credit Card Payments via Third-Party Service Providers

You can make a payment with a credit card, debit card, PayPal, or Interac e-Transfer by using a third-party service provider.

Different service providers offer different payment methods. 

The third-party service provider will send your business or individual payment and remittance details online to the CRA for you.  

Ensure that you set up your payment well in advance of your payment’s due date as payment delivery is not immediate, and is determined by the third-party service provider that is used.

Note: Third-party service providers charge a fee for their services. Click here for a full list of third-party service providers.  

Payments via Wire Transfer for Non-Residents

Non-residents who do not have a Canadian bank account can make payments to the CRA by wire transfer.

Wire transfers for submitting your non-resident GST/HST security deposit are not available at this time.

What you need to know

All wire transfers must be in Canadian dollars.

Your financial institution may have standard charges that apply to wire transfer payments.  Make sure that your financial institution does not deduct the wire transfer fee from the total payment amount due as this will result in an underpayment.

Wire details

You will need the following information to transfer funds to the CRA’s account:

Name of banking institution: The Bank of Nova Scotia
4715 Tahoe Blvd
Mississauga, ON
Canada L4W 0B4
SWIFT: NOSCCATT
Bank number: 002
Transit number: 47696
Canada Clearing Code/Routing Code:  //CC000247696
Beneficiary name: Receiver General of Canada
Beneficiary account number: 476962363410
Beneficiary address:  11 Laurier Street
Gatineau, Quebec K1A 0S5
Description field: Authorization number: 12226367 + your CRA account number and details
Charges field: “OUR”

To avoid processing delays include the following information with your wire transfer:

For Businesses:

  • non-resident account number or business number
  • business name
  • period end date
  • fiscal year
  • telephone number
  • return/remittance
    • Provide a copy of your tax remittance or GST/HST return/remittance by fax to the CRA:
    • Attention: Revenue Processing Section
    • Fax: 204-983-0924
    • Provide the amount paid, the date paid and the confirmation number if available

Avoid late fees

You are responsible for making sure the CRA receives your payment by the payment due date. If you are using a third-party service provider, please ensure that you clearly understand the terms and conditions of the services that you are using.

Even with Pause, Trump’s Tariffs and Canada’s Response Establish Volatile New Economic Reality

Posted on by RSM US LLP

After a weekend that saw U.S. President Donald Trump impose steep tariffs on Canadian goods and Prime Minister Justin Trudeau put forward retaliatory measures, the widely feared tariff war appears on hold after meetings between the two leaders on Monday.

Instead of taking effect Tuesday, implementation of tariffs will be paused by 30 days after Canada made additional commitments to invest in border security.

While businesses and consumers may welcome this reprieve, the back-and-forth between the longtime trading partners laid bare Canada’s economic vulnerability amid ongoing political volatility.

The U.S. tariffs set to take effect in 30 days include an additional 25% tariff on nearly all Canadian goods—with a 10% tariff on energy products.

In response, Canada’s retaliatory measures included a 25% tariff on $155 billion worth of goods from the U.S. The first phase would include tariffs on $30 billion in U.S. goods; the second phase would take effect 21 days after.

The U.S. also introduced a 10% tariff on all products from China. While Trump initially announced a 25% tariff on all goods from Mexico, its implementation was delayed for a month after meeting with Mexican President Claudia Sheinbaum.

Canada, Mexico, and China comprise more than 40% of all U.S. imports.

If the tariffs take effect after the pause, they will affect all countries involved—including pushing Canada into a recession, adding inflationary pressures, and leading to job losses. This comes after Canada managed to lower inflation to the Bank of Canada’s target last year without tipping the economy into a recession.

Despite the intercession, Canada should consider re-evaluating its trade relationships. Strategies that could address this include expanding and strengthening trade relations with other countries and removing interprovincial trade barriers to allow more seamless domestic trade.

Although there will be increased costs in the short-to-medium term, diversification to de-risk is a lesson from the COVID-19 pandemic that can prove useful now.

This chart shows U.S. imports by country

Dire economic impacts

U.S. tariffs and Canada’s retaliation would lead to a 2% reduction in the Canadian economy, down from a projected growth rate of 1.8% this year.

The measures by both sides could also lift inflation from the current 2% to a 2.7% headline number as Canadian consumers end up bearing some of the increased costs from tariffs.

The depreciation of the Canadian dollar could mitigate the prices of exports for U.S. importers, but this exacerbates the pain for Canadian businesses and consumers.

Industries that are highly integrated across borders, including auto manufacturing and even agriculture, could come to a standstill rapidly if tariffs are implemented.

Job losses should be expected across Canadian industries, from manufacturing to tourism to transportation. Higher prices decrease demand, which means aggregate demand for goods across the U.S. and Canada would drop, leading to fewer jobs.

