Posts

Tax implications of the 2016 budget

Tax implications of the 2016 budget

Tax implications of the 2016 budget

Tax implications of the 2016 budget

The 2016 federal budget included a number of measures that will impact Canadian taxpayers. Here are some of the tax aspects of the budget which will impact individuals and small business owners.

1. Reduction of middle-income tax bracket

The middle-class income tax bracket would be cut from 22% to 20.5%, starting this year. That means if your taxable income is between $45,282 and $90,563, you’ll pay less tax.

2. New High Net worth (HNW) tax bracket

The Liberals introduce a new 33% tax bracket for high net worth people who earn more than $200,000 each year.

3. Increasing the attention on tax evasion

The Liberals will invest $444.4 million over five years to help the Canada Revenue Agency ensure tax evasion is difficult. This money will go to hiring more tax auditors and specialists, developing robust business intelligence infrastructure, increasing verification activities and investigating criminal tax evaders.
The Liberals will also spend $351.6 million over the next five years to help the Canada Revenue Agency improve its ability to collect outstanding tax debts.

4. Closing tax loopholes for HNW

For those private corporation business owners, this Budget will close loopholes that allow them to use a life insurance policy to make distributions tax free.

5. Retirement age rolled-back to 65

The retirement age will stay at 65. This reverses the Conservatives’ decision to raise it to 67 beginning in 2023.

6. Low-income seniors get 10% more in GIS benefits

Starting in July 2016, low-income seniors who rely almost exclusively on Old Age Security and Guaranteed Income Supplement (GIS) benefits can expect a 10% increase to their total maximum GIS benefits.

7. Introduction of the Canada Child Benefit

Starting in July, the Universal Child Care Benefit (UCCB) and Canada Child Care Benefit (CCTB) will be replaced with one non-taxable Canada Child Benefit (CCB).
Under the current system, families with one child and with annual earnings of $30,000 would receive $4,852, after tax, if their child was under age 6, or $3,916 if their child is aged 6 to 17.
Under the new Canada Child Benefit, these low-income families could see $6,400 per child under age 6 and up to $5,400 per child per year for children aged 6 to 17. As a result, most Canadian families will see an average increase in child benefits of almost $2,300 starting this year.

8. Increased Child Disability Benefits

An additional amount of up to $2,730 for each child who is eligible for the Disability Tax Credit will be added to the existing Child Disability Benefit.

9. Elimination of income splitting for couples with kids

The prior Conservative government’s introduction of the Family Tax Cut allowed couples to income split and save up to $2,000 in taxes each year. This income splitting for couples with children under age 18 will be eliminated.

10. Elimination of fitness or arts tax credit for kids

Currently, families can get a tax credit of $150 and $75 per child through Children’s Fitness and Arts Tax Credits (up to $1,000 and $500 in eligible expenses, respectively).
There will be a 50% reduction of the maximum eligible expenses for the Children’s Fitness and Arts Tax Credits in 2016, and a complete elimination of both credits by 2017.

11. Elimination of education and textbook tax credit

This Budget eliminates the Education and Textbook tax credits, effective Jan. 1, 2017.

12. Introduction of School Supply Tax Credit

Budget 2016 has introduced a new credit for the cost of educational supplies. The credit is available to teachers and early childhood educators who incur the cost of supplies for the purpose of teaching or otherwise enhancing students’ learning in the classroom or learning environment. This new credit will allow an employee who is an “eligible educator” to claim a 15% refundable tax credit based on up to $1,000 in expenditures made by the employee for “eligible supplies.”

Teachers will qualify as eligible educators if they hold a teacher’s certificate that is valid in the province or territory in which they are employed. Similarly, early childhood educators must hold a certificate or diploma in early childhood education.

13. Elimination of capital gains tax exemption on donations

Budget 2015 included a proposal to provide an income tax exemption on capital gains of donated private corporation shares or real estate beginning in 2017. To qualify, the cash proceeds from the disposition would need to be donated to a registered charity or other qualified done within 30 days. This is now eliminated in 2016 Budget.


Budget 2016: How budget could affect Canadian communities


What the Liberal budget means for high-income Canadians

 

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 

CRA Audit & Objections

CRA Audit & Objections

CRA Audit & Objections

  CRA Audit & Objections

Challenge the CRA / Dealing with the CRA? Here’s what you need to know.

Every year the Canada Revenue Agency (CRA) audits thousands of small and medium size businesses and issues notices of reassessments.  Many times the result of these reassessments requires these businesses to pay up to thousands and sometimes millions in tax, interest and penalties.

Is there a chance that these CRA reassessments can be wrong? Yes! It is absolutely critical that business owners are prepared to challenge incorrect reassessments. Handling reassessments improperly can have serious financial implications for your business.

Here are five things that you should be aware of when you receive the CRA’s notices of reassessment:

  1. The CRA isn’t always right. Notices of reassessments and tax disputes are not necessarily an indication that the taxpayer, or the accountant, has done something wrong. If you feel the CRA has it wrong, as a taxpayer you have the right to challenge the CRA’s interpretation and application of the facts and law to ensure you are not paying more than you have to.
  2. Act on time. You must file a notice of objection to dispute a notice of reassessment. Generally, you must file a notice of objection within 90-days of the date that the CRA mailed the notice of reassessment. If you do not deliver a proper notice of objection within the 90-day period, you may apply for an extension of time to object. The CRA will consider applications for an extension of time to object if the application meets all relevant conditions and if it is filed within one year of the 90-day period. However, the CRA may deny your application for an extension of time and, therefore, it important to file a proper notice of objection within the 90-day period.
  3. The onus is on you. The normal reassessment period is three years for individual taxpayers and four years for corporate taxpayers. If the CRA issues a notice of (re)assessment within the normal reassessment period, the onus is on you to prove that the assessment is wrong in fact and law. You should be prepared to present factual and legal support for your position that the reassessment is wrong. If the CRA issues a notice of reassessment outside the normal reassessment period, taxpayers should understand the impact of this shift in the burden of proof. This is an opportunity to take advantage of the shift and make strategic decisions.
  4. Know what you are talking about. In addition to knowledge of the relevant legislation, the tax dispute process is governed by the case law, rules of procedure, the onus of proof, the standard of proof and the rules of evidence. In our experience, the party with the greater understanding of the legislation, case law and rules often has a significant advantage.
  5. Contact the right people for help.Clients often struggle to research and retain the right tax accountant and tax lawyer. We recommend that clients take the time to understand their options and speak to competent tax professionals.

This is an example where the CRA made a mistake and resulted in Mr. Irvin Leroux losing millions of dollars.

It was a million-dollar mistake that turned in to a 13-year battle. A British Columbia man lost almost everything in a tax battle with the Canada Revenue Agency. The CRA admits they were wrong, but now refuses to repay his money. His original documents were shredded by the CRA auditor.

The judge found that the auditors owed Mr. Leroux a duty of care and that they breached it in the manner in which they imposed penalties. However, the judge concluded that she was unable to find a causative link between that breach and Mr. Leroux’s losses.

Mr. Leroux had a legitimate position to put forward in saying that if the assessments had been done correctly in the first place, he might have been able to handle all the other problems he had.

The full case can be found here.

Contact our firm Cheema CPA Professional Corporation for all your CRA review and audit needs. Our team of tax accountants and lawyers can professionally handle your file.