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► The Supreme Court of Canada has determined
that section 232 of the Income Tax Act, which sets out a
procedure for potentially privileged client documents to be
seized from a lawyer’s office, is unconstitutional.
► If separated or divorced parents have joint custody of a
child, only one of them may claim the equivalent to married
credit under the Canadian Income Tax Act. If they cannot agree
on who will claim the exemption, neither may claim it.
► Canadian residents are required to report worldwide income
from all sources for Canadian Income Tax purposes. If you fail
to do this, or if you choose an offshore structure that violates
the intention or spirit of the Canadian Income Tax Act, you
could face a battle with the Canada Revenue Agency, and if you
lose you will be subject to interest and penalties.
► You are generally entitled to receive a tax credit on your
Canadian Income tax return for the amount of foreign withholding
tax paid on amounts received from other countries. In effect CRA
recognizes the foreign tax that you have paid as a reduction of
your Canadian income tax liability.
► The "kiddie tax" applies to certain income received by a
trust from a related business where minors are beneficiaries of
the trust. If a family trust is established for the benefit of a
spouse or children who have reached age 18 in the year, the
kiddie tax won't apply on income taxed in the hands of these
beneficiaries.
► Disability insurance receipts will be free of Canadian
income tax only if an employee has paid the insurance premiums
personally, or if the premiums for all employees were paid by
the employer, and included as a taxable benefit of each
employee. If the employer pays the premiums and they are not
treated as a taxable benefit for all employees, then any
disability insurance benefits will be taxable to the individual
recipient.
► If you disagree with the tax department you need to file a
Notice of Objection to protect your rights.
► Changing the use of a capital property from personal to
business or vice versa gives rise to a deemed disposition for
Canadian Income Tax purposes.
► Interest on money borrowed for investment purposes is
deductible for Canadian Income Tax purposes for as long as you
own the investment or a replacement investment. Once you dispose
of the investment the interest ceases to be deductible.
► If you formally appeal a Canadian Income Tax assessment,
CRA (the Tax Department) is obliged to suspend collection action
until the appeal is settled. No such end to collection action
occurs with a GST appeal.
► The Supreme Court of Canada has just released two cases
rejecting the “Reasonable Expectation of Profit” test and
confirming that tax motivated transactions are not prohibited.
► If you are leaving the country and want to determine your
tax status, the Canada Revenue Agency provides form NR73
Determination of Residency Status (Leaving Canada) if you want
to obtain an official determination. This is essentially a
questionnaire in which you provide details of your residential
ties or lack of them. To become a non-resident of Canada you
must divest yourself of as many residential ties as possible.
Proper pre-departure planning is essential.
► The Home Buyers’ Plan allows a first time homebuyer to
withdraw up to $20,000 from an RRSP to buy or build a principal
residence. The funds can be repaid over 15 years.
► Transactions in stock options are treated in the same way
as stocks for Canadian income tax purposes. In most cases they
will give rise to a capital gain or loss.
► As a general rule, the receipt of a stock option in a
Canadian corporation will not have any Canadian income tax
consequences while the exercise of the stock option will be a
taxable event.
► If you earn income from your principal residence, for
example from renting a room, your principal residence will still
be exempt from Canadian income tax on any capital gain rising on
disposition provided the income is incidental to your use of the
property, you make no structural changes to the property and you
don’t claim capital cost allowance (depreciation) on the
property.
► All amounts that you incur as current expenses related to
the business are deductible for Canadian income tax purposes.
Capital expenditures can be depreciated. If your business never
earns a profit the deductions may be challenged on the basis
that you have no reasonable expectation of profit.
► If you owe money to the tax department and can't pay the
full amount, file your Canadian income tax return on time to
avoid the late filing penalty and be sure to negotiate an
acceptable payment arrangement with them so that they don't
seize any of your assets.
► If you fail to file Canadian income tax returns the tax
department may arbitrarily assess you and you have the burden of
disproving the arbitrary assessment.