For Canadian households, this means an increase in prices of multiple consumer goods like groceries, appliances, and especially vehicles.

Prices of perishable goods such as fruits and vegetables are likely to jump quickly if tariffs are enacted, given that they cannot be stockpiled in advance.

Although the price of goods like appliances and cars would take longer to increase, they will inevitably rise if tariffs take effect.

Despite the pause, Canada should consider re-evaluating its trade relationships

In addition to higher prices, expect a smaller selection of available goods should tariffs come into force—especially fewer U.S.-made products in stores.

Businesses that are the most vulnerable to tariffs are those that frequently import and export their goods and are part of a highly integrated supply chain. This burden will be acutely felt in situations where it’s possible that goods will be subject to tariffs each time they cross the border.

Companies that produce goods in one country and sell in another, such as Canadian manufacturers that sell to U.S. consumers, would also take a hit.

Other businesses likely to be strained by tariffs are those with tight margins and without healthy cash reserves. They may be forced to pass on the costs to consumers and might run into cash-flow issues since they must pay the tariffs upfront and might not receive payments until much later.

Canada’s response

Should the U.S. follow through on tariffs after 30 days, Canada’s response would be much more targeted. Its two-wave approach allows businesses to stock up in advance, mitigating the impact on Canadian businesses.

Goods targeted in the first round include orange juice, peanut butter, alcohol, and apparel, which are not top imports from the U.S. into Canada.

Canada has close substitutes produced domestically and also imports products like apparel from countries such as China or Vietnam. This strategy could help mitigate the immediate hit to consumers’ wallets as many are likely to switch to non-U.S. substitutes.

But Canada’s later wave of tariffs includes top imports from the U.S. like passenger vehicles, aerospace products, trucks, and buses. In addition to significant supply chain disruptions, consumers can expect to see auto prices go up substantially.

This chart shows Canada's top imports from the U.S. by product

Before the pause was announced, individual provinces implemented non-tariff responses to the U.S. measures.

Alcohol is one product where there are plenty of domestic options and non-U.S. import substitutes, meaning Canada’s decision is designed to hurt U.S. producers without causing too much pain to local consumers.

Additional insights

The Canadian dollar is expected to slide further to mitigate the impact of tariffs on Canadian exports to the U.S. in the event tariffs take effect. Previously, tariff threats pushed the loonie from 0.72 US before the election to 0.69 US—a level not seen since the early days of the pandemic.

While the depreciation of the Canadian dollar would make imports more expensive for Canadians, the net effect on inflation is far from one-to-one. The economic blow from tariffs would decrease aggregate demand, keeping prices from rising too much.

In the short-to-medium run, most of the increase in prices would be borne by consumers, not exporters.

This chart shows Canadian exports by country

The impact of tariffs extends beyond traded goods between Canada and the U.S. The unemployment rate would spike as jobs are lost, which lowers demand for all goods and services like new cars, dining out, and entertainment. Restaurants, hotels, and other services in border towns will be particularly hard hit.

The effect on each industry and each good depends on whether there are close Canadian substitutes to U.S. imports and how well supply chains can work around tariffs. For example, tariffs and retaliation would devastate auto companies in Canada, the U.S., and Mexico and leave them unable to compete with businesses in Asia or Europe.

The takeaway

Trudeau and Trump may have agreed to a pause, but the threat of a puzzling, lose-lose trade war launched by the Trump administration remains a serious concern.

If U.S. tariffs do take effect and Canada responds in kind, the disruption will slash billions of dollars from Canada’s Gross Domestic Product (GDP) this year and can hurt businesses and households in Canada, Mexico, and the U.S.

If tariffs turn out to be long-lasting, they will present another complete disruption to the Canadian economy and supply chains—a second in five years following the pandemic.

The scenario in which economic damage is minimized is one in which a trade agreement is negotiated, putting an end to tariffs. The longer tariffs and retaliation continue, the more fractured and uncompetitive the three countries’ economies become—and the more economic pain consumers would feel from higher prices, fewer goods available and fewer jobs.

This article was written by Tu Nguyen and originally appeared on 2025-02-03. Reprinted with permission from RSM Canada LLP.
© 2024 RSM Canada LLP. All rights reserved. https://realeconomy.rsmus.com/trump-tariffs-canada-response

RSM Canada LLP is a limited liability partnership that provides public accounting services and is the Canadian member firm of RSM International, a global network of independent assurance, tax and consulting firms. RSM Canada Consulting LP is a limited partnership that provides consulting services and is an affiliate of RSM US LLP, a member firm of RSM International. The member firms of RSM International collaborate to provide services to global clients but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. Visit rsmcanada.com/about for more information regarding RSM Canada and RSM International.

