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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

 

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.

Review of child and family benefits and credits

Child and Family Benefits

Child and Family Benefits

 Review of child and family benefits and credits

What the Canada Revenue Agency is looking for?

The Canada Revenue Agency (CRA) continuously conducts reviews and audits of child tax benefits and other family benefits. The process usually starts off with a questionnaire or a phone call. Taxpayers get confused and don’t really know which documents the CRA is looking for. This results in Universal Child Care Benefits (UCCB) and Canada Child Tax Benefit (CCTB) payments being stopped or delayed.

To support your residential address you will be required to provide the following documents:

 

Part 1: Information about your residential address


Property Owner:

If you are the owner of your residence, a copy of your property tax bill for each year under review. The property tax bill should include all your personal details such as your full name, address of the property, and the year of the bill.

In addition you will be required to provide one of the following documents:

  • Mortgage papers
  • insurance policies
  • household bills (gas, electricity, cable, or telephone)
  • Drivers license and vehicle registration
  • Registered Retirements Savings Plan or Pension Plan documents showing your address

 Tenant:

If you are a tenant, a copy of your rental/lease agreement or letter fro the landlord. Documentation must cover the entire period under review. The letter from the landlord should include the following details:

  • The date the rent was paid
  • The address of the property you rented
  • The name of the person or business who received the payments
  • the signature of the landlord

In addition you will be required to provide one of the following documents:

  • Mortgage papers
  • insurance policies
  • household bills (gas, electricity, cable, or telephone)
  • Drivers license and vehicle registration
  • Registered Retirements Savings Plan or Pension Plan documents showing your address

Part 2: Information about your residency status


You will be required to provide any two of the following documents to support that the child was living with you and you were the primary caregiver for the entire time under review.

Any two of the following documents:

  • A copy of the child’s school registration/enrollment document or information/emergency contact sheet. It must be signed and certified by the school to be a true copy.
  • A letter from the daycare or school authority which includes the following information from their files:
    • Name and home address of the parent/guardian for each child
    • attendance records of the child
    • name and contact number of the person completing the letter
  • Copies of the Report cards for each year under review. The report card can only be used if it states the home address, attendance record and parent’s/guardian name
  • A letter from your family doctor or dentist confirming how long the child has been under the doctor or dentist’s care and indicating the home address and parent or guardian information as indicated on their files, for the period under review. The letter must be on letterhead and must be singe by the doctor or dentist.

In the event the CRA has disallowed your claim please contact our office for assistance. We can professional handle your CRA audit or review. Our tax accounting firm can professionally prepare and submit all documents and make sure everything gets resolved in a timely manor. Contact our accounting firm for all your personal, corporate, and small business needs. .

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.