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Canada Revenue Agency (CRA) HST Audit

Canada Revenue Agency (CRA) HST Audit

CRA HST Audit

CRA HST Audit

Canada Revenue Agency CRA HST Audit

The Canada Revenue Agency (CRA) frequently conducts HST audits and reviews to make sure Canadians are complying with the regulations. CRA HST Audits can also be referred to as GST Audits or GST/HST Audits. GST/HST audits focus on GST/HST filing errors and omissions. The CRA does have the right to examine records of the organization that are relevant to determining its tax liabilities.

What causes a CRA HST audit?

The CRA has a complex computer system that allows it to select returns to be audited by sorting them into various groups. There are four common ways the CRA selects files for audit:

  1. Computer-generated lists – In order to select specific returns for audit, the CRA often compares selected financial information for current and previous years of taxpayers engaged in similar businesses or occupations.
  2. Audit projects – The CRA often tests the compliance of a particular group of taxpayers, particularly if there is reason to believe that there is significant non-compliance within a group.
  3. Leads – Leads for audits often are the result of other audits or investigations, as well as information from outside sources.
  4. Secondary files – A business may be selected for audit if it is associated with another file that is being reviewed for audit, since the CRA often finds it convenient to look at all the records at the same time.

What is the CRA’s new approach?

The way the CRA conducts its audits has changed over the years. The CRA has switched from a combined audit approach to a detailed approach. In the past, most audits of smaller businesses have been done as combined audits – one audit covering both income tax and GST/HST. Combined audits have now been discontinued. Therefore, businesses are now subject to an income tax or GST/HST audit, leading the CRA to request more detailed information.

What can you do to prepare for a CRA HST audit?

Before you release any information to the CRA, make sure you seek professional advice. Once the information has been released the CRA can use it against you to assess penalties and interest. This requires you to be well prepared and know your rights as a business owner. In case of an audit remember the following:

  • Maintain good records: Organize the receipts and documentation to support your claims. You are required to keep your records and supporting documents and financial information for at least six years. Well-kept records will likely reduce the time required to complete the audit. some tips on good record keeping include:
    • Ensure you have copies of any GST/HST elections you have been relying on.
    • Ensure your documentation is neatly organized and in order. The CRA will likely request a copy of your electronic books and records.
    • If you have a combination of exempt and taxable supplies, ensure your ITC allocation methodology is documented and explained.
  • Be knowledgeable: Before the auditor begins the audit, confirm what taxation years are under review and what records he or she will require. This will ensure you have the required information ready for the auditor upon arrival.
  • Know your rights: Don’t give the auditor full accessibility to your files. Understand your rights as a taxpayer and exercise them when necessary.
  • Understand the information you are providing: Carefully review all information provided to the CRA and ensure that you are not providing more information than required.
  • Be courteous and professional: It is important to cooperate with the CRA and provide them with the information they request. However, always remember your rights as a business owner. Responding promptly and professionally to all correspondence received from the CRA may help complete the process faster and smoother.

A CRA audit can be time consuming and costly when you don’t have the right resources. For assistance, contact Cheema CPA Prof. Corp. and we will work with you through this process.

What are your rights GST/HST CRA audit?

Your rights are outlined in the Taxpayer Bill of Rights, which states the 16 rights that apply to all taxpayers and registrants. This video, will mention three of the 16 rights that we want to highlight for you as you go through the audit process.

 

  • Right number three says you have the right to privacy and confidentiality. Auditors must respect the confidentiality of tax information and are obliged to take safeguards to protect your information.
  • Right number five says you have the right to be treated professionally, courteously, and fairly. You should expect this treatment from an auditor.
  • And right number six says you have the right to complete, accurate, clear, and timely information. You should expect to be kept informed throughout the audit.

If you need to learn more about your rights as a taxpayer please refer to the Taxpayer Bill of Rights. 

Who can help during a GST/HST CRA audit?

Having the right team of professionals handling your HST audit is the key to success. As a taxpayer and a business owner you have rights. Before you release any information to the CRA make sure you seek professional advice. Once the information has been released, the CRA can use it against you to assess penalties and interest. Our firm is specialized in CRA HST Audits and Reviews. We can help you achieve a favorable result. Our team of lawyers and tax accountants can professionally handle your CRA HST Audit or Review.