Regulation 105: What You Need to Know About Withholding Tax and CRA Audits

Posted on by RSM US LLP
Executive summary

Regulation 105 of the Income Tax Regulations imposes a 15% withholding tax on payments made to non-residents for services performed in Canada. Recent updates from the Canada Revenue Agency (CRA) declare that the reimbursements for subcontractor services made after Sept. 30, 2024 are now included under these rules. This article reviews the consequences of non-compliance and offers practical steps for employers and non-resident contractors to ensure adherence to the updated regulations.

 

When an amount is paid by any person to a non-resident person for services performed in Canada, the payment is subject to withholding tax. Specifically, Regulation 105 of the Income Tax Regulations and paragraph 153(1)(g) under the Income Tax Act (Act) provide that payments made to non-residents for services rendered in Canada are subject to a 15% withholding tax. The policy behind this rule is to ensure that funds are available to cover any potential Canadian income tax assessments on Canadian-source income earned by non-residents.

As all other provisions within the Act, the Canada Revenue Agency (CRA) is responsible for its administration. The CRA frequently releases guidelines for practitioners to interpret the rules, and often provides technical views to clarify these rules, sometimes in response to case law developments.

Background on CRA policy and updated policy

In 2007, the Tax Court of Canada released a decision (Weyerhaeuser Company Limited v. The Queen) which confirmed that Regulation 105 applies only to payments characterized as income earned in Canada by the non-resident and does not apply to reimbursements for disbursements or travel costs, as they are not considered income. As a result of the Weyerhaeuser decision, the CRA issued a view and reaffirmed its position that excluded reimbursements from the Regulation 105 withholding requirement.

Earlier this year, CRA released a view (2022-0943241E5) which clarified that Regulation 105 will apply to payments made to reimburse a non-resident for fees related to subcontractor services performed in Canada. However, this new withholding policy will not extend to reimbursements of travel and meal expenses so long that these expenses were agreed to be reimbursed. CRA also confirmed that the updated policy will apply to reimbursements made after Sept. 30, 2024.

This marks a significant change to CRA’s longstanding policy from 2008 for withholding tax on cross-border services rendered in Canada.

Ensuring compliance

As a result of this change of position, taxpayers can take steps to ensure they are compliant. First, employers should review and amend any contracts with non-residents to explicitly state when withholding tax may apply to certain reimbursements and define who will bear the tax liability. Second, non-resident contractors should provide detailed invoices and separate travel and meal expenses as these amounts are generally not subject to Regulation 105 withholding tax. Finally, non-resident contractors can consider applying for a waiver from Regulation 105 withholding if they are not liable for Canadian tax. Until a waiver is granted, 15% withholding from payments is still required. Failure to properly withhold under the Regulations and Act could result in significant penalties.

Regulation 105 disputes

If non-compliance occurs and employers and subcontractors err in their withholding obligations, it could result in an audit by the CRA. Regulation 105 audit and compliance initiatives have escalated recently due to businesses increasingly transacting across borders. We surmise that the federal government is focusing on ensuring cross-border payments are being appropriately captured in the Canadian tax net, notably since the increase in remote work post-pandemic. As such, especially in light of the new administrative position, it is important employers and subcontractors ensure internal systems are in place to maintain compliance.

This article was written by Sigita Bersenas, Patricia Contreras and originally appeared on 2024-12-03. Reprinted with permission from RSM Canada LLP.
© 2024 RSM Canada LLP. All rights reserved. https://rsmcanada.com/insights/services/business-tax-insights/regulation-105-what-to-know-about-withholding-tax-and-cra-audits.html

RSM Canada LLP is a limited liability partnership that provides public accounting services and is the Canadian member firm of RSM International, a global network of independent assurance, tax and consulting firms. RSM Canada Consulting LP is a limited partnership that provides consulting services and is an affiliate of RSM US LLP, a member firm of RSM International. The member firms of RSM International collaborate to provide services to global clients but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. Visit rsmcanada.com/about for more information regarding RSM Canada and RSM International.

The information contained herein is general in nature and based on authorities that are subject to change. RSM Canada LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM Canada LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

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

Private Companies: How a Professional Audit Can Help You Reach Your Goals

Posted on by RSM US LLP

The ultimate goal for most private business owners is to realize the value of their hard work and be in the position to step away from their company comfortably. But many business owners are woefully unprepared for what should be the capstone of their career—selling their business or transitioning ownership to the next generation.

What is one major factor in this common problem? Many private businesses have never been audited.

If you own a private company, you should consider the risks, challenges and potential missed opportunities that can arise if you don’t have it audited on a regular basis. Whether you are entertaining an offer from a potential acquirer, bringing on a new investor or management team, or refinancing your business, you may not be making the most of these opportunities if your business isn’t audited regularly.

Based on our experience working with scores of middle market companies over the years, we have identified seven key reasons for private business owners to consider an audit, as well as a few scenarios that help to bring these ideas to life. These are based on real-world situations we have witnessed time and again in our work with private business owners.

