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  1. Do you want to save on your taxes? Be charitable! If you give more than $200 in the year to registered charities, the percentage of your credit increases for those donations. For this reason, it is also generally best for couples to combine their charitable donations on a single return for the best tax refund.
  2. Increase your tax refund. Claim medical expenses for any 12-month period ending in the tax year. For example, if you are paying for medical or dental treatments that started last year, and continue this year, you may take advantage of claiming them all next year.
  3. New pension splitting rules can mean substantial tax savings! If you or your spouse are receiving an income from an annuity or other pension plan, you may be eligible to split some of your pension income on your tax return. UFile calculates the most beneficial income split for you and you spouse.
  4. Did you buy your first home after January 27th, 2009? Don't forget to claim the Home Buyers' Amount, a new non-refundable tax credit of up to $5000. Keep in mind, this amount can be split between you and your spouse or partner for maximum benefit.
  5. Do you own your home or cottage? The Home Renovation Tax Credit is a valuable tax break. You can apply up to $10,000 in eligible expenses for improvements to your home done by February 1st, 2010 and you may split this credit with your spouse or partner to optimize your tax savings.
  6. Are you a Public Transit user? Hold on to your weekly or monthly passes and receipts and be sure to claim the Public Transit amount. Remember, this amount may be claimed for transit used by yourself, your spouse or children under the age of 19.
  7. Are your kids in Hockey or Soccer? You may be entitled to a non-refundable tax credit of up to $500.00 per child if you have children under 16 or a disabled child under 18 years of age enrolled in physical activities. Be sure to take advantage of this valuable credit

New Tax Laws for 2009/2010

 

We keep you informed of the most important changes:

 

2010 Federal Budget Limits Canadian Income Taxes for Non-Residents of Canada

 

Non-Residents of Canada are subject to Canadian income taxes on the gain derived from the disposition of taxable Canadian property ("TCP"). In addition to Canadian taxability, the disposition of TCP creates a requirement for the non-resident vendor to comply with a clearance certificate process administered by the Canada Revenue Agency ("CRA"). In the absence of a clearance certificate, a purchaser has an obligation to withhold income taxes from the sale proceeds otherwise due to the non-resident disposing of TCP.

The 2008 federal budget first provided amendments that were to simplify the process for the disposition of TCP by a non-resident of Canada. More specifically, for transactions occurring after 2008, a purchaser was permitted an exemption from the clearance certificate process when no Canadian income tax would otherwise arise as a consequence of the application of an exemption found under the income tax convention between Canada and the non-resident's country of residence. In this circumstance, the purchaser would only have an obligation to notify the CRA of the disposition.

Most of Canada's income tax conventions include an exemption from Canadian income tax on the gain derived from the disposition of shares of a Canadian resident corporation that does not derive more than half its value from real estate.

In an effort to further simplify the process for the disposition of Canadian property by a non-resident of Canada, the March 4, 2010 federal budget proposed a change to the definition of TCP itself. This change will take effect for transactions following the budget date. This change will impact the kinds of property that will be subject to Canadian income taxes on disposition by non-residents of Canada. In addition, it will greatly reduce the obligation to comply with the clearance certificate process or notification process with the CRA.

Prior to the 2010 budget proposal, the definition of TCP included all shares of corporations resident in Canada with no specific regard to the business or property of those companies. This definition will be amended so that TCP will be limited to Canadian real estate property, property used in a Canadian business, designated insurance property of insurers and shares of corporations, or interests in trusts or partnerships that have a Canadian real property interest.

For this purpose, a corporation or a trust or a partnership will be considered to have a Canadian real property interest at a point in time only where, at any time in the preceding 60 months, more than half of the fair market value of its underlying assets was derived from Canadian real estate or resource property.

The impact of this change is that non-residents need not be resident in a country that has entered into an income tax convention with Canada in order to be free of Canadian income taxes on a gain derived from such a disposition. A purchaser will now be required to ensure that a non-resident vendor of shares of a Canadian resident corporation did not derive more than half the value of its shares from real property in the last 60 months so that it would be TCP. An inaccurate assessment may create a withholding tax exposure to the purchaser if the shares are otherwise TCP and therefore subject to the clearance certificate process. The budget did not provide for a due diligence defense for a purchaser.