► When buying or selling the assets of a business be sure to
allocate the purchase price among the different asset types, as
this will determine the values for Canadian income tax purposes.
► The Ontario Court of Appeal has confirmed in the Juliar
case that the principle of rectification, obtaining a court
order to retroactively correct a written agreement that does not
properly record what the parties had intended, is applicable to
transactions with Canadian Income Tax implications.
► If you operate a business from home you are entitled to
deduct the cost of your home office for Canadian Income Tax
purposes only if a separate part of your home is used to carry
out the business.
► An amalgamation under the Canadian Income Tax has the
effect of combining 2 or more corporations into a new
corporation with no adverse tax consequences to the shareholders
or the combining corporations.
► In the 1999 Canadian Income tax case of McFadyen v. The
Queen, the taxpayer moved to Japan with his wife, not knowing
when and if he would return. He stored his furniture and
appliances in Canada and maintained two bank accounts in Canada,
owned two houses which he rented out, maintained his membership
with a professional association in Ontario, rented a safety
deposit box, and maintained an RRSP, credit card and Ontario
driver's licence. The Tax Court of Canada concluded that these
ties were significant enough to make him ordinarily resident in
Canada for the years in question.
► A voluntary disclosure is a method to allow you to deal
with unfilled Canadian income tax or GST returns, or unreported
income, without incurring penalties.
► Prior to 1995, self-employed businessmen and professionals
were allowed to report their income for Canadian income tax
purposes on a non-calendar year basis. Starting in 1995 they
have been required to report their income on a calendar year
basis. Taxpayers were permitted to claim a reserve for the
additional income. A decision to leave a professional practice,
or close down a business, and become an employee can trigger
unexpected taxes payable if part of the 1995 reserve is
outstanding.
► A director can avoid liability under the
Canadian Income Tax Act if he can demonstrate that he exercised
the degree or care, diligence and skill necessary to prevent the
failure to deduct, withhold or remit that a reasonably prudent
person would have exercised in comparable circumstances.
►
Starting with the 2001 tax year, same sex couples can make
spousal RRSP contributions for Canadian income tax purposes and
can make tax free RRSP rollovers in the same way that opposite
sex couples can.
► In order to become a non-resident of Canada
for Canadian income tax purposes you must sever most ties with
Canada, including your residence. Proper pre-departure planning
is essential to avoid future Canadian taxation.
► The Canadian
Income Tax Act renders a director jointly and severally liable
with his corporation for failure to deduct, withhold or remit
income tax, payroll or GST amounts required, along with any
related interest or penalty. Legal or accounting fees incurred
to challenge a tax assessment are a deductible expense for
Canadian income tax purposes.
► Assets of a business, or shares
of a corporation, can be transferred on a tax deferred basis by
a taxpayer to a corporation by electing under section 85 of the
Canadian Income Tax Act. Failure to prepare and file the
election can result in a tax liability.
► On death of a
Canadian individual there is a deemed disposition of all capital
property giving rise to Canadian income taxation on the capital
gain. An estate freeze is a way of postponing some of the
potential capital gains tax liability. Actions, other than RRSP
contributions, need to be completed prior to December 31, 2001.
► If you own real estate (other than a principal residence)
which has gone up in value since purchase, you have an inherent
capital gain that will be taxed when you dispose of the property
or die. If you plan to leave the property to your children then
gifting it to them before death will trigger the tax. As an
alternative you can consider an estate freeze.
► A testamentary
trust is entitled to the benefits of marginal tax rates when
computing its Canadian income tax liability while all income of
an inter-vivos trust is taxed at the top marginal income tax
rate.
► Legal fees incurred in respect of a child support
application are deductible for Canadian income tax purposes.
►
If CRA (the Tax Department) has challenged any Canadian income
tax returns that you have filed, be sure that you keep all
original documents related to the year being challenged until
the matter is finally settled. In order to claim a Canadian
income tax deduction for an allowable business investment loss (ABIL)
for money lent to a Canadian Controlled Private Corporation (CCPC),
the debt must have been established to have gone bad at the end
of the year.