7 reasons to have your company audited

1. You never know when the right opportunity may arise. Most business owners will tell you they don’t have any plans to sell their company, but that idea can change quickly when a potential buyer approaches with a compelling offer. Getting your business audited allows you to be ready for these opportunities when they come up.

2. When opportunities do arise, time is of the essence. If you aren’t getting a regular audit, any potential deal timelines will be extended—perhaps significantly—to make room for the initial audit process required by a proposed transaction. An extended timeline means greater risk that the deal falls through.

3. Uncertainty diminishes value. A regular audit from a reputable firm provides assurance that your company’s financial house is in order. Without such an audit, a prospective buyer will likely assume a greater level of risk as part of the transaction and therefore require more return in compensation for the risk taken. This translates to less up-front value for you as the owner.

4. Peace of mind is meaningful. Regular audits help to provide some professional oversight of company management, which can provide a degree of comfort to shareholders, especially for owners who have transitioned out of a day-to-day management role.

5. Good governance leads to resilience. A regular audit is a regular feature of a professional, established company. As a private company grows, the company’s management and processes eventually must evolve and become more professionalized.

6. Your reputation matters. While it isn’t designed to detect fraud, an audit provides a degree of assurance that a company’s finance operations are functioning properly. In addition, the lack of an audit may raise questions about the company’s professionalism and sophistication.

7. Flimsy valuations have limited value. Many private company owners may assume that a simple valuation is sufficient if and when an opportunity to sell arises. However, the rigor of an audit from a reputable firm can carry more weight in a potential transaction process.

Common scenarios shine light on the value of an audit
Scenario 1: You are planning to sell your business—whether soon or someday.

Time and again, owners who thought they would never sell end up selling because a hard-to-ignore offer comes in unexpectedly or family circumstances change suddenly. If you wait until circumstances like these arise before you get your books in order, you may miss a valuable opportunity.

A prospective buyer typically will require three years of audited financial statements. If you haven’t had your company audited as a normal course of business, the process likely won’t be as simple as receiving an offer and conducting the required audit. Annual audits going back three years can take several months to complete. Often, time is of the essence in a deal process, and a buyer may lose interest or walk away if there are delays.

Time is not the only issue. If your company is being audited for the first time in conjunction with a proposed transaction, you don’t know exactly what the audit will find. The more issues the audit uncovers, the more questions the buyer will likely ask, which may extend the due diligence process. Issues and surprises during the audit process also could cause the buyer to reassess their valuation of your company. These challenges may be mitigated by performing timely audits well before you consider selling your business.

Scenario 2: You want to transition management of the company to the next generation.

When a longtime owner’s personal or professional objectives eventually compel them to step away from their business, they will sometimes transfer management to a professional management team or perhaps to the next generation of family ownership. When these circumstances arise, it is helpful to build a layer of financial oversight between the company’s shareholders and its management team.

An audit can help serve that function. Audits provide a degree of comfort when longtime owners are no longer keeping close tabs on the company’s day-to-day operations. Shareholders may sleep better at night knowing that there is more professional oversight of senior management. The audit is not designed to find fraud, but it can inspire confidence in the accuracy of financial statements and effectiveness of controls, which can bring peace of mind to shareholders.

Scenario 3: Your company has reached a certain size, and you want to improve its governance—and protect its reputation.

As a private company grows, eventually it will no longer be feasible for a small group of individuals to know everything that is happening inside the company. Management must evolve, and governance must become more comprehensive.

A professional audit can serve a critical role in this process by:

  • Reassuring shareholders and other stakeholders—including customers and suppliers—that the company’s financial records are accurate and reliable
  • Supporting and protecting your company’s valuation
  • Speeding up due diligence for investors and lenders—should such processes be needed
  • Helping to improve your company’s reputation as best-in-class—part of a group of forward-thinking companies that are regularly audited and thus perceived as better-run and more sophisticated

In fact, once a company reaches a certain size, the lack of an annual audit may raise serious questions about the company’s sophistication and professionalism.

 
The value of an audit firm

Depending on the type of audit firm you engage, audits can also unlock additional strategic value for your company.

When a multiservice auditing firm is engaged, you can tap into its deep knowledge of your industry and best practices plus the combined intelligence of all the specialists in the audit firm. Business owners can benefit from perspective and actionable advice on multiple aspects of your business, ranging from internal controls and operations to tax planning, M&A, financing, technology and more.

By approaching the audit as an opportunity for improvement and insight, a business owner can go beyond compliance and verification and extract significant strategic value—value that could positively affect your company’s financial stability, operational efficiency and long-term success.

