First Canadian SRED Consultants Inc.

01/27/2015

Latest Business
"U.S. trade official says Treasury taking lead on currency manipulation"

(Reuters) - The U.S. Treasury is taking the lead on addressing currency manipulation, U.S. Trade Representative Michael Froman said on Tuesday.

At a Senate committee hearing on trade, Froman was pressed to say whether the administration would seek to address currency manipulation in a Pacific trade pact currently under negotiation.

Froman said Treasury Secretary Jack Lew had the lead in currency issues "at this point" and was raising them bilaterally and in international groups such as the Group of Seven and the International Monetary Fund.

us at 905-856-6022 or send us an email :[email protected] for tax preparation and to arrange an appointment to discuss your situation and what we can do to help.
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01/21/2015

@: FCA Confirms Tax Court’s Jurisdiction to Determine Questions of Timing and the Validity of a Notice of Objection@@

In ConocoPhillips Canada Resources Corp. v. The Queen (2014 FCA 297), the Federal Court of Appeal overturned a Federal Court decision (2013 FC 1192) and dismissed an application for judicial review by the taxpayer finding that the Federal Court lacked jurisdiction in this case.

ConocoPhillips had commenced an application for judicial review as a result of a dispute between the CRA about whether a Notice of Reassessment had been validly sent to the taxpayer. The CRA alleged that it mailed a Notice of Reassessment on November 7, 2008. ConocoPhillips alleged that it never received the Notice of Reassessment and that it first learned of the reassessment on April 14, 2010.

Accordingly, when ConocoPhillips filed a Notice of Objection on June 7, 2010, the CRA advised that it would not consider the objection on the grounds that it was not filed within 90 days of the alleged mailing date (i.e., November 7, 2008) and that no request for an extension of time was made within the year following the alleged mailing date of the reassessment.

The Federal Court considered the question of jurisdiction and found that it had jurisdiction because the Court was not being asked to consider the validity of the reassessment (which can only be determined by the Tax Court of Canada) but rather, was only being asked to review the CRA’s decision not to consider the objection.

Based on the standard of reasonableness, the Federal Court found in favour of ConocoPhillips on the basis that the CRA had not sufficiently engaged the evidence to appropriately render an opinion whether or not the reassessment was mailed on the alleged date. The Court set aside that decision.

The Crown appealed to the Federal Court of Appeal on the basis that the Federal Court lacked jurisdiction on this issue. The Federal Court of Appeal allowed the appeal.

Section 18.5 of the Federal Courts Act provides that judicial review in the Federal Court is not available where, inter alia, an appeal is permitted on the issue before the Tax Court of Canada. In the present case, the Federal Court of Appeal stated that, pursuant to subsection 169(1)(b) of the Income Tax Act (Canada), ConocoPhillips could have appealed to the Tax Court after 90 days had elapsed following the date its objection was initially filed and the Tax Court would have been the correct forum to determine if, or when, the Notice of Reassessment was mailed and when the time for filing a Notice of Objection expired.

The Federal Court of Appeal clarified that the Minister’s obligation to consider a Notice of Objection is triggered regardless of whether a Notice of Objection may have been filed within the required time-frame. Further, the Minister’s decision on this issue is not an impediment to filing an appeal to the Tax Court pursuant to paragraph 169(1)(b) of the Income Tax Act (Canada). Accordingly, judicial review of this issue was not available in the Federal Court.

us at 905-856-6022 or send us an email :[email protected] to arrange an appointment to discuss your situation and what we can do to help.
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01/14/2015

@@@ tips to start 2015 off right@@@@

With 2014 destined for the record books at midnight Wednesday, there’s not a lot of time left to optimize your investing and tax health. As noted here a week ago, it’s already too late to benefit from tax-loss selling, which had to be executed by Christmas Eve.

