Category: General Business

SAUNA AND HYDROTHERAPY POOL: Medical Expense Tax Credit

Posted on by Edixon

In a December 4, 2018 Technical Interpretation, CRA was asked whether the costs of installing a steam shower (sauna) and hydrotherapy pool could be eligible for the medical expense tax credit (METC). The use of these devices was recommended as treatment to maintain strength and mobility.

CRA noted that, for renovations to be eligible, they must:

  1. enable the patient to gain access to the dwelling or be mobile and functional within it;
  2. not typically be expected to increase the value of the dwelling; and
  3. not normally be undertaken by individuals with normal physical development or who do not have a severe and prolonged mobility impairment.

While the expenses contemplated may meet criteria (a), CRA opined they would likely fail criteria (b) and (c) and, therefore, not be eligible for the METC. However, eligibility remains a question of fact, with the onus on the taxpayer to demonstrate that all requirements were met.

Also, CRA noted that a renovation cost incurred for the main purpose of enabling a qualifying individual to gain access to the dwelling or be mobile and functional within it (the same as criteria (a) for the METC) could be eligible for the home accessibility tax credit (HATC). The HATC is a non-refundable credit that provides tax relief on up to $10,000 annually of renovations to a home to enhance mobility or reduce risk of harm for a qualifying individual (those 65 years of age or older at the end of the taxation year or eligible for the disability tax credit). The HATC requirements do not exclude costs failing criteria (b) or (c) above.

ACTION ITEM: There are several renovations that can be eligible for one or both of these credits. Receipts, invoices and/or other supporting documents should clearly identify the health benefits and purpose.

Contact one of our Taxation team members for more tax tips and advice.

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The Virtues of Family Employment Policies

Posted on by Edixon

There comes a time in every company — a tipping point — when growth prompts the need for more formal policies and procedures. One of the areas where this need quickly becomes most obvious is in the human resources arena. As the number of family members increases from generation to generation, the complexity of hiring, training, and managing relatives can quickly overwhelm the original founders.

Part of the problem is that sometimes, typically after the second generation of family members is hired, there’s an expectation that all of the third generation of children and cousins will find life-long careers in the family business. While this works beautifully for a few family companies, it’s untenable for most.

Some relatives are more talented, knowledgeable, or harder working than others. Some have unique skills or training that make them particularly valuable to the company. Others are less motivated or less responsible, or just aren’t interested in pursuing a career there.

Be Intentional

The best way to manage these expectations — and the ensuing family drama — is to create thoughtful written family employment policies. Having these policies in place lets all of the relatives know exactly how the company handles the employment of family members. The topics to be addressed by the policies should include:

Education and training: Do you expect family members to attain certain degrees, licenses, or certifications before they join the company? If so, this should be spelled out in the employment policies, along with a timeframe required for completing the education or training. Also, clarify the company’s policy on paying for additional education or training programs.

Experience: Some family businesses require relatives to have a certain number of years of outside experience before joining the company. Exposing young adults to the rigors of the “real world” often gives them an appreciation for the dedication it takes to make a company thrive. They can also learn from others outside the business and bring those lessons back to the family, which adds a fresh perspective and new ideas.

Career track: Where will family members start their careers and how will they move up the corporate ladder? Some companies have formal training programs that rotate relatives through the various departments of the business so they get the big picture and discover their passions. Others start relatives at the lowest position and have them work their way up just as non-family employees do. Whatever path you choose is fine, but get it in writing so relatives know what to expect.

Compensation: How and how much will family members be paid? It’s not unusual for family businesses to overpay or underpay relatives. Best practices dictate that salaries be market-driven. That way, the family employees know the true value of their services relative to other employees and the marketplace.

You must also determine how to compensate relatives who actually work in the business (versus those who don’t), who will participate in ownership, and how ownership shares will be dispersed.

Communicate Regularly

To be effective, these policies must be enforced, communicated, and updated. An annual family meeting — separate from a business meeting — is the perfect forum for discussion of these and other family issues. While introducing these policies may be met with some resistance, moving forward with them in place takes a huge burden off the executive team and ultimately preserves family relationships.