Source: RSM Canada LLP.
Reprinted with permission from RSM Canada LLP.
© 2024 RSM Canada LLP. All rights reserved. https://rsmcanada.com/insights/services/audit/why-every-private-company-needs-an-audit.html

RSM Canada LLP is a limited liability partnership that provides public accounting services and is the Canadian member firm of RSM International, a global network of independent assurance, tax and consulting firms. RSM Canada Consulting LP is a limited partnership that provides consulting services and is an affiliate of RSM US LLP, a member firm of RSM International. The member firms of RSM International collaborate to provide services to global clients but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. Visit rsmcanada.com/about for more information regarding RSM Canada and RSM International.

How Does GST/HST Apply to Airbnb/Short-term Rentals?

Posted on by Edixon

The popularity of Airbnb, short-term rental pools for cottages and vacation properties continues to grow.  One aspect of venturing into the short-term rental game is how GST/HST applies.  The volume of rental income and the length of the rentals is the determining factor on whether you will need to charge GST/HST.

Essentially, long term-rentals are exempt from GST/HST, while short-term rentals are subject to the tax.

What is considered a short-term rental?

A short-term rental is generally one where the period of occupancy is less than one month and the consideration for the supply is more than $20 a day.

Am I considered a small supplier?

If you are supplying short-term rentals, you will need to determine if you are considered a small supplier for GST/HST purposes.  A small supplier is one whose worldwide annual GST/HST taxable supplies, (including zero-rated supplies and including the sales of any associated parties) are less than $30,000, or less than $50,000 for public service bodies (colleges, non-profit organizations, charities, hospitals).

One of the most common oversights we see is forgetting to include any other associated business revenue into the small supplier test.

Should I voluntarily register for GST/HST?

If you are under the $30,000 of taxable supplies for your associated group, you can elect to voluntarily register for GST/HST.  The benefits of this would be to enable the claim of any GST/HST paid on expenses related to your short-term rental income.  It may also permit you to recover some or all of the GST/HST you may have paid on the unit.

But be aware – if you choose to register, you will be required to collect and remit the GST/HST on your short-term rental income.

There are many factors to consider when venturing into this market; especially if you will be using a portion of your principal residence.

Starting a Business? We Can Help Guide You in the Right Direction.

Posted on by Edixon

DJB provides guidance and assistance with all of your business start-up, tax, and accounting needs including:

SELECTING THE LEGAL ENTITY FOR YOUR ENTERPRISE

There are 3 options for the legal entity of your business, we can help you determine what’s right for your business.

  • Sole Proprietorship
  • Partnership
  • Corporation
REGISTERING WITH THE TAX AUTHORITIES

We can help you register with the following tax authorities:

  • Canada Revenue Agency (CRA)
  • Ministry of Finance – Ontario (EHT) – Employer Health Tax
  • Workplace Safety and Insurance Board (WSIB)
  • Sales Tax (GST/HST)
TAX CALENDAR

The creation of a tax calendar is an important part of starting your business. DJB will help setup your tax calendar for services such as, Income Tax, Sales Tax (GST/HST), Ontario Employer Health Tax (EHT), Ontario Workplace Safety and Insurance Board (WSIB), and Employee Withholdings Tax (Source deductions), so that you won’t miss any filing dates and prevent penalties and/or late charges.

SELECTING A FISCAL PERIOD (YEAR END)

DJB will help you setup and plan your fiscal period. This is crucial to any business and can be stressful and costly if setup incorrectly.

Contact a DJB Professional today to get started!

New Legislation Released Increasing the Capital Gains Inclusion Rate in Canada

Posted on by RSM US LLP

Executive summary

On June 10, 2024, the Ministry of Finance announced amendments to the Income Tax Act to increase the capital gains inclusion rate effective June 25, 2024. Corporations and trusts will see an increase from 1/2 to 2/3, while individuals realizing capital gains of more than $250,000 will also be subject to the increased rate. The upcoming legislation will maintain the principal residence exemption, prohibit tax elections or on-paper realizations, and ensure that capital gains cannot be averaged over multiple years, among other measures.

Background

On June 10, 2024, the Ministry of Finance released a Notice of Ways and Means Motion (NWMM) to amend the Income Tax Act and Income Tax Regulations to implement the Budget 2024 initiative to increase the capital gains inclusion rate. Starting June 25, 2024, the capital gains inclusion rate was originally proposed to be adjusted as follows:

  • For corporations and trusts: The capital gains inclusion rate will be increased from 1/2 to 2/3.
  • For individuals: For capital gains that exceed an annual threshold of $250,000, the capital gains inclusion rate will be increased from 1/2 to 2/3.

The NWMM provides an overview of various measures introduced by the government to implement the higher capital inclusion rate proposed in the Budget 2024. This article will focus on measures impacting middle market taxpayers.