Brampton Accountant: 2015 Income Tax Checklist

Brampton Accountant: 2015 Income Tax Checklist

Brampton Accountant: 2015 Income Tax Checklist. Cheema CPA Professional Corporation is a Chartered Professional Accountant firm located in Brampton, Ontario. We provide professional tax and accounting services. Each year we put together a checklist to help our clients assemble all the information required for personal taxes. This checklist will help you get more organized and help us minimize your taxes. To download: Tax Checklist.

General Items

  • A copy of last year’s return
  • 2009 Notice of Assessment
  • Other years reassessments
  • Details of changes to your personal status such as dates of marriage, separation, divorce or widowed, births and deaths
  • Note consenting to provide your income tax information to Elections Canada
  • Installment payments
  • Details of foreign property holdings (if any*) including cost of property held

Income

  • Universal child care benefit (RC62)
  • Employment income (T4)
  • Pension income (T4A, T4A(P), T4RIF, T4RSP)
  • US social security
  • Old age security (T4OAS)
  • Investment income (T5)
  • Income from trusts such as mutual fund investments (T3)
  • Income from employment insurance (T4E)
  • Income from partnerships (T5013)
  • Workers compensation/social assistance payments (T5007)
  • Details of the sale of securities such as stocks and bonds (eg. trading summary from your broker)
  • Income from foreign investments
  • Spousal support payments received

Deductions General

  • RRSP contributions
  • Medical, dental, prescription drugs, nursing home expenses
  • Payments to a private health insurance plan
  • Charitable donations
  • Tuition fees/education amount (T2202A) for yourself or transferred from a dependent such as a child or grandchild
  • Interest paid on student loans c Professional dues, union dues c Public transit passes
  • Childrens participation in programs related to physical activity
  • Interest on loans assumed to purchase investments
  • Safety deposit box fees
  • Professional consultant fees
  • Legal fees paid to establish child or spousal support or to enforce a pre-existing agreement
  • Legal fees paid to recover wages from your employer
  • Details of people you support and their medical status
  • Child care receipts (for camp, list dates attended)
  • Moving expenses if you moved 40km or closer to work or school
  • Property taxes or residential rent paid and to whom
  • Political contributions receipts
  • Disability tax credit claim form completed by authorized health practitioner (T2201)
  • Spousal support payments paid
  • Adoption expenses

Deductions Employees

  • Declaration of conditions of employment form (T2200)
  • Details of expenses not reimbursed by your employer including travel expenses (eg. parking, taxis, bus fare), supplies and assistant salaries
  • Office rent if required as a condition of employment
  • Home office expenses if it is your principal workplace or used exclusively, on
  • a regular or continuous basis for activities such as business-related meetings; include details of rent paid, repairs and maintenance costs, utilities and if you are
  • a commissioned salesperson also property taxes and home insurance. Also indicate the total area of your home and the area used for your work-space
  • If you are a commissioned sales-person, details supporting advertising expenses, promotion, meals and entertainment
  • Motor vehicle expenses

Deductions Motor Vehicles

  • Total kilometers driven and kilometers driven just for work
  • Details of total expenses incurred for gas, maintenance and repairs, insurance, license and registration, loan interest and lease payments
  • New vehicle, purchase invoice/agreement

Unincorporated Businesses

  • Total sales revenue for the year
  • Total expenses listed by category for the year
  • Capital assets acquired (eg. computers and peripherals, furniture and equipment)
  • Home office expenses include details of rent paid or if you own your home, details of repairs and maintenance, utilities, property taxes, insurance, mortgage interest
  • Motor vehicle expenses

Unincorporated Businesses

  • Total sales revenue for the year
  • Total expenses listed by category for the year
  • Capital assets acquired (eg. computers and peripherals, furniture and equipment)
  • Home office expenses include details of rent paid or if you own your home, details of repairs and maintenance, utilities, property taxes, insurance, mortgage interest
  • Motor vehicle expenses

Download (PDF, 30KB)

2015 INCOME TAX

2015 INCOME TAX

 

Personal Tax Changes 2016 Tax Season

Personal Tax Changes 2016 Tax Season

Personal Tax Changes for 2016 Tax Season

Personal Tax Changes for 2016 Tax Season

Changes and Updates for 2016 Tax season

We will discuss the personal tax changes 2016 tax season in this article. Following key changes to existing services, credits, and amounts impact individual taxpayers in the 2016 tax-filing season:

  • Updated notice of assessment – The Canada Revenue Agency (CRA) has updated the format of the notice of assessment to be simpler. Taxpayers can now find the most important information about the assessment on the first page.
  • Universal child care benefit (UCCB) – For the 2015 tax year, the UCCB was expanded to children aged 6 through 17. Also, payments that parents receive for children under the age of 6 increased to $160 per month for each child. To learn more about the UCCB read our full blog post here. This Personal Tax Changes 2016 Tax Season was implemented before 2016.
  • Disability Tax Credit – This year, Canadians claiming the Disability Tax Credit (DTC) will be able to file their T1 return online regardless of whether or not their Form T2201, Disability Tax Credit Certificate has been submitted to the CRA for that tax year.
  • Children’s fitness amount – As of January 1, 2015, this is now a refundable tax credit available to families with children enrolled in a prescribed program of physical activity. For tax years prior to 2015, this credit was non-refundable. The Children’s Fitness Tax Credit allows you to claim eligible fees paid in the year up to a maximum of $500 per child (an additional amount of $500 is available if the child is eligible for the Disability Tax Credit and a minimum of $100 has been paid for eligible fees in the year). The child must have been under 16 years of age (or under 18 years of age if eligible for the disability tax credit) at the beginning of the year in which an eligible fitness expense was paid.
  • Child Care Expense Deduction limits – As of the 2015 tax year, the Child Care Expense Deduction dollar limits have increased by $1,000. The maximum amounts that can be claimed have increased to $8,000 for children under age seven, to $5,000 for children aged seven through 16, and to $11,000 for children who are eligible for the Disability Tax Credit.

For more information on the above key changes that may impact you, contact Cheema CPA Professional Corporation. Cheema CPA can help you understand personal tax changes 2016 tax season.  Visit the CRA website for more personal tax changes and updates 2016 tax season.

How to setup a Sole Proprietorship in Ontario, Canada?

Sole-Proprietorship

Sole-Proprietorship

 How to setup a Sole Proprietorship in Ontario, Canada?

Sole proprietorship, also known as a proprietorship or a sole business, is a type of business that is owned and operated by a single individual. Other individuals do not participate or own the business. This is the most simplest form of operating a business.

A sole proprietorship is simple to setup, you can operate the business under your personal name. If you desire to use an operating name you are able to register a Master Business License and operate under an operating name. The requirements for setting up a sole proprietorship are outlined in the provincial legislation.

The shortfall with a proprietorship is that the sole proprietor is personally liable for the business. There is no legal separation between the business and its owner. This creates unlimited liability from creditors and other business debts.

Key Features of a Sole Proprietorship:

  •  You can establish a sole proprietorship easily and instantly
  • Inexpensive to setup
  • Income and expenses reported on your personal tax return
  • You can mix business and personal assets

What are the setup cost?
The setup costs are relatively low. To Register a Master Business License online the government fee is $60. There are additional fees for name search and enhanced business name search.

How is a sole proprietorship taxed?
A proprietorship is not a separate legal entity and is taxed based on the proprietors personal income. A separate tax return is not required. The income or losses of the proprietorship will be taxed at the applicable marginal rate of the individual. If the business is profitable this may put you in a higher tax bracket.

There is no need to obtain a CRA business number for a sole proprietorship. However, in certain circumstances you will be required to register a HST number. If you have employees you will be required to register a payroll number. All of which can be done over the phone by calling the CRA business line.

The income and expenses from the sole proprietorship can be reported on your T1 Personal Income Tax return on the T2125 Statement of Business Activities form. You will be required to keep all your receipts for income tax purposes.


 

 Our accounting firm is located in Mississauga and Brampton

We have offices in Mississauga and Brampton. Contact our firm to setup a sole proprietorship. We can help you understand the tax and accounting obligations of s a sole proprietorship.

GST/HST Rates Across Canada

Canadian Provincial Tax Map 2015

GST HST Rates Across Canada

 GST/HST Rates Across Canada

With eCommerce more and more businesses are selling goods and services across Canada. This has resulted in confusion on which sales tax rates apply. Majority of Canadian businesses must collect sales taxes from customers and remit them to the government. Depending on the province your business operates in, the rates are different.

Based on the province or territory in which your business operates in, you need to collect either:

  • A combination of GST and PST
  • GST only
  • HST

 What sales tax should I charge my customer in another province?

Generally speaking the sale tax you charge your customer depends on where the supply of the goods or services is made. If a business in Alberta sends products to a business in Ontario, the place of supply is Ontario and you will be charging your customer the HST at the rate for Ontario.