Even so, if you’re reading this on Dec. 30 or even Dec. 31, there are still a few actions you can take to maximize your wealth or at least minimize tax due in April but you’ll have to complete them well before you start singing Auld Lang Syne.

Charitable donations
A big one is donating to charity, as outlined in Evelyn Jacks’ column in the latest print edition of MoneySense. One of several useful tips she highlights is the First Time Donor’s Super Credit, which became available 2013 and will be around until 2017. Instead of the normal tax credit of 15% of donations under $200, the Super Credit boosts this to 40% for first-time donors. And between $200 and $1,000 the Super Credit boosts the tax credit from 29% to a whopping 54%.

If you don’t qualify for the Super Credit, Jacks reminds investors who own stocks in non-registered accounts that instead of donating cash, they can donate securities that may have embedded capital gains in the last year. You can of course avoid tax by not converting paper gains to actual gains that would be incurred by selling; however, if you plan to give to charity anyway, consider transferring some winners to your favourite charity and thereby avoiding paying capital gains tax on the donated shares. Instead of the normal 50% inclusion rate, you’d have zero capital gain tax liability on the securities transferred, plus you will get a charitable donation tax credit.

RRSPs/RRIFs
Another great way to save tax is to invest in RRSPs. Fortunately for most people, Dec. 31 isn’t the deadline: for the 2014 tax year, the RRSP contribution deadline is March 2, 2015. The exception is those who turn 71 in 2014: if that’s you, you must convert your RRSP to a RRIF or life annuity before the year officially ends. Jacks also cites an interesting number that may interest business owners. To get the maximum 2014 RRSP contribution of $24,930 you’ll want to create earned income of $138,500 in 2014.

CPP/QPP
From CIBC comes a useful tip for those in their early 60s and who are planning on collecting early CPP or QPP. If you’re between 60 and 64 in 2014 and plan to start receiving benefits before the normal retirement age of 65, CIBC suggests applying by Dec. 31, 2014. This will forestall a slight “downward monthly adjustment” factor used to calculate reduced early CPP/QPP benefits. In the case of the CPP, in 2014 this factor is 0.56% a month but rises to 0.58% a month once 2015 arrives; that will result in a slightly lower benefit payout. Of course, if you plan to do the opposite and wait till 65 or even 70, you can just sit tight.

TFSAs
If you’re planning to withdraw funds from a Tax-Free Savings Account (TFSA) in the near future, CIBC suggests doing so while it’s still 2014. If you wait till the new year you won’t be able to recontribute the amount withdrawn until 2016.

Of course, we would prefer NOT to withdraw money from a TFSA if at all possible and ideally recommend contributing another $5,500 early in 2015: preferably on Jan. 1 or Jan. 2 to maximize growth (depending on whether you can find a bank open on New Year’s Day, which is doubtful; alternatively you can use online banking and make a contribution through a discount brokerage).

Note that there may be some preparatory action you can take here in 2014 even if you plan to invest in a TFSA once the new year actually arrives. Our family, for example, parked $11,000 in a short-term savings vehicle back in the summer so we could top up our TFSAs as soon as 2015 arrives. While you can transfer securities in-kind to TFSAs, that may entail crystallizing capital gains. It’s cleaner to use cash, so you may wish to sell a money market fund or near-liquid savings vehicle (like a cashable GIC) in order to have cash at the ready for the actual TFSA contribution. More on that once the new year actually arrives!

us at 905-856-6022 or send us an email :[email protected] to arrange an appointment to discuss your situation and what we can do to help.
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01/09/2015

Perhaps you moved out of the country for a few years and then decided to make it permanent or you have purchased property in Canada as an investment to generate income.

No matter the reason, you should be aware that Canada imposes a withholding tax on the rents and sale of real property.

rental incomeKnowing the highlights can help you avoid nasty surprises when the tax man comes calling.

Real Estate & Tax Residency

Although the ownership of a residential property in Canada may be considered a significant residential tie, the property in Canada must be available for your occupation.