Little relief offered despite requests from numerous interested parties

In a related press release by the Department of Finance, certain suggestions put forth by interested regulatory parties were quelled, offering the following summary of the changes:

  • No changes to the principal residence exemption.
  • No ability to elect to internally trigger capital gains in anticipation of the June 25 deadline.
  • No ability to average capital gains over multiple years to stay under the $250,000 threshold.
  • No ability to split the $250,000 threshold with corporations.
  • No exceptions for specific assets or types of corporations.
  • No distinction based on how long an asset is held or otherwise.

On top of the summary above, the Department of Finance also released a more comprehensive summary of the changes.

New draft legislation
Transitionary rules for the new capital gains inclusion rate

The draft legislation acknowledged that the inclusion rate increase date of June 25, 2024, being in the middle of many ordinary taxation years, offers complications. As a result, the draft legislation introduces transitionary measures to identify how the inclusion rate will be applied based on a taxpayer’s individual circumstances. Firstly, the draft legislation separates out a taxation year between two relevant periods:

  • The beginning of the taxation year until the end of the day June 24, 2024 (“Period 1”); and,
  • The beginning of the day June 25, 2024 until the end of a taxpayer’s taxation year (“Period 2”)

Taxpayers would then need to net capital gains against capital losses for each period to determine whether that particular period yielded either a cumulative net capital gain or net capital loss. Then, the following capital gains inclusion rates would apply:

  • If a taxpayer only has net capital gains or net capital losses in Period 1 and Period 2, a 1/2 inclusion rate would apply for gains/losses incurred in Period 1 and a 2/3 inclusion rate would apply for gains/losses incurred in Period 2.
  • If a taxpayer has no net capital gains or net capital losses in either period, a 2/3 inclusion rate would apply for all gains/losses.
  • If a taxpayer has net capital gains in Period 1 that exceed net capital losses in Period 2, a 1/2 inclusion rate would apply for all gains/losses.
  • If a taxpayer has net capital losses in Period 1 that exceed net capital gains in Period 2, a 1/2 inclusion rate would apply for all gains/losses.
  • If a taxpayer has net capital gains in Period 1 that are less than net capital losses in Period 2, a 2/3 inclusion rate would apply to all gains/losses, to the extent not sheltered by the $250,000 threshold.
  • If a taxpayer has net capital losses in Period 1 that are less than net capital gains in Period 2, a 2/3 inclusion rate would apply for all gain/losses.

Interested parties should consider reading the draft legislation for specific timing considerations that may apply to their situation when trying to determine whether certain gains/losses arise during Period 1 or Period 2.

New $250,000 threshold for individuals

Individuals (excluding most trusts) will be able to shelter the first $250,000 of their capital gains to remain taxable at 1/2 even after June 24, 2024. This threshold would apply to all capital gains incurred on or after June 25, 2024 and will be net of any capital losses for the year, the lifetime capital gains exemption, the employee ownership trust tax exemption, and the proposed Canadian entrepreneurs’ incentive. This threshold will be algebraically determined by multiplying the threshold by 1/6 and allowed as a deduction from taxable capital gains, allowing for an effective 1/2 inclusion rate. Note that this threshold will not be prorated for 2024.

Capital gains reserves

Under certain circumstances, taxpayers are able to defer the recognition of capital gains in situations where the proceeds of the sale of capital property are received over a number of years. In these circumstances, a capital gain is realized in income with a reserve being taken based on the amount of proceeds that have not yet been received, with a minimum of 10% or 20% of the gain to be brought into income each year (depending on the type of asset sale and subject to the new draft intergenerational transfer rules). The reserve enters into taxable income in the following year.

For purposes of the capital gains inclusion rate change, reserves will be considered to enter into income on the first day of the taxation year. This means that taxation years that begin before June 25, 2024 will have that capital gain subject to a 1/2 inclusion rate. As the reserve enters into income in subsequent years, the prevailing capital gains inclusion rate for that year would apply (i.e., possibly 2/3). In other words, the capital gains inclusion rate on the actual date of sale does not get maintained as the reserve is utilized.

Net capital loss carryforwards

Net capital losses can be carried back three years and forward indefinitely to offset capital gains in other years, with adjustments made to reflect the applicable inclusion rate. For example, net capital losses incurred when the inclusion rate was 1/2 and utilized when the capital gains inclusion rate is 2/3 will be multiplied upwards to 4/3, in order to allow the relevant capital loss to offset an equivalent capital gain regardless of inclusion rates.

Employee stock option deduction

Under the current rules, when an employee exercises a stock option, the difference between the fair market value of the stock and its exercise price results in a taxable benefit (the “stock option benefit”) and is included in the employee’s income. Where the employer is a Canadian-controlled private corporation (CCPC), the stock option benefit arises at the time the shares are ultimately disposed of or exchanged by the employee. Generally, the taxation of employee stock options in Canada mirrors the taxation of capital gains and hence, the employees can claim a stock option deduction at the rate of 1/2 of the stock option benefit.