GST/HST sales tax rates that apply in Canada by province:

Province Type PST GST HST Total Tax Rate
(%) (%) (%) (%)
Alberta GST 5 5
British Columbia GST+PST 7 5 12
Manitoba GST+PST 8 5 13
New Brunswick HST 13 13
Newfoundland and Labrador HST 13 13
Northwest Territories GST 5 5
Nova Scotia HST 15 15
Nunavut GST 5 5
Ontario HST 13 13
Prince Edward Island HST 14 14
Quebec GST+QST *9.975 5 14.975
Saskatchewan GST+PST 5 5 10
Yukon GST 5 5

 

 

What sales tax should I charge my customer in another Country?

If you sell good outside of Canada this is considered a zero-rated supply and you do not charge your customers GST or HST. However, if the goods are picked up from Canada then the supply is made in Canada and you are required to charge GST/HST depending on your respective province.

How to calculate GST/HST?

Example 1: In Alberta, where only GST applies and you sold a $100 item.

Retail price: $100
GST (5%): $5
Total: $105

Example 2: In Ontario, where HST applies and you sold a $100 item.

Retail price: $100
HST (13%): $13
Total: $113

Example 3: In Manitoba and Saskatchewan, PST, like GST, is calculated on the retail price only. The two taxes are then added to the retail price for your total. For example, in Manitoba:

Retail price: $100
GST (5%): $5
PST (7%): $7
Total: $112

 Visit the CRA website for more information 

Filing Past Due Tax Returns

Past Tax Returns

Filing Past Due Tax Returns

 Filing Past Due Tax Returns

Filing taxes can be an overwhelming task with numerous things to consider. If you have fallen behind on your returns it is very important to file the past due tax returns and update your records with the Canada Revenue Agency (CRA). By filing taxes you become eligible for government credits such as GST/HST tax credit, Ontario Trillium Tax Credit (OTB), and Child Tax Benefits tax credit.

Failure to file tax returns on time can result in penalties and interest. Even if you are not able to pay the tax balance owing, you should still file your return to reduce the penalties and take advantage of the tax credits you qualify for.

If you are expecting a refund from the CRA it is even more critical to file your tax returns on time because the CRA does not pay interest until 30 days after the due date. Also the CRA can deny your income tax refund if you wait more than three years (CRA discretion to issue the refund if the return is filed within 0 years).

I have zero income should I still file a tax return? 

Even if you are not required to file a tax return, it might be beneficial to file a tax return because you could qualify for government credits. It is very important to file taxes every year even if you have zero income. Eligibility for certain benefits such as the GST/HST credit or the Child Tax Benefits is directly related to your income tax returns.

If I file past due returns, can I still receive the GST/HST tax credit? 

Yes, you will receive the GST/HST tax credit along with other credits you qualify for. You can retroactively qualify for the GST and OTB tax credits.

What is the late filing penalty? 

The late filing penalty is based on taxes owing for a particular year. For an example if you owe tax for 2014 and do not file your return for 2014 on time the CRA will charge you a 5% penalty on the balance owing. In additional the CRA will charge a 1% penalty on the balance owing for each full month your return is late, to a maximum of 12 months.

If the CRA charged a late-filing penalty on your return for 2011, 2012, or 2013 your late-filing penalty for 2014 may be 10% of your 2014 balance owing, plus 2% of your 2014 balance owing for each full month your return is late, to a maximum of 20 months.

Even if you cannot pay your full balance owing on or before April 30, 2015, you can avoid the late-filing penalty by filing your return on time.

Who should I contact if I have to file back taxes for multiple years? 

Contact our firm for all your income tax needs. We specialize in filings back taxes and reducing penalties and interest. We have several different strategies that we use to reduce penalties and interest, including the Voluntary Disclosure Program. We can  help you comply with the CRA reporting obligations and minimize your overall tax bill. Contact our firm and book an appointment with our accountant Mr. Sarb Cheema.

Reminder-Monday, June 15, 2015, is the Deadline for Self-Employed Individuals to File Their 2014 Income Tax Return

Deadline for Self-Employed Individuals to File Their 2014 Income Tax Return

Deadline for Self-Employed Individuals to File Their 2014 Income Tax Return

Reminder-Monday, June 15, 2015, is the Deadline for Self-Employed Individuals to File Their 2014 Income Tax Return

We would like to remind self-employed individuals and their spouses that this year’s filing deadline is midnight on Monday June 15, 2015.  If you had an outstanding balance for 2014, it would have had to be paid on or before April 30, 2015. However, due to a CRA glitch the deadline to pay 2014 outstanding taxes was extended to May 5, 2015 this year.