►The Supreme Court of Canada has recently
confirmed that it has never held that the economic realities of
a situation can be used to re-characterize a taxpayer's bona
fide relationships. It has held that, absent a specific
provision of the Income Tax Act to the contrary or a finding
that they are a sham, the taxpayer's legal relationships must be
respected in income tax cases.
► The recent Supreme Court of
Canada decision in the income tax case of Singleton confirmed
the principal that in determining whether interest is
deductible, if a direct link can be drawn between the borrowed
money and an eligible use, the interest expense is deductible.
► Most legal fees incurred in family law situations are not
deductible for Canadian income tax purposes. The main exception
is for fees incurred to enforce a maintenance order. The status
of fees incurred to obtain a spousal support order is less
clear.
► A corporation is a separate legal entity, so losses
that it incurs can't be claimed by it's shareholders. Loans
advanced to a corporation by a shareholder may be deductible as
an Allowable Business Investment Loss (ABIL).
► Attribution
rules don't apply to earned income on investments bought in a
child's name with the Child Tax Benefit provided an account was
established for the child.
► If you deliberately falsify your
Canadian income tax return, or are grossly negligent in
preparing it, you may be subject to a penalty of 50% of the
additional tax liability.
► If you earn more than $30,000 per
annum you are required to register for GST.
► If moving
expenses have been incurred by a student to move from school
back home either for the summer or permanently, these expenses
can generally be deducted for Canadian income tax purposes by
the student against income earned at the moved-to location.
►
If you run a business, your spouse and children can be paid
reasonable salaries which become a business expense that is
deductible for Canadian income tax purposes.
► The Canadian
income taxation of child support payments changed as of May 1,
1997. If you amend a written support agreement made before that
date the tax treatments of payments which were deductible to the payor and taxable to the recipient can change.
► If you
transfer money to a minor child earns and it earns capital gains
instead of interest or dividends, the capital gain would be
reported on your child's tax return, not on yours, thereby
reducing the family’s overall Canadian income tax liability.
►
Offshore income earned by a Canadian resident is fully taxable
in Canada and must be reported for Canadian income tax purposes.
Failure to do so is tax evasion.
► The use of spousal RRSP's
during working years permits the higher income spouse to get the
tax benefit of the RRSP income tax deduction, while incurring
tax on a lower income when the amounts are withdrawn on
retirement.
► If you have income which is not subject to
deductions at source you may have to pay quarterly income tax
installments. If you fail to pay the installments when due you
will be charged interest.
► A loss realized on shares of a
small business corporation or debt owed by a small business
corporation may give rise to an allowable business investment
loss (ABIL), 75% of which is deductible in computing your
Canadian income tax liability.
► If you owe money to CRA
(Revenue Canada) and can't pay the full amount be sure to
negotiate an acceptable payment arrangement with them so that
they don't seize any of your assets.
► If you are the owner of
a corporation and pay yourself a salary, you are not eligible
for Canadian Employment Insurance as an owner-manager so you
should not make any remittance when you complete your personal
Income Tax return.
► If you’re incorporating your existing
business you will have to carry out a tax free rollover of the
assets into the corporation and elect to defer income tax under
section 85 of the Canadian Income Tax Act to avoid an immediate
tax liability.
► All amounts that you incur as current expenses
directly related to your business are deductible for Canadian
income tax purposes. Capital expenditures can be depreciated at
the prescribed tax depreciation rates. If your business never
earns a profit the deductions may be challenged on the basis
that you have no reasonable expectation of profit.
► A car
allowance is taxed as regular income for Canadian income tax
purposes. If you require the car for work and your employer
gives you a form T2200 you may be able to deduct travel
expenses.
► Interest, dividend and most other payments made to
a non-resident of Canada are subject to withholding tax under
the Canadian Income Tax Act.
► Reasonable expenses for meals
and entertainment incurred for the purpose of earning business
income are deductible for Canadian income tax purposes. However,
only 50 per cent of these costs are allowed as a deduction for
tax purposes. The costs of restaurant gift certificates used for
promotion are also subject to this limitation.