Consequent to the proposed amendment to the inclusion rate, the stock option deduction would be 1/3 of the stock option benefit for stock options exercised (or disposed of or exchanged in case of a CCPC) on or after June 25, 2024. The annual $250,000 limit described above would apply to the total amount of stock option benefit and capital gains for a particular taxation year. In a situation where the total stock option benefit and capital gains exceed $250,000, the taxpayer would have the discretion to choose the preferential tax treatment (lower inclusion rate) for allocating the amounts.

Allowable business investment losses

A business investment loss arises when bad debt arises on the amount owed by a small business corporation (SBC) or the shares of a bankrupt SBC are disposed of. 1/2 of the capital losses, referred to as allowable business investment losses (ABIL), can be used to offset other income like income from business, property, and employment. Any unused ABIL can be used to offset income from any source and can be carried back three years and carried forward 10 years. Any amount of ABIL remaining after 10 years gets converted to an ordinary capital loss that can be carried forward indefinitely and used to offset only capital gains.

With the increase in the capital gains inclusion rate, 2/3 of business investment losses realized on or after June 25, 2024, would be deductible. Furthermore, unlike other capital losses carried over, ABILs would not be adjusted in value to reflect the new inclusion rate that applies in the year the loss is claimed. In other words, ABILs realized on or after June 25, 2024 would be determined based on the 2/3 inclusion rate even if carried back and applied in any of the three previous years.

Partnership allocations and trust designations

Generally, partnerships calculate net income as if they are a taxable entity for Canadian tax purposes. The income is then allocated to the partners based on the partnership agreement. Capital gains earned in a partnership are typically transferred out as taxable capital gains for the year. For partnerships that have capital gains in a fiscal period that straddle June 25, 2024, those taxable capital gains, allowable capital losses, or ABILs will instead be grossed up back to the original amount and deemed to be realized by the relevant partner. Partnerships would be required to disclose to partners which gains arose during which period, to potentially allow access to the $250,000 threshold.

Trusts are taxable entities for Canadian tax purposes and compute taxable income accordingly. Trusts can allocate its income to beneficiaries at the end of the trust’s taxation year, and also preserve the character of the income for beneficiaries, to allow them to take advantage of various tax preferred treatments. For trust taxation years that straddle June 25, 2024, trusts would similarly gross-up their net capital gains back to their original amount and have them deemed to be recognized by the relevant beneficiary. Trusts would be required to disclose to those beneficiaries which gains arose during which period, with certain simplifying calculations for commercial trusts.

International tax adjustments

Certain international tax measures will be adjusted to be brought in line with the change in capital gains inclusion rate, including:

  • Computing the foreign accrual property income of a foreign affiliate and deductions for dividends received from a foreign affiliate’s hybrid surplus.
  • The withholding tax rate for non-residents disposing of taxable Canadian property will increase from 25% to 35%, effective for dispositions occurring on or after Jan. 1, 2025.
Only two weeks left for implementation

Overall, the changes to the capital gains inclusion rate and related measures remain largely unchanged from when they were originally announced in Budget 2024. Despite updated draft legislation being expected at the end of July, it is not expected to affect the new measures significantly. Taxpayers are only left with two weeks to finalize any tax planning they would like to implement prior to June 25, 2024, after which they should expect a significantly different tax landscape for capital gains in Canada.

This article was written by Daniel Mahne, Chetna Thapar, Patricia Contreras and originally appeared on 2024-06-10. Reprinted with permission from RSM Canada LLP.
© 2024 RSM Canada LLP. All rights reserved. https://rsmcanada.com/insights/tax-alerts/2024/new-legislation-increasing-capital-gains-inclusion-rate-canada.html

RSM Canada LLP is a limited liability partnership that provides public accounting services and is the Canadian member firm of RSM International, a global network of independent assurance, tax and consulting firms. RSM Canada Consulting LP is a limited partnership that provides consulting services and is an affiliate of RSM US LLP, a member firm of RSM International. The member firms of RSM International collaborate to provide services to global clients but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. Visit rsmcanada.com/about for more information regarding RSM Canada and RSM International.

The information contained herein is general in nature and based on authorities that are subject to change. RSM Canada LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM Canada LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

What do the proposed Alternative Minimum Tax changes mean for charitable giving?

Posted on by RSM US LLP

Authored by RSM Canada

Executive summary

Individuals and trusts who benefit from tax deductions, credits and exemptions may find themselves paying a higher rate of tax under the Alternative Minimum Tax (AMT) regime. The 2023 and 2024 Federal Budgets proposed changes to the calculation of AMT by limiting the inclusion rates of some significant deductions and credits, including charitable donations.

What is AMT?