If you’re making major changes to the way family employment has been traditionally handled, these discussions might be a bit emotionally charged. But getting everything out on the table is often a relief, and having everyone informed and on the same page sets the stage for a successful future.

Estate Planning – Don’t Forget About the Tax Clearance Certificate!

Posted on by Edixon

If you are an executor of an estate, one of the last questions that you will need to consider is applying for a Tax Clearance Certificate.

What is a Tax Clearance Certificate? 

A Tax Clearance Certificate issued by the Canada Revenue Agency (CRA) confirms that all amounts owing to the CRA by the deceased and the deceased’s estate have been paid.  The executor is free to distribute all assets of the estate.

What happens if you don’t have a Tax Clearance Certificate?

If the executor distributes the estate assets to the beneficiaries without obtaining clearance, the CRA can hold the executor of an estate personally liable for any unpaid tax debts up to the amount distributed.  This includes unknown taxes that come to light because of a future tax audit.  For example, the CRA could decide to audit that unreported transfer of the family cottage to the next generation (which actually happened 15 years ago).  If a clearance certificate has been issued then the executor is free and clear.  If not, the CRA would then try to collect the unpaid taxes from the executor.

When should you ask for clearance? 

When an estate is ready for final distribution.  This means that all tax returns for the deceased and the deceased’s estate have been filed, (re)assessed, and that any outstanding tax balances owing have been paid in full.  Only then should the final Tax Clearance Certificate be requested.

The final Tax Clearance Certificate covers the period up to the designated tax wind-up date (date of the final T3 estate tax return).  A final Tax Clearance Certificate covers both the deceased’s T1 tax returns and the estate T3 tax returns.

If T3 estate tax returns were not required, then you can request and obtain a date of death Tax Clearance Certificate.  As the name suggests, a date of death Tax Clearance Certificate covers the period up to the date of death.  It may be desirable in some circumstances to obtain a date of death Tax Clearance Certificate or an “interim” Tax Clearance Certificate where the final distribution of estate assets will not occur for several years.

How do you request a Tax Clearance Certificate?

To request a Tax Clearance Certificate, complete Form TX19 (https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/tx19.html) – Asking for a Clearance Certificate and send it with the appropriate documentation to your local tax services office, “Attention:  Audit – Clearance Certificates”.  An authorized representative, such as a DJB accountant, can complete and file the TX19 on behalf of the executor(s).

As part of the TX19 submission, the following items are required by the CRA:

  • a completed and signed copy of the taxpayer’s will, including any codicils, renunciations, disclaimers, and all probate documents if applicable. If the taxpayer died intestate (without a will), attach a copy of the document appointing an administrator;
  • a detailed list of the assets that were owned by the deceased at the date of death, including all assets that were held jointly and all registered retirement savings plans and registered retirement income funds (including those with a named or designated beneficiary), their adjusted cost base (ACB) and fair market value (FMV);
  • a copy of Schedule 3, Capital Gains or Losses from the final tax return of the deceased;
  • a list of all assets transferred to a trust, including description, ACB and FMV;
  • a detailed statement of distribution of the assets of the deceased’s estate to date;
  • a statement of proposed distribution of any holdback or residual amount or property;
  • the names, addresses, and social insurance numbers or account numbers of any beneficiaries of property other than cash; and
  • a completed Form T1013, Authorizing or Cancelling a Representative, signed by all executors, authorizing a representative such as an accountant or notary to act on behalf of the executor(s) and/or if the executor(s) want the CRA to send the clearance certificate to a different address.
Choosing not to have a Tax Clearance Certificate

Even though in the majority of cases a Clearance Certificate is warranted, there are some situations where the executor(s) may be willing to live with the risk of not asking for clearance.  After all, asking for clearance is inviting the CRA to review the tax filings.  Where the executor is the sole beneficiary and confident that there are no potential tax issues, the executor may decide not to seek clearance.  This is often the case when one spouse dies leaving their entire estate to the surviving spouse who also is the sole executor.  There may be similar situations depending on the family dynamics and their tolerance for risk.

If you have any questions about this topic or any other estate matters, please do not hesitate to contact a DJB professional, we would be happy to answer your questions.