► If your
liabilities for unpaid Canadian Income Taxes are too high for
you to pay you can consider either a formal Proposal under the
Bankruptcy and Insolvency Act or going bankrupt.
► When making
your calculations to determine your Canadian income tax
deductions for RRSP contributions, remember that certain
deductions, such as net losses from rental properties or
employment-related expenses including union dues or traveling
expenses will reduce your "earned income" which reduces your
RRSP contribution limit for 2001. Also excluded from "earned
income" are certain types of income including interest,
dividends, capital gains, and most pension income.
► To make
changes to previously filed personal Canadian income tax
returns, individuals should not file an amended tax return.
Canada Revenue Agency (CRA) prefers that individual taxpayers
who wish make changes to returns, use form T1-ADJ (Adjustment
Request), available at local tax services offices or on the CRA
Web site.
► There are no immediate Canadian income tax
consequences as a result of the transfer of capital property to
former spouses where the transfer arises from divorce or
separation settlements.
► All amounts received as a consequence
of termination of employment, even if received as damages, are
fully taxable for Canadian income tax purposes in the year
received. However, a portion of the payment may be eligible for
transfer to an RRSP.
► Hair transplant costs paid to a doctor
will generally qualify as medical expenses and will give rise to
tax credit for Canadian Income Tax purposes. However only
medical expenses in excess of 3% of income will be eligible for
the tax credit.
► If a relative wins a lottery and decides to
share the winnings with his family, the person who receives the
gift from the family member will not have to pay tax on what he
receives since there is no gift tax in Canada. Any amounts
arising from any source, including lottery winnings, can be
gifted to any person without Canadian tax implications.
► New
Canadian income tax rules provide for a tax-free rollover of
capital gains on disposition of shares of certain active
Canadian corporations where the proceeds are used to invest in
shares of another active Canadian corporation.
► Individuals
with grown children who own their own homes or with no children
should consider donating an interest in a personal residence to
a charity. If the donor wishes to continue to have use of the
property for the remainder of his or her lifetime, a residual
interest in the property could be gifted to the charity
currently without the use of a trust. The donor will receive an
income tax receipt for the value of the residual interest
transferred. Provided that the home is a principal residence,
there will be no taxable capital gain
► If you owe money on
account of unpaid Canadian Income Taxes you will be contacted by
a Canada Revenue Agency collections officer. If you are unable
to make satisfactory payment arrangements your salary may be
garnished or your back account seized. No court authorization is
required for these collection actions.
► The October 17, 2000
mini-budget reduced the capital gains inclusion rate for
Canadian income tax purposes from 66 2/3% to 50% effective
immediately.
► A recent Federal Court - Trial Division decision
decided that Article XXVI A of the Canada - U.S. Income Tax
Convention offends subsection 15(1) of the Charter of Rights and
Freedoms. The article in question provides for co-operation
between the Canadian and U.S. tax authorities for the purpose of
collecting taxes owing.
► Canada Revenue Agency (CRA) recently
changed its position relating to the determination of the
adjusted cost base (ACB) for Canadian income tax purposes for
shares acquired under employee stock option agreements and then
immediately sold. CRA will accept identification of specific
securities acquired under the option agreement as being the
securities disposed of by the employee, where it is obvious that
the securities sold are the ones that were acquired under the
agreement. As a result, only the ACB of the securities acquired
under the agreement would be used in determining the gain or
loss on that particular sale.
► An Ottawa Superior Court judge
has ruled that retired Ottawa school teacher Thomas Kennedy is
not exempt from Canada’s Income Tax Act. Kennedy argued
unsuccessfully that the Income Tax Act applies only to
corporations and not to natural persons, that income tax is
voluntary, and that the form requiring his employer to withhold
amounts to cover tax is not valid. The arguments rejected by the
court were essentially the same as claims made by anti-tax
campaigners who say they know of lawful ways for individuals to
exempt themselves from income tax.