Special attention will have to be paid to tax-deferred reorganizations of Canadian resident corporations, as shares that were previously TCP before a reorganization will be deemed to continue to be TCP for an additional 60 months after that reorganization. This might be a concern to the non-resident vendor where the shares may have otherwise lost their TCP status.

Transactions with vendors that are non-residents of Canada that include the sale of Canadian resident corporations will still require a thorough review with your advisors to avoid traps, but also identify opportunities related to this change.

 

Please schedule an appointment to learn more about important changes in tax law.

Proprietorship

A sole proprietorship is one person operating a business, without forming a corporation.  The income of the business is then taxed in the hands of the owner (the proprietor), at personal income tax rates.  The income is considered income from self-employment, and is included on the personal income tax return of the owner.

Advantages of proprietorship:

Setting up a business in the form of a proprietorship is relatively simple and the costs are low.

If the business loses money, the losses can be written off against other income of the proprietor.

Proprietorships are less regulated than corporations.  The administration of a proprietorship is less costly than that of a corporation.  However, proprietorships are regulated by the provincial/territorial governments, and the proprietorship may have to be registered.

The proprietor is in control of all decision making, and receives all profits of the business.

Disadvantages of a proprietorship:

The biggest disadvantage of a proprietorship is unlimited liability.  The proprietor is liable for all debts and other liabilities of the business.  If the business is sued, all the business and personal assets of the owner are at risk.

If the business is profitable, it will usually be paying higher taxes than if it was incorporated as a Canadian Controlled Private Corporation (CCPC).  The lowest personal income tax rate paid by a proprietorship would range from approximately 20% to 29%, depending on the province/territory.  This rate increases with income.  Taxable income over $120,887 (in 2007) is taxed at the highest marginal rates, which range from approximately 39% to 48%, depending on the province/territory.  See the Marginal Tax Rates page.

A proprietorship has a lack of permanence - if the owner dies, the net business assets pass to the heirs, but valuable leases and contracts may not.

 

Partnership 

A partnership is also an unincorporated business.  It is similar to a proprietorship, except two or more entities are partners in the business.  For partners who are individuals, the income from the partnership is taxed at personal income tax rates, and a percentage of the income is included on the personal income tax return of each owner.

Advantages of partnership:

The setup costs of a partnership are relatively low.

A partnership is less regulated than a corporation.  A partnership agreement should be drawn up to outline the terms of the partnership, what happens in the event of a dissolution, and what happens in the event of disagreements among partners.  In the absence of an agreement, or if certain provisions are not addressed in the agreement, provincial or territorial laws will determine some or all of the terms of the partnership.

Business losses can be written off against other income of the partners.

Broader base of experience, knowledge and skills to draw from.
 

Disadvantages of a partnership:

The biggest disadvantage of a partnership is unlimited liability.  The partners are jointly liable for all debts and other liabilities of the business.  If the business is sued, all the business and personal assets of the partners are at risk.  An exception to this is a Limited Partnership.  Limited Partners, who contribute capital but do not participate in the management of the business, will have their liability limited to the amount of capital that they have contributed.  The partners who participate in the management of the business are called General Partners, and will still have unlimited liability.

Decisions must be made jointly.

If the business is profitable, it will usually be paying higher taxes than if it was incorporated as a Canadian controlled private corporation (CCPC).  See this same topic above under proprietorships.

The death or retirement of a partner will not end the partner's liability for debts and obligations of the partnership that were incurred prior to the death or retirement.  Also, if a partner retires and does not make the retirement publicly known, he/she could still be held liable for obligations incurred by the partnership after the retirement.

