ent® Chartered Professional Accountants Blog

We are pleased to provide a variety of resources on accounting, taxation and other related subjects that we hope will be helpful to both individuals and businesses.

Controls on sales practices at Canadian banks ‘insufficient’: watchdog

Interesting read from today’s Globe and Mail

The Financial Consumer Agency of Canada released a report yesterday saying that Canada's Big Six banks have “insufficient” controls to guard against misleading sales tactics. The watchdog did not find evidence of widespread misconduct but the report sheds light on the "sharp focus on sales" at Canadian banks, which could increase the likelihood that employees “missell“ products or services. The FCAC wrote in its report that “the importance employees place on reaching sales targets and qualifying for incentives may lead them to prioritize sales over consumers’ interests.”
Rob Carrick writes in a column that the Big Six will fleece you if you let them: ”The FCAC has some ideas on improving consumer protection for bank customers, all of which sound worthwhile. But there’s more to this problem than profit-hungry banks pressuring employees to squeeze customers. We live in a country that is way too impressed with the financial industry and grants it all kinds of liberties. We encourage the banks to be predators by acting like sheep.”

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Good News from the CRA!

This week the CRA Collections and Verification Branch issued the following:

Employment expenses review – Reversal in Process

Each year, the Canada Revenue Agency reviews a number of returns to ensure that taxpayers are entitled to the claims that they have made, and that amounts claimed have been correctly calculated. These reviews are an important part of our compliance activities to maintain the integrity of, and Canadians' confidence in, Canada’s tax system.

In the fall of 2017, the CRA began reviewing a small percentage of individual tax returns ‎when we detected a trend in the normal course of our regular reviews. The review focused on “other employment expenses” claimed on line 229 of the T1 Individual Income Tax and Benefits Return by shareholder-employees. Based on the feedback we received from industry stakeholders in recent weeks, it became clear that there was confusion among taxpayers, who were the subject of these reviews, as to how they should be claiming “other employment expenses”.

The Canadian tax system is based on self-assessment, which is in turn supported by clear guidelines for taxpayers and their representatives. In this case, the Agency agrees with our industry stakeholders that additional consultation and new guidance products are necessary.

Effective immediately, the Agency will stop reviewing and disallowing “other employment expenses” claimed on line 229 of the T1 Individual Income Tax and Benefits Return by shareholder-employees. We will also reverse those reassessments specific to line 229 already issued during the review period September 1, 2017 to February 10, 2018. Specifically, taxpayers who were major shareholder and owners of a corporation and received a letter from the Special Assessment Program of the Canada Revenue Agency dated between September 1, 2017 and February 10, 2018 indicating that they were reviewed for “other employment expenses” claimed on line 229 of the T1 Individual Income Tax and Benefits Return.

Taxpayers involved in these reviews will be contacted by letter to inform them of this decision.

Consultation will be undertaken with stakeholders in the tax professional community to clarify the requirement of employer certification under Subsection 8(10) of the Income Tax Act as it relates to shareholder-employees. It is expected that clarification will be issued to take effect in the 2019 tax year.

The Agency will issue guidance products on this issue well in advance of any future reviews to allow taxpayers, and their representatives, reasonable time to adjust to their tax filing requirements.

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Do the Olympics Make a Difference?

Early this morning I got up to finish some work and turned on the television just in time to see our Canadian Women’s Olympic Hockey team playing against the Russian team who are playing under the Olympic flag. I could not help but be caught up in the excitement and feeling so proud of being a Canadian. I could feel the hairs at the back of my neck begin to stand an edge as I enjoyed the intensity with which our Canadian athletes were playing.

As I reflect on what I believe the Olympics do for us as a nation, it makes us feel proud to see every colour and race themselves as Canadian and feel as one. This is the sort of occasion where we forget about the Canadian economy, the issues in our country, and issues in North America and all the things that make us divided by cities, provinces, languages and economics. It makes me want to advocate for us to have the Olympics on an annual basis, but then again it may lose its lustre.