► New voluntary disclosure
rules have just been announced by the Canada Revenue Agency. A
taxpayer who makes a voluntary disclosure of a Canadian income
tax liability will not be charged penalties. The new policies
also now allow for a cancellation of interest in some cases.
►
Under proposed amendments same-sex common-law couples will be
treated on an equal basis with opposite-sex couples for Canadian
income tax purposes. If passed the changes are to be effective
for 2001 and subsequent tax years. However, same-sex couples
will be allowed to elect to be treated as common-law partners
for all purposes of tax law for 1998, 1999 and 2000. Where
individuals are making the election for years that have already
been assessed, they must make a request in writing to the Canada
Revenue Agency signed by both partners and filed by the due date
for 2000 income tax returns.
► If you’re immigrating to
Canada, it may be to your advantage to sell investments with
accrued losses before you become a Canadian resident. Otherwise
you will probably not be able to utilize the foreign capital
loss to offset other gains after you arrive in Canada and any
gains that accrue on the investments after immigration will be
taxable in Canada when you dispose of them.
► If you own
property in the U.S., your estate may have to pay U.S. estate
tax on the property after your death. The U.S. imposes its
estate tax on all assets owned by Canadians that it considers to
be U.S. property, which includes real property such as vacation
homes and may include other items such as furniture. In
addition, shares in U.S. corporations and U.S. Government
Savings Bonds are considered U.S. property even if the
certificates are kept in Canada.
► If you're thinking of
immigrating to Canada you should know that your income earned
anywhere in the world would become subject to Canadian income
tax once you establish residence in Canada.
► From a Canadian
income tax perspective, you don’t have to make a trip to the
altar to be considered married, since the meaning of spouse
includes a common law spouse. This could affect the amount of
your GST credit and other credits, and restrict your ability to
claim the equivalent -to-married credit for a dependent family
member.
► If you turn 69 this year you'll have to decide what
to do with your RRSP before the end of this year. If you wish to
have some control over the investments, you should purchase a
registered retirement income fund (RRIF). If you'd rather have a
steady monthly income, consider purchasing an annuity.
► If you
earn more than your spouse, one way to transfer funds to him or
her for investment without having the investment income subject
to Canadian income tax in your hands is to directly pay your
spouse's tax liability, including tax installments that come due
during the year. Funds that your spouse would otherwise use to
pay income taxes can be invested and any income earned would be
taxed at your spouse's lower tax rate.
► There are no estate or
gift taxes in Canada, so gifts may be given with no tax
implications. The attribution rules may, however, apply in
certain circumstances to cause the income to be taxed in the
hands of the gift giver. A taxable capital gain can also arise
on a gift.
► If you are self employed and work out of your home
and move to a new home more than 40 kilometres away, a recent
Tax Court decision means that you may be able to deduct your
moving expenses for Canadian income tax purposes in the same way
as an employee who moves to take a new job or an employment
transfer.
► All amounts which you incur as current expenses
related to the business are deductible for Canadian income tax
purposes. Capital expenditures can be depreciated. If your
business never earns a profit the deductions may be challenged
on the basis that you have no reasonable expectation of profit.
► You can extract income from your corporation in one of 2
ways. You can take a salary or bonus, which is deductible to
your corporation. Or you can declare a dividend out of after tax
profits.
► For a home based corporation to write off rent
related expenses you have to charge "rent" to your corporation.
The amount is taxable to you, but will be offset by the
equivalent amount which you have paid such as utilities or
property taxes.
► Tuition fees deductible for Canadian income
tax purposes include fees paid to attend a Canadian university
or college; fees for courses taken to obtain or improve
occupational skills at an institution approved by the Minister
of Human Resources Development (if you're 16 years or older);
fees paid for full-time attendance at most universities outside
of Canada if the course is more than 13 consecutive weeks long
and leads to a degree; fees paid to post-secondary institutions
in the United States if you lived in Canada near the border and
commute to the university or college.