By renting the property, under a long-term lease to an unrelated third party, you may be able to avoid t being considered a resident for tax purposes.

Principal Residence Exemption

If you are leaving Canada, you can likely claim the principal residence exemption and avoid any immediate gains.

If you sell your home after you leave, the issue becomes more complex because you cannot claim the principal residence exemption for years in which you were not a resident of Canada.

You will also be subject to the 25% withholding tax applied on gains of the sale of real estate located in Canada.

Tax On Rental Income

Renting the property may generate much needed cash flow and may be more than sufficient to maintain the property while you are away.

Like most endeavours, rental income is still subject to Canadian income tax.

There are withholding taxes as well as annual non-resident rental tax filing requirements that you must comply with if you are a non-resident earning rental income from Canadian real estate.

Failing to comply with these requirements could result in significant interest and penalties. Some filing requirements must be met even if you never rented the property.

Final Words

Owning and renting property as a non-resident or former resident of Canada can carry with it significant tax obligations for non-compliance. There are withholding taxes that must be remitted monthly if the property is being rented and penalties for the failure to comply can be significant.

If you are a non-resident and are renting property in Canada, it is important to make sure that you are filing the proper returns and making the required installments.

We Can help

We can help you comply with these important regulations by assisting with the necessary filings and help reduce the overall tax burden.

If you have not complied for several years, there are programs available to help bring your tax situation up to date.

Call us at 905-856-6022 or send us an email :[email protected] to arrange an appointment to discuss your situation and what we can do to help.
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01/05/2015

Canadian families will have more money in their pockets in 2015 as a result of tax reforms introduced by the Harper Government, the Canadian Taxpayers' Federation (CTF) has said.

The calculations are included in the CTF's annual New Year's Tax Changes report, which takes into account the tax savings for families from the retroactive implementation of the Family Tax Cut (FTC) and the incoming enhancements to the Universal Child Care Benefit (UCCB). According to CTF Federal Director Aaron Wudrick, two-parent households with just one earner and two-income households that have a significant gap between the two earners' incomes will benefit most from the changes.

In November, the Government announced that so-called "income splitting" will be available from the 2014 tax year, enabling families to split up to CAD50,000 (USD42,996) of their income each year for tax purposes. The FTC provides a maximum CAD2,000 in tax relief for couples with children under the age of 18. It allows a "higher income spouse" to, in effect, transfer up to CAD50,000 of taxable income to a spouse in a lower income bracket for federal tax purposes.

An enhanced UCCB will replace the existing Child Tax Credit for the 2015 tax year and subsequent tax years. From January 1, 2015, parents will receive a monthly benefit of CAD160 for each child under the age of six, up from the previous CAD100. For children aged between six and 17, parents will get CAD60 a month.

The CTF's report calculates the total tax savings from FTC and UCCB in each Canadian province, along with the average savings across the provinces.

For example, a two-parent, two-child, one-income family in Alberta earning CAD60,000 a year can expect to save CAD1,519. A two-parent, two-child, one-income family in Ontario earning CAD80,000 should save CAD2,489. On average, a single-income family with two children earning CAD60,000 a year should save CAD1,526. An equal-income family with two children and earnings of CAD60,000 should save CAD442.

Those families with unequal incomes also stand to benefit in particular. On average, a family earning CAD30,000 should save CAD682, a family earning CAD80,000 should save CAD1,443, and a family earning CAD200,000 should save CAD2,049.

"The range is wide, from a few hundred to over CAD2,500, but there is no doubt Canadian families will have more money in their pockets as a result of these changes," Wudrick said.

Commenting on the changes, Finance Minister Joe Oliver said: "Across Canada, families are working hard. That is why our Government has introduced new measures that will make raising a family more affordable.

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01/03/2015

@ Canadian mutual funds can cause U.S. tax headaches@

Common Canadian investments can inadvertently cause U.S. tax problems for U.S. citizens in Canada.