For each taxation year, individual taxpayers and certain trusts calculate their taxes payable under two methods: regular income tax and AMT. The method which yields the higher taxes payable determines the amount the taxpayer owes for the year. Compared to the regular income tax method, the AMT limits the ability to offset income earned with certain eligible deductions and credits. Typically, AMT applies in situations where high-income taxpayers substantially lowered their taxes payable due to deductions and credits.

If a taxpayer is subject to AMT in a given year, the difference between the amount calculated under the AMT method and the amount calculated under the regular tax method can be carried forward for seven years. The carry forward is treated as a credit against taxes payable calculated under the regular tax method.

Charitable Donations under the Current AMT regime

Under the regular tax system, taxpayers that make donations of publicly listed securities receive a tax receipt for the fair market value of the securities donated and an exemption on any applicable taxes on the accrued capital gain of those donated securities.

Similarly, under the current AMT regime, charitable giving does not have an impact on the AMT calculation as:

  • the full amount of all donation tax credits can be fully applied against any AMT owing and;
  • the full capital gains from donating public securities are excluded in calculating AMT owing

For high income taxpayers, the current method allows them to shelter potentially large accrued gains on the donation of publicly traded securities, as opposed to donating an equivalent cash amount.

Charitable Donations under the Proposed AMT regime

The following changes will be effective Jan. 1, 2024.

The federal government has proposed to increase the AMT flat rate from 15% to 20.5% when calculating adjusted taxable income. Moreover, it is proposed to concurrently raise the AMT exemption threshold, being the amount of adjusted taxable income to which AMT does not apply, from $40,000 to $173,000. This should result in fewer Canadians being subject to AMT.

Alongside the increased rate and exemption base, the treatment of charitable donations is proposed to be changed so that:

  • an increase in the inclusion of capital gains realized on the donation of qualifying securities from 0% to 30%, and,
  • A decrease in the recognition of the donation tax credit from 100% to 80%

For large donations of publicly traded securities, taxpayers may now find themselves with an AMT payable, when previously any accrued gains would have been exempt.

Impact on Taxpayers

The proposed changes to charitable donations will likely have a significant impact on how taxpayers subject to the new AMT make donations going forward.

Consider a taxpayer (below) that wants to make a significant donation of publicly traded securities with a large accrued capital gain. Under the proposed changes, the capital gain inclusion rate for the donated property is 30% alongside limiting the donation tax credit to 80%. This increases the taxpayer’s tax liability that they will have to personally fund even when no consideration has been received for the donated property and may result in taxpayers being less inclined to donate as a result.

Current AMT

Proposed AMT

Earned Income

1,000,000

1,000,000 (A)

Capital Gain on donated public securities

500,000

500,000

Taxable Capital Gain on donated public securities

–

150,000 (B)

Adjusted Taxable Income

1,000,000

1,150,000 (A+B)

Basic AMT exemption

(40,000)

(173,000)

Taxable Income

960,000

977,000

AMT rate

15%

20.5%

144,000

200,285

Donation Tax Credit

(165,000)

(132,000)

(21,000)

68,285

Planning Strategies

Taxpayers that consider donating significant cash or property on an annual basis need to start planning ahead to determine if these donations will result in any AMT being payable.

Perform charitable giving through a corporation

Taxpayers may consider donating publicly traded shares with accrued capital gains through a corporation, as AMT is not applicable at the corporate level. This may be advantageous as the tax-free amount of the capital gain of the donation of public securities will be added to the corporation’s Capital Dividend Account (CDA) and can be distributed to shareholders on a tax-free basis.

Spreading out the donations

Taxpayers may consider donating smaller amounts over the span of several years as opposed to one large lump-sum. This could help limit the amount calculated under the AMT method in a given year.

Managing taxable income

If taxpayers have the flexibility to do so, they may consider managing their income in future years to ensure they can get a credit from any tax paid under AMT that can be applied against regular income tax for up to seven years.

Charitable giving at death

AMT does not apply in the year of death. Taxpayers may consider charitable giving through their will at death to avoid AMT but still create the positive impact of giving.

This article was written by Farryn Cohn and originally appeared on 2024-05-29. Reprinted with permission from RSM Canada LLP.
© 2024 RSM Canada LLP. All rights reserved. https://rsmcanada.com/insights/tax-alerts/2024/proposed-alternative-minimum-tax-changes.html

RSM Canada LLP is a limited liability partnership that provides public accounting services and is the Canadian member firm of RSM International, a global network of independent assurance, tax and consulting firms. RSM Canada Consulting LP is a limited partnership that provides consulting services and is an affiliate of RSM US LLP, a member firm of RSM International. The member firms of RSM International collaborate to provide services to global clients but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. Visit rsmcanada.com/about for more information regarding RSM Canada and RSM International.

The information contained herein is general in nature and based on authorities that are subject to change. RSM Canada LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM Canada LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.