► An Ontario Superior
Court judge has ruled that a class action suit brought by a
taxpayer against Revenue Canada can proceed to an application to
certification. This ruling, if not successfully appealed, means
that class actions may be brought against Revenue Canada by
taxpayers.
► The purchase price paid for a domain name (URL)
may not be immediately deductible for Canadian income tax
purposes. It may constitute an eligible capital expenditure (ECE)
in which case only 75% of the purchase price can be deducted at
a rate of 7% per annum.
► When making your calculations to
determine your Canadian income tax deductions for RRSP
contributions, remember that certain deductions, such as net
losses from rental properties or employment-related expenses
including union dues or traveling expenses will reduce your
"earned income" which reduces your RRSP contribution limit for
2000. Also excluded from "earned income" are certain types of
income including interest, dividends, capital gains, and most
pension income.
► Post-budget consultation has led the
Department of Finance to reconsider the application of the
proposed civil penalties to third parties. Revenue Canada will
continue to consult with private sector professionals as it
acquires experience with these new measures. The new
culpable-conduct standard is intended to ensure that civil
penalties apply only to third-party advisers who make or
participate in making a false statement, and--unlike the
budget's proposed gross negligence test--will prevent an honest
error of judgment or an honest difference of opinion from
attracting penalties. It is also specified that a penalty is not
levied solely because the third party relied in good faith on
information provided by another person, for example, to prepare
or file that person's tax return. Explanatory notes contain
specific examples of the rules' application. Revenue Canada
indicates that it will assess such penalties only after a Head
Office review. Several court decisions on income splitting and
the use of management service family trusts and partnerships
raised concerns over leakage in tax revenue. The 1999 Canadian
federal income tax budget curtailed income splitting with minors
via taxable dividends paid on private company shares and
business income earned by management partnerships that provide
administrative and other services to related businesses. Draft
legislation was recently released.
► To maximize the $500,000
capital gains exemption from Canadian income tax on sale of
qualifying small business shares available to every individual,
consider having your spouse invest in the corporation to
multiply the availability of the exemption.
► If you’re
creating a stock option in your Canadian corporation for a
shareholder, be sure to grant the same rights to all of the
other shareholders of the same class. Otherwise, the stock
option will be considered to be a taxable benefit for Canadian
income tax purposes to the shareholder. RRSP’s are normally
available to be seized by your creditors in satisfaction of your
debts. If liability issues are of concern to you consider a life
insurance RRSP which is exempt from seizure by your creditors.
► A class action, Deanne Ho-A-Shoo, was recently commenced
against the federal government in the Ontario Superior Court,
seeking recovery of interest paid under section 160 of the
Canadian Income Tax Act. Section 160 allows Revenue Canada to
pursue family members and others who receive property without
paying fair market value (FMV), from a person who owes tax at
the time of the transfer. In the past Revenue Canada has sought
to recover not only the value of the property, but also interest
on that amount. In the 1998 Algoa Trust case, the Court held
that interest could not be assessed on a section 160 liability
based on the FMV of the property transferred, but Revenue has
not taken steps to pay back interest collected improperly.
► In
two recent technical interpretations, Revenue concedes that
legal fees relating to child support orders under the Divorce
Act are deductible for Canadian income tax purposes.
► An
allowable business investment loss (ABIL) may be claimed as a
Canadian income tax deduction on a non-interest bearing loan to
a Canadian controlled private corporation if there are other
reasons for the loan such as dividends or management fees. This
principal has been affirmed by the Federal court of Appeal in
the Byram decision.
► A new taxation year for Canadian income tax purposes is
deemed to have started when a change in control of a corporation
takes place. If your corporation is about to undergo a change in
control it will shorten the carry-forward period of your unused
losses and cause their expiry. It may be possible to devise a
mutually beneficial tax plan with the purchaser by billing
before the sale for services to be rendered after the change in
control in order to generate income to absorb the unused losses
before they expire.
► If you have invested money with a private
Canadian corporation carrying on an active business, including
your own corporation, and the debt becomes uncollectible you can
deduct 75% of the loss as an allowable business investment loss
(ABIL) in computing your personal Canadian income tax liability.