Let’s take a really common example that we see frequently. Jack is a U.S. citizen in his 50s who married Jill (a Canadian citizen) many years ago. They have both lived in Canada for a long time. Jack was vaguely aware that he was supposed to be filing U.S. taxes every year. But he didn’t. Then Jack started reading about a recent U.S. law, the Foreign Account Tax Compliance Act (FATCA) under which his financial institutions would soon be sending his financial information to the IRS by way of the Canada Revenue Agency.

Jack started to comply with his U.S. tax obligations and in the process discovered that his retirement portfolio, which is comprised of Canadian mutual funds and ETFs that are held outside of an RRSP, might cause him problems.

There are strategies that can be used to help someone in Jack’s situation. For instance, Jack can swap his Canadian mutual funds and Canadian-listed ETFs into his RRSP for other investments that may be less problematic. Jack may also be able to gift some of these problematic investments to his wife Jill who is not a U.S. citizen.

Jack’s situation is avoidable with some foresight and planning. Canadian mutual funds and Canadian listed ETFs held outside of an RRSP/RRIF may cause U.S. tax problems. They may (the IRS has not taken a clear position on this and there may be some exceptions to the rule for older funds) be classified as a passive foreign investment company (PFIC) under U.S. tax law. If the investments are classified as PFICs and are held outside of an RRSP/RRIF, they must be reported on a complicated form.

There are punitive tax consequences for owning such an investment. For instance, when the investment is sold, the gain on the investment is subject to tax at up to 35% or 39.6% (depending on the year) and compound interest is charged on the tax owed stretching back to when the investment was purchased. There are strategies available to manage, but not eliminate, this headache but the strategies themselves are quite complicated and likely require the services of a tax professional. The simplest way to avoid this headache is to not own Canadian mutual funds and Canadian listed ETFs outside of an RRSP if you are U.S. citizen.

If Canadian mutual funds and ETFs are owned inside of an RRSP, there is much less of a U.S. tax problem. Recent IRS rule changes have eliminated the annual reporting requirement for Canadian mutual funds and Canadian ETFs held inside of an RRSP. Similarly, the Canada-U.S. Tax Treaty (an agreement between Canada and the United States that helps sort out some of the thorny cross-border tax issues) allows U.S. citizens in Canada to defer any tax owed on income accrued inside the RRSP until the income is withdrawn from the RRSP. Many advisors agree that this tax deferral provision likely negates any of the punitive taxes related to the classification of Canadian mutual funds and Canadian ETFs as PFICs as long as the investments are sold before they are taken out of the RRSP. Importantly, the same is not true for other Canadian registered plans such as a TFSA, an RESP, or an RDSP (these plans generally do not work as designed for US tax purposes).

To avoid Jack’s situation, U.S. citizens in Canada should exercise care in making their investment choices. Tax advice should be obtained as necessary.

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12/30/2014

@@ Canada should simplify taxes@@@

The government should think big and promote economic growth by lowering overall tax rates

Nobody ever argues in favour of a more complex tax system. Yet that’s what we get when we try to balance a long list of competing objectives – some high-minded, others perhaps more tactical in nature.

A recent example is the package of tax changes to assist families. They include a non-refundable credit of up to $2,000 for couples with children under 18; an increase to the child care benefit for families with children under 6; a new monthly benefit for families with kids between 6 and 17; a $1,000 hike to the child care expense deduction; a doubling of the children’s fitness credit, and a proposal to make it refundable starting next year.

Reasonable people can and will disagree about the wisdom of each of these proposals. But there are two things on which I suspect most of us can agree.

The first is that the goal of making life easier for middle-class and lower-income families is a laudable one.

The second is that I seriously doubt whether more than a handful of parents actually understand all of these various changes well enough to be able to explain them to their neighbours.

If it’s not exactly tax policy as conceived by Rube Goldberg, it comes pretty close.