 

Corporation

A corporation is a separate legal entity, which is formed by application to either the federal government, or one of the provincial/territorial governments.  The corporation issues shares to the owners, or shareholders.  The funding of the corporation can be done through the issue of shares, or by borrowing.  Instead of investing a large amount in shares, shareholders can lend money to the corporation, and invest only a minimal amount in the shares.  This way, when the corporation has available cash, the shareholder loans can be repaid without attracting personal income tax.

Being a separate legal entity, a corporation pays corporate income tax, which is calculated completely separately from the owners' personal income tax.  If the corporation pays wages to the shareholders, income tax and Canada Pension Plan contributions, and sometimes Employment Insurance premiums, must be deducted and remitted to Canada Revenue Agency.

Advantages of incorporation:

One of the biggest advantages of incorporating a business is limited liability.  This means that the liability of the shareholders is usually limited to the amount that they have invested in their shares in the corporation.  However, many incorporated small businesses are not able to get bank loans without the personal guarantee of the shareholders, so this eliminates part of the advantage of limited liability.  The personal assets of the shareholders are protected from lawsuits against the corporation.  However, shareholders who are directors of the corporation can be held legally liable for some debts of the corporation (such as GST/HST and payroll taxes) in certain circumstances.

Another major advantage for a profitable small business is the income tax advantage.  A Canadian controlled private corporation, or CCPC, pays a much lower rate of federal tax (small business rate) on the first $400,000 (in 2007) of active business income than would be paid by an unincorporated business, due to the small business deduction.  Active business income generally does not include investment income or rental income, which is taxed at regular corporate tax rates.  The combined federal + provincial small business tax rate varies from approximately 16% to 22%, depending on the province.  The threshold amount subject to the lower small business rate also varies between provinces.  Keep in mind that this tax advantage is mainly a deferral of taxes until the profits are paid out to the shareholder.  If all the profits are paid out to the shareholder as they are earned, leaving the corporation with little or no taxable income, then they will be taxed entirely as income of the shareholder, at personal income tax rates.

Another tax advantage of incorporation is the $750,000 capital gains deduction on the sale of shares of a qualifying small business corporation.  One of the qualifications is that the corporation must be a CCPC with active business income.

Private Health Service Plans can be used to provide tax-free benefits to employees.  This deduction is also available to sole proprietors and partners, but the treatment for corporations is more favorable than that for unincorporated businesses.
 

Disadvantages of incorporation:

Incorporation is the business structure with the highest setup and administrative costs.

Incorporation is the most complicated business structure.  It is very important to take extreme care in setting up classes of shares, deciding who will be shareholders (spouses, children) and how much control they will have (control is determined by % of voting shares owned).  Professional advice can avoid serious problems.

Business losses cannot be written off against other income of the owners (shareholders).

More administrative work is required for a corporation.  This includes annual reports filed with the corporate registry, and corporate tax returns which are filed separately from the owners' personal tax returns.

Generally, the higher the net income of your small business, the more advantageous it is to incorporate instead of remaining as a proprietorship.

No matter what the type of business structure, spouses and children can be employed by the business, thus effectively splitting income.  However, amounts expensed must be reasonable amounts based on services provided, and must actually be paid to the spouse and/or children.

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GST/HST July 1, 2010

New Electronic Filing Requirements for GST/HST Registrants and QST Registrants

There is one more item to take care of by July 1, 2010: electronic filing requirements for GST/HST registrants. In January 2010, Revenu Québec announced that it will harmonize with the federal government's new electronic filing requirements and provide support to registrants with respect to these requirements. This change is in addition to all the new rules surrounding the adoption of the Harmonized Sales Tax (HST) by Ontario and British Columbia that come into effect July 1, 2010.

Are you required to file electronically?

For reporting periods ending on or after July 1, 2010, all GST/HST registrants will be eligible to file electronically. However, you will be required to file GST/HST returns electronically if you are a registrant in one of the following circumstances:

  • your threshold amount for your GST/HST reporting period is over $1.5 million (except for charities);
  • you are required to report input tax credits (ITCs) for the provincial part of the HST paid or payable on certain taxable supplies acquired in Ontario and British Columbia;
  • you are a builder who sells:
    • grandfathered housing, where the purchaser is not entitled to claim a GST/HST new housing rebate or new residential rental property rebate, or
    • housing that is subject to the HST, where you purchased the housing on a grandfathered basis;
  • you are a builder who:
    • is required to report a transitional tax adjustment amount, or
    • is reporting a provincial transitional new housing rebate.