► Repayable income tax-free RRSP withdrawals can now finance
full-time training or education for a taxpayer or spouse.
Students in full-time training or post-secondary education or
their spouses may withdraw up to $10,000 per year from their RRSP's over a four-year period, as long as the total amount does
not exceed $20,000. The amount withdrawn from the RRSP must be
repaid in equal installments over 10 years or it will be
included in income for Canadian income tax purposes.
► If
you're being temporarily transferred due to your employment and
receive a housing allowance to pay for your lodgings while
you're away, the allowance will normally be considered a taxable
benefit for Canadian income tax purposes. However, the allowance
will not be included in your taxable income if it is for board
and lodging at, and transportation to, a temporary work site
that is more than 80 km from your home or a "remote work site"
that is remote from any established community. To qualify your
regular home must be available for your occupancy. If you rent
it out for the duration of your posting the allowance will be
subject to income tax.
► If your company owns or leases an
aircraft for business purposes and it makes a flight for the
primary purpose of providing free or subsidized travel for the
personal benefit of an employee or shareholder, a taxable
benefit for Canadian income tax purposes will result for the
employee or shareholder. The amount of the income tax benefit is
usually computed as the cost of a regular first class ticket to
the same destination.
► If you are a Canadian citizen with a US
green card and both a US and Canadian residence, electing to pay
Canadian income tax under the Canada-US income tax treaty may
jeopardize your green-card status.
► Revenue Canada has
announced a change in its policy on employer payment of
professional membership fees. Employers can pay such fees on
behalf of employees, without triggering a taxable benefit for
Canadian income tax purposes, if the employer is the primary
beneficiary of the payment. Revenue Canada's previous policy was
that such payments were a taxable benefit unless the employee's
membership was a condition of employment.
► Repayable Canadian
income tax free RRSP withdrawals can now finance full-time
training or education for a taxpayer or spouse.
► The child
care expenses you can deduct on your Canadian income tax return
include more than day care costs and the nanny's salary. Also
deductible are fees for certain baby-sitting expenses, day
camps, boarding schools and summer camps.
► Taxpayers who sue for wrongful dismissal, including
damages for mental distress and other non-financial matters,
should try to ensure that the original statement of claim, and
minutes of settlement include a detailed breakdown of the
settlement's components to demonstrate that some of the
settlement is not subject to Canadian income tax.
►If you’re an employee and you expect to receive a large
Canadian income tax refund for 1998 because you’ll have
substantial deductions to claim, you may be able to obtain some
of that refund early by arranging for your employer to reduce
the amount of tax withheld from your future pay cheques.
► If
you're planning to contribute to a Registered Education Savings
Plan (RESP) for your child to take advantage of the new Canada
Education Savings Grant (CESG) program, your child will need a
Social Insurance Number (SIN) before the RESP plan administrator
can apply for the CESG.
► If you're self-employed, you may be
allowed to deduct from your Canadian income tax return the costs
of attending up to two conventions in a year in connection with
your business or profession.
► If you spend more than 183 days
a year living in the United States (with a portion of your time
in the U.S. in the previous two years counting towards this
total) you could be deemed a U.S. resident for tax purposes and
be required to file a U.S. income tax return, however the
Canada-US tax treaty may provide you with some relief.
►
Parking provided to employees may constitute a taxable benefit
to the employee, requiring an inclusion on their Canadian income
tax return. The taxable amount is the fair market value of the
parking less any amount the employee pays for the space. If fair
market value can't be determined, such as parking in a mall, no
taxable benefit results.
► Name your estate rather than a
charity as an RRSP or RRIF beneficiary otherwise no tax credit
will be available to offset the Canadian income tax your estate
will have to pay for the amount of the donation. By leaving
instructions in your will that the money should be transferred
to one or more named charities you will ensure that your estate
gets the benefit of the tax credit for your donation.
► If you
own your own company and you are retiring to leave it for others
to carry on, you can arrange for the company to pay you a
reasonable retiring allowance which will be deductible to the
company, and you may be able to transfer all or a portion of the
allowance to your RRSP and claim the tax deduction.