I believe the government was right to focus on tax relief for workers and families. But at least on this occasion, it missed an opportunity to think big – to revise the tax system in a way that makes it easier for Canadians to do their taxes, while promoting economic growth.

In 1987, around the time I was entering politics, the federal government published a White Paper on Tax Reform. It was a Conservative government, and I was running for the Liberals. But there were a lot of ideas in that White Paper with which I agreed.

Mike Wilson, the Finance Minister who tabled it, said the central objective of tax reform is to reduce rates – because lower rates are the best incentive for growth, investment, savings and job creation.

His prescription was simple: “To get rates down, we must reduce tax preferences and broaden the tax base.”

What Mike Wilson said in 1987 holds true today. Our goal should be to achieve the broadest base possible, with lower rates for all. To do that, we need to simplify the tax code.

Right now, we’re moving in the other direction – toward more complexity.

If it’s not exactly tax policy as conceived by Rube Goldberg, it comes pretty close.
A year ago, we at the CEO Council undertook a study with PwC of the tax contributions of leading Canadian companies. Sixty-three of our member companies took part.

In total, those 63 firms were subjected to more than 50 different kinds of taxes and government fees. On average, they spent $4.5 million each – and employed 22 full-time employees – to comply with their Canadian tax obligations.

The complexity of the tax system and the high cost of compliance have an impact on the competitiveness of Canada’s economy.

Our country’s fading advantage is partly the result of recent provincial tax changes. That includes BC’s decision to reverse the harmonization of its provincial sales tax with the GST. Recent tax hikes in BC and New Brunswick have also hurt.

Another area of concern is the gap between the rates paid by small and larger firms. In most of Canada, the small business tax rate is less than one-third of the general business rate. In Manitoba, it’s zero. Any lower and the province will be paying companies to stay small!

As Jack Mintz has pointed out, special breaks for small business discourage growth because firms lose tax relief as they become larger.

While the complexities of our tax system continue to increase, other countries are moving to streamline their tax regimes.

The UK, for example, has established an independent Office of Tax Simplification. Its mandate is straightforward: to ensure that the tax system is efficient, simple to understand and easy to comply with.

One of its priorities has been to identify tax credits, exemptions and allowable deductions that could be simplified or repealed to achieve a simpler tax system.

The UK is taking other important steps as well. It set a target of reducing the annual cost to business of tax administration by £250 million by 2015.

Also next year, it plans to unify the main corporate income tax rate and the small business rate, creating a single corporate tax rate of 20%. That’s well below Canada’s combined federal-provincial corporate rates, which range from 26% to 31%.

The time has come for Canada to embrace a similar commitment to tax reform. By reducing tax complexity and broadening the base, we can improve the business environment and attract new, job-creating investment.

Tax simplification is as important as bringing down rates, and it deserves to be a central pillar in the next phase of Canada’s efforts to design a tax system for the 21st century.

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12/27/2014

!!Tax Trap for Contractors Providing Services Through a Personal Corporation !!!

What is the Risk?

Individuals who provide personal services to clients through a personal corporation run the risk of being considered a personal services business (a “PSB”) for income tax purposes. There are a number of significant negative tax implications for a corporation that is classified as a PSB. Some of those implications are as follows:

Higher Corporate Tax Rates. A PSB is not entitled to claim the small business deduction or the 13% general corporate tax rate reduction. Accordingly, a corporation that is found to be a PSB is subject to a much higher rate of corporate tax than corporations who qualify for the small business deduction or the general corporate tax rate reduction.
Higher Tax for the Owner-Manager. A shareholder/employee receiving dividend income through a PSB could be taxed as high as 56% in Saskatchewan on that income, which would be considerably higher than the highest personal marginal tax rate of tax in Saskatchewan of 44%.
Limited Deductions for Expenses. A PSB is only entitled to deduct the salary paid to the individual providing the services and other limited expenses that employees are generally entitled to claim. Corporations that are not PSBs are entitled to claim a much broader scope of expenses as business related expenses.
Who is Classified as a PSB?