If you don’t file your return, your GST/HST credit (including any related provincial credit), Canada child tax benefit payments (including related provincial or territorial payments), and old age security benefit payments may be delayed.

Contact our office if you still need help completing your 2014 self-employed business tax returns.

Chartered Professional Accountant

Chartered Professional Accountants

Chartered Professional Accountants

The New Accounting Designation

Over the  years there’s been a lot of confusion when understanding the different accounting designations in Canada. The three accounting designations operating in Canada are; Chartered Accountants (CAs), Certified Management Accountants (CMAs) and Certified General Accountants (CGAs). Each designation has has a different set of regulations and governing bodies.

Now in Canada Chartered Accountants (CAs), Certified Management Accountants (CMAs) and Certified General Accountants (CGAs) have agreed to join forces under a new banner Chartered Professional Accountants (CPA). The merger has united 190,000 accountants in Canada and created a single unified accounting profession. The unification will allow the Canadian accounting profession to work together and enhance the public’s confidence in the profession. The new CPA designation will allow accountants to specialize in a different area of finance & accounting, but operate under the same banner. This is exactly how other professions like medicine and law operate.

Majority of the accounting bodies in Canada have unified or are in support of unification as shown below:

Brampton Chartered Accountant

Source: Unification Agreement – Key Terms published by the Chartered Professional Accountant.

How will it help Canada?

The unification will bring together the strengths of each organization while giving the Canadian accounting community a unified voice, reducing the number of governing bodies from 40 to 14. This will simplify operations and governance and reduce confusion in the market place about the different accounting designations. With a single organization representing Canada, it will allow Canada to have a single voice on the international stage.

For more information about the merger visit the following websites:

Chartered Professional Accountant (CPA)
Chartered Accountant (CA)
Certified General Accountant (CGA)
Certified Management Accountant (CMA)

Cheema & Associate Professional Corporation – Chartered Professional Accountants  is an accounting firm located in Brampton, Ontario. Serving the needs of Small Business Owners & Entrepreneurs. Contact us for Tax Help, Personal Tax, Corporate Tax, Year End Financials, Accounting & Estate Taxes.

Capital Gains vs Business Income

 

Capital Gain vs. Business Income

Capital Gains vs. Business Income

Capital Gains vs Business Income

As indicated in our previous articles, the housing market in Canada has attracted many investors. This has allowed real estate investors to make a quick profit. The popularity has also been fueled by the preferred tax treatment on capital gains. In Canada only 50% of the capital gain is taxable at your marginal tax rate.This has allowed taxpayers to shelter large portion of their income from the tax man. However, you should be aware that not all income qualifies as a capital gain. It could be taxed as business income, in which case 100% of the amount is subject to tax.

For example, to determine if the rental income qualifies as a capital gain or business income the following Six factors are considered as cited in Ayala v. The Queen:

  1. The nature of the property sold;
  2. The length of time the taxpayer was in possession as owner of the property;
  3. The frequency and number of operations carried out by the taxpayer;
  4. The improvements made by the taxpayer to the property;
  5. The circumstances surrounding the sale of the property; and
  6. The taxpayer’s intention at the time the property was acquired, as indicated by the taxpayer’s actions.

In the case of Montreal tax payer who sold six of her real estate properties and reported the income as a capital gain, her appeal was denied and income was assessed as business income. The judge in this case concluded that the Montreal taxpayer was probably and likely had acquired the properties “for the purpose of reselling them at a profit at the earliest opportunity rather than considering them as long‑term investments.” The taxpayers appeal was denied and her income assessed as business income forcing her to pay tax on 100% of the sale proceeds.

These rulings will impact many different business and industries. It is critical taxpayers seek adequate legal and tax advise when making decisions.

Capital Losses vs Business Losses 

When it comes to capital losses vs business losses the opposite is also true. A capital loss can only be applied to reduce a capital gain. However, a business loss has more flexibility and it can be applied to reduce a capital gain or other income. Read our article on capital losses vs business losses to gain more insight.

Cheema & Associate Professional Corporation – Chartered Professional Accountants  is an accounting firm located in Brampton, Ontario. Serving the needs of Small Business Owners & Entrepreneurs. Contact us for Tax Help, Personal Tax, Corporate Tax, Year End Financials, Accounting & Estate Taxes.