Having met and worked with two former Olympian medallists for a number of years, I can attest to the dignity and integrity by which they carried themselves, not only as a Canadians, but also a successful business people. Being an Olympian has long lasting impact not only in the lives of those who participate in the games, but also on the lives of those of us who cross paths with them.

Watching the Olympics is one of those events that makes me so extremely proud to be a Canadian.

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Disability Tax Credit & Diabetes

Are you or your child living with Type 1 Diabetes?  You may qualify for a disability tax credit when you file your taxes.  Check out the Diabetes Advocacy website to learn how to qualify for this tax credit.   If you qualify for prior years we can amend your tax returns to get you tax refunds.  If you think you may qualify please take action right away because Canada Revenue could change the rules to qualify at any time.  There are also other conditions that are eligible for the Disability Tax Credit.  Check out the Canada Revenue website or speak to a team member for more details.
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Personal Service Business Rules – How does it impact corporate income taxes for IT Contractors and Independent Consultants?

IT consultants and Independent Consultants working on a contract basis with a corporate business structure should be aware of the personal service business (PSB) rules.

If it was not for the corporation, you would reasonably be considered an employee of the company to which you provide services to. In other words, you are an incorporated employee. This change could have significant implications for your tax obligations. You could lose many of the tax benefits currently available to you.

Impact of Personal Service Business Rules:

The small business deduction is disallowed. All expenses except for salary and benefits would be disallowed. The reassessment would lead to tax penalties. PSB are subjected hefty tax rates.

Canada Revenue Agency uses the following factors in assessing if your corporation is a Personal Service Business (PSB).

Control:

The payer exercises control over how and when you perform your work, and you have to regularly report to your supervisor. If so, this indicates that your corporation will be considered a PSB. If you are financially dependent on your employer this indicates a PSB. This means that your only customer is your current employer, as opposed to having multiple numbers of customers.

Tools & Equipment:

The payer provides you with all the tools & equipment to do your job; this indicates that you are a PSB. Tools & equipment include your computer, software, etc.

Subcontracting Work:

The payer does not allow you to hire subcontractors to complete a project; this indicates that you are a PSB.

Financial Risk:

If the worker has no financial risk, this indicates that your corporation is a PSB. Examples of no financial risk are when the worker is not responsible for any operating expenses, and the worker is hired for an ongoing relationship and not a specific job.

Responsibility for investment and management:

If the worker has no responsibility for investment and management indicates the corporation is a PSB. Examples are a worker that has no investment in their business and is not free to make business decisions impacting their profit and loss.

Opportunity for Profit

If the worker has no opportunity for profit, it indicates that your corporation is a PSB. Example: The worker is not paid on a milestone basis or upon successful completion of the project.

Please read my article on suggestions on dealing with the PSB risk for IT contractors and Independent Consultants.

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What are the Advantages and Disadvantages of Incorporation?

Advantages:

Separate Legal Entity/ Limited Liability:

Your corporation is a separate legal entity and as such, creditors or legal actions are against the corporation and its assets, not your personal assets. The shareholders of a corporation have a limited liability. Please note shareholders can be legally liable for the corporation's GST/HST and payroll taxes.

Tax Advantages:

If you don't need all the corporation earnings for personal income, you can leave them in the corporation, deferring personal taxes on withdrawals and possibly enjoying a 15.0% preferred tax rate on the first $500,000 of profit in a CCPC.

Your corporation has tax flexibility from which you may personally benefit. If you sell shares in your Canadian-controlled private corporation (CCPC) capital gains will be tax – free up to $813,600.

Disadvantages:

The administration costs are more expensive with a corporation than with a partnership or a sole proprietorship. Administration costs include incorporation costs, annual financial statements and annual corporate income tax return.

Losses in an incorporated business can't be personally claimed.

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What happens if I over contribute to my Registered Retirement Savings Plan (RRSP)?

Contributions to an RRSP from January 1, 2017 to the first 60 days of 2017 can be deducted against your 2016 income. You must declare your total contributions. The maximum that is tax deductible is your contribution limit per your notice of assessment. Any unused RRSP contribution in excess of the $2,000 is subject to penalties by Canada Revenue Agency (CRA) of 1% per month.
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