► If you're
planning to move out of Canada and you'll be selling your house,
try to make the sale while you're still a Canadian resident.
That way, you'll still be able to claim the principal residence
exemption and avoid paying tax on the capital gain that will
arise.
► If you make a spousal RRSP contribution instead of a
regular one, the funds you contribute may be safe from attack by
future creditors.
► Certain employer-paid training courses may
no longer be taxable benefits for employees, thanks to a recent
Revenue Canada policy change. New guidelines say that training
taken primarily for the employer's benefit is not taxable, even
if it leads to a degree, diploma, or certificate. A taxable
benefit still arises if the training is primarily for the
employee's benefit.
► If you drive an expensive company-owned
car, especially if it's older than three years, the amount of
the associated taxable benefit may make it more economical for
you to buy the car from your employer and arrange for an
offsetting increase in pay because your taxable benefit is based
on the car's original cost and not its current value.
►If
you're immigrating to Canada, your world income will become
subject to Canadian tax once you establish Canadian residence.
Any foreign-source income you receive after becoming a Canadian
resident will be subject to Canadian tax, although any foreign
tax paid on this income may be eligible for a foreign tax credit
in Canada.
► If you're immigrating to Canada it is often
advantageous to sell investments with accrued losses before
coming to Canada since you will be unlikely to be able to use
the foreign capital loss to offset other gains after you arrive
in Canada, while gains that accrue on the investment after
immigration will be taxable in Canada upon disposition.
► As a
result of the recent Ontario budget, small Ontario corporations
will be entitled to a new 20% refundable tax credit based on
qualifying Ontario labour expenditures incurred after June 30,
1998 to create interactive digital media products.
► RRSP and RRIF donations from estates can be transferred to a charity
without incurring any tax and can be claimed by your estate for
a tax credit of up to 100% of your income in that year.
► If
you reside outside of Canada for part of the year but you
continue to file your Canadian tax return as a Canadian
resident, you are not obliged to pay non-resident withholding
taxes on the income from your Canadian investments.
► A
self-directed RRSP can hold up to 20% of the cost amount of its
holdings in foreign property. You can also acquire indirect
foreign holdings by investing in a qualifying mutual fund trust
or in segregated funds offered by certain life insurance
companies.
► If you are planning to sell all or a part of your
business try to structure the sale to be eligible for the small
business capital gains exemption available for the sale of
shares of a qualifying small business corporation.
► If you are
setting up a new business, start-up losses incurred by a
corporation will not be personally deductible. If you anticipate
start-up losses, and liability is not a concern, consider
starting your business as a sole proprietorship or partnership
and only incorporate once you become profitable.
► If you are
thinking of buying a house, you should be aware that the Home
Buyers Plan allows qualified taxpayers to use up to $20,000 from
their RRSP when buying a home. To qualify, neither you nor your
spouse may have owned a home in the last five years.
► When
drafting your will you can carry out income splitting for your
beneficiaries by setting up multiple testamentary trusts.
►
When commencing or settling a law suit consider whether payments
can be deductible, if you are the defendant, or non-taxable if
you are the plaintiff.
► If you have been charged interest or
penalties for late tax payments caused by reasons out of your
control you can apply to have them waived under Revenue Canada's
"Fairness" doctrine.
► If you have have failed to file income
tax returns for several years there are no special problems with
Revenue Canada or rules to follow. Just prepare and file the
returns in the usual way.
► Revenue Canada has a policy that if
you make a voluntary disclosure about unreported income they
will not penalize you. However you must approach them before any
investigation is commenced.
► If you carry out research and
development, including software development, you may qualify for
an income tax credit by filing the appropriate form with Revenue
Canada.
► Non-residents with Canadian resident children should
leave property to an offshore trust for their children, rather
than directly to the Canadian resident child.
► If you are
planning to immigrate to Canada, consider having a trust settled
on your behalf before you become a Canadian resident
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