Threshold amount
Your threshold amount for a given GST/HST reporting period is your total taxable supplies, including zero-rated supplies, made in Canada in your previous fiscal year, as well as those of your associated entities. However, this calculation excludes zero-rated exports, sales of capital real property and goodwill.

When will you be required to file electronically?
Mandatory electronic filing requirements will apply to all reporting periods ending on or after July 1, 2010.

Filing options
Based on your particular reporting circumstances, there are four electronic filing options that can be used to file GST/HST returns (except where returns are filed with Revenu Québec):

  • GST/HST NETFILE is a free Internet-based filing service that allows registrants to file their returns directly with the CRA over the Internet. Registrants complete an online form, enter the required information and confirm that they want to file their return. Once the return has been electronically sent to CRA, registrants will immediately receive a confirmation number.
  • GST/HST TELEFILE allows eligible registrants to file their GST/HST returns using their touch-tone telephone and a toll-free number.
  • GST/HST Electronic Data Interchange (EDI) is a computer-to-computer exchange of information in a standard format. Eligible registrants can use EDI to file their GST/HST returns and remit their GST/HST payments electronically.
  • GST/HST Internet File Transfer (GIFT) is a new option that allows eligible registrants to utilize third-party CRA-approved accounting software to file their returns electronically.

QST and GST/HST filers in Quebec
If you are filing electronically with Revenu Québec, whether voluntarily or otherwise, the following ways to file your GST/HST and QST returns will be accepted by Revenu Québec, effective July 1, 2010:

1. The current service, ClicSÉQUR Entreprises, which allows direct payments to be made, or

2. The new service, ClicSÉQUR Express, for which payments will need to be made through financial institutions

Please note that access codes to the new service ClicSÉQUR Express will be mailed soon to registrants by Revenu Québec. If you require any assistance with the registration for those services, you may also call Revenu Québec at 1.866.423.3234.

Our Commodity Tax team can inform you on the specific impact of these changes for

Effective July 1, 2010, all GST/HST registrants will have to collect HST on their taxable supplies in Ontario and British Columbia. At the same time, a new harmonized value-added tax system is being introduced. The following describes the main changes under the new system:

  • The applicable GST/HST rates will now be as follows:
    • British Columbia: 12%
    • Ontario, New Brunswick, Newfoundland and Labrador: 13%
    • Nova Scotia: 15%
    • Elsewhere in Canada: 5%
  • The point-of-sale rebate for HST will reduce the effective tax rate to 5% for certain products in the harmonized provinces.
Point-of-Sale Rebate
British Columbia
Ontario
New
Brunswick
Newfoundland & Labrador
Nova
Scotia
Printed books
X
X
X
X
X
Children's clothing / footwear
X
X
    
X
Diapers, feminine products
X
X
    
X
Car seats / booster seats
X
X
      
Printed newspapers  
X
      
Prepared food up to $4 per purchase  
X
      
Gasoline and diesel motor fuel
X
     
  • New place of supply rules for intangible personal property and services are in force as of May 1, 2010 to determine the applicable GST/HST tax rate and the application of QST in Québec.
  • Electronic filing of GST/HST and QST returns will be mandatory for most registrants.
  • Large businesses will now have to record and report input tax credit (ITC) amounts to be remitted in Ontario and British Columbia on specific products and services. This will generally apply to large businesses with taxable supplies higher than $10 million (including those of associated entities).
  • Specific rules are already applicable to builders of new housing and to new housing rebates in Ontario and British Columbia.
  • Transitional rules will be applicable to transactions straddling July 1, 2010.

In the last few months, the tax authorities have been issuing a steady stream of new guidelines with respect to these important changes. It is important to stay abreast of these latest developments and their impact on your activities.