In general, a corporation is classified as a PSB where an individual who owns a certain amount of shares of the corporation provides services on behalf of the corporation to a client, where, if the corporation did not exist, it would be reasonable to conclude that the individual was an officer or employee of the client.

The Canada Revenue Agency will look to a number of specific factors to determine if the individual providing services to the client through the corporation is essentially an employee of the client. In addition, there are certain exceptions which a corporation can rely on to avoid being classified as a PSB, such as having five full-time employees.

What Can You Do?

If you think that your corporation has the potential to be classified as a PSB you should consult a tax professional.

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12/26/2014

First Canadian SRED Consultants Inc.’s approach is unique. In short; we work with you to establish a plan for your projects, to teach you how to conduct your projects so as to use the SR&ED program with confidence. We help you understand what elements of your projects are eligible, and the specific reasons why. Then we assist you in an ongoing project and activity assessment, to be sure you are documenting and recording your progress. Finally, we prepare confident and well vetted claims in cooperation with your technical staff and accountant, to be certain your credits are processed in the shortest time frame.

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An introduction to our team

12/26/2014

!!Canada transparency laws force ASX companies to disclose tax bills!!

Two Australian mining companies will be forced to disclose how much tax they pay in every country around the world by new transparency laws introduced in Canada.

Paladin Energy and OceanaGold, both dual-listed in Australia and Canada, will have to comply with new Canadian laws requiring all oil, gas and mining companies to report payments they make to governments overseas, including taxes, royalties, bonuses, regulatory charges and licence fees.

The Australian government is being pushed to introduce similar rules.

The legislation aims to tackle corruption and tax avoidance in poor countries, as well as payments to indigenous groups. It follows mounting global pressure by transparency organisations and the Organisation for Economic Co-operation and Development to introduce a country-by-country reporting regime.

The new rules are expected to come into force by June 2015 after passing through the Canadian parliament on December 16.

Claire Spoors, a spokeswoman for advocacy group Publish What You Pay, said the Abbott government should consider introducing similar laws in line with Canada's.

"Australia, as a mining giant, could make a real difference in helping resource-rich but poor countries prosper by ensuring there is greater transparency," she said.

"Well-managed and properly accounted-for resource revenues can be invested in health, education and putting countries on sustainable development pathways."

A spokesperson for OceanaGold was unavailable to comment.

The OECD is pushing ahead with a plan to introduce a country-by-country reporting regime – where detailed tax information will be collected from multinationals but be kept private by tax authorities.

The Canadian laws, as well as new rules to be introduced in the European Union, go a step further, and require extractive companies and banks to publicly report certain information from next year.

Some large Australian miners, including Rio Tinto, already publish a large amount of tax information, with Rio Tinto chief executive Sam Walsh saying he welcomed country-by-country reporting as a way of tackling corruption.

But the Abbott government has signalled it could water down transparency laws introduced under Labor. The tax disclosure laws would mean that from July, companies with $100 million or more in turnover would have their tax information disclosed on the Australian Taxation Office website.

Finance Minister Mathias Cormann told Fairfax Media the government would review the laws following complaints by private business owners that they could be kidnapped and held for ransom when people realised how wealthy they were from their published tax information.

Senator Cormann said the laws showed a "ham-fisted, ill-thought-out approach trying to crack a nut with a sledgehammer".

But advocates say greater transparency will boost confidence in the broader community that large companies are paying their fair share of tax.

Australia has endorsed the OECD's reporting regime, which is not due to be introduced until 2018.

It has also signed up to the OECD's common reporting standard for governments sharing tax information, after criticism that it delayed the process by consulting big business.

OceanaGold has operations in New Zealand, the Philippines and Australia. Paladin Energy has projects in Namibia, Malawi, Niger, Canada and Australia

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