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CRA Steps Up the Fight

Canadian tax lawyers are noticing changes in the Canada Revenue Agency, which has become significantly more aggressive in how it pursues tax revenue. There has been a shift to increased auditing, and tax reforms to give the CRA more tools and resources to combat tax cheating. This has led to tax lawyers moving from a focus on tax planning to one focused on litigation and audit defense. The Canadian government has also significantly increased the funds available to the CRA, and it has been using the money to investigate a higher number of returns than in the past.

“Whether it is with house flippers in the overheated real estate market, international tax evasion, GST/HST or the federal government’s new tax reforms, tax lawyers say the Canada Revenue Agency is sharpening its fangs with new capabilities and growing more aggressive in the hunt for tax revenue.”

Canadian companies failed to pay billions of taxes owed, new CRA report reveals

Newly released data from the Canada Revenue Agency shows corporate business failed to pay about ten billion dollars of the 2014 taxes they owed. Experts are referring to this as the tax gap, which is the difference between taxes that were due and taxes that actually were paid to the CRA. To put this problem into perspective, nearly thirty percent of all corporate taxes owed were not paid. Thirty cents of every tax dollar was not received, and thus not available to Canadians.

“Canadian corporations failed to pay between $9.4 billion and $11.4 billion in taxes in 2014, according to the first comprehensive analysis of the country’s corporate tax gap.”

If you disagree with the CRA’s assessment of your tax return, make sure you file a notice of objection

Tax day has come and gone for Canadians, and unless you disagree with your assessment, you can leave that tax year behind. However, for those who disagree with the Canada Revenue Agency (CRA)’s assessment, then it’s important to know the deadlines for filing an objection. The first deadline is for a Notice of Objection (T400A). If that date is missed, you have a second opportunity by filing for an extension. If a taxpayer is still not successful, then they have the opportunity to appeal in the Tax Court of Canada. In one recent case, despite numerous attempts to send documentation to the CRA in response their requests, the minimal requirement is to ensure that your letter (if you’re not using the CRA form) state that you’re objecting to an assessment. Otherwise, your case will not be successful.

Key Takeaways:

The deadline for filing an objection is one year from the normal filing due date or 90 days after the date printed on the notice of assessment, whichever is later.
If you miss the deadline to file a notice of objection, you can still apply to the CRA within one year of the deadline for an extension.
If the CRA denies your application, you may appeal to the Tax Court of Canada.

“If you disagree with the CRA’s assessment of your return, you can formally object by filing a Notice of Objection (CRA Form T400A).”

TFSAs have been a disappointment in getting Canadians to save more – The Globe and Mail

Canadians saving money for retirement can choose from two tax-free investment account options: a Registered Retirement Savings Plan (RRSP) or a Tax-Free Savings Account (TFSA). Recently, a study found that TFSAs may not be helping Canadians meet their savings goals. One issue is that Canadians seem to be taking money from retirement savings accounts to fund TFSAs. Since TFSAs are more flexible accounts, they more easily allow for withdrawals for current spending needs like a home down payment or renovation project. While no one is arguing against tax-free saving accounts, the type of account Canadians choose may – or may not – really increase their savings for critical retirement years.

“Everyone loves tax-free savings accounts – this is not in dispute. But how good are TFSAs for the country? A study recently published in the Canadian Tax Journal raises some doubts.”

Retirees worldwide may run out of money 10 years before they die, report shows

The big fear for many when it comes to retirement – namely running out of money to sustain you when you’re no longer working – is predicted to be true for an increasing number of retirees. New economic research conducted across the world, from Asia to Europe, North America to Australia, shows funds in retirement savings accounts are not rising fast enough to cover even basic increases in life expectancy. For some, this means even if they’ve invested and fiscally planned properly, their own longevity will push them into living past how long their retirement savings will last.

“Unless more is done, older people will either need to get by on less or postpone retirement.”

Why the 17% drop-out rule is key to your CPP entitlement

Many Canadians depend on the Canadian Pension Plan as a source of income during retirement. However, there is often confusion around the 17 percent drop-out rule. Basically, this rule excludes 17 percent of months when you earned the least amount, which means the calculation of your monthly benefits will increase when these lower-income months are taken out of the equation. This could be as a result of time in school, lower career income, and caring for children. Depending on how long you work, your CCP could drop between 86-96 months based on the 17 rule.

Key Takeaways:

When calculating retirement benefits, CPP relies on drop-out provisions, the process of removing 0 to low income months from the overall equation.
Your CPP retirement benefit could be affected by the provision related to child-rearing which permits the dropping of years with low-income or any periods when you were receiving a CPP disability pension.
Requesting a statement of contributions can help you determine your CCP amount in retirement.

“Someone could retire at any point between ages 60 and 65, giving a range of contributory periods and corresponding maximum low-income drop-out months.”

Everything you need to know about the government’s new stock option taxation rules

Proposed rules seek to limit the preferential tax treatment enjoyed by employees receiving stock options. Currently, while these options are essentially income, they are treated like capital gains. In Canada, the capital gains tax is lower than the income tax of most high-income earners. The proposed rules seek to set a cap on the amount than can be deducted. The deduction remains, in part because they are used by start-ups who want to pay employees in lieu of cash. The government does not want to discourage such risk taking. At the same time, they want to limit the use of such instruments as a way for mature companies and already wealthy individuals to avoid income taxes.

“The government says it will be guided by two key objectives: that the employee stock option tax regime becomes fairer and more equitable and that startups and emerging Canadian businesses that are creating jobs can continue to grow and expand.”

Liberals’ mortgage help for first-time buyers lands Sept. 2

The Liberals’ mortgage help program is intended to help first-time home buyers in Canada. The new program will launch at the end of summer, on Labor Day. It will help pay up to 5 percent of a mortgage for an existing home for any mortgage up $480,000 – provided the buyers are purchasing their first home and earning less than $120,000 annually. There is a provision for paying for ten percent of any new home construction under the same program. The money will need to be repaid when the home is sold or after 25 years of living in the home.

“The government’s plan will see it pick up five per cent of a mortgage on existing homes for households that earn under $120,000 a year, on a mortgage of no more than $480,000.”

Taxes and the sharing economy: what you need to know

Many Canadians participate in the sharing economy, and income can be earned in a variety of ways. From accommodation sharing (aka home rentals) to ride sharing to making and selling goods or providing a service, all these activities fall as the sharing economy. Regardless of how you earned your income, any money that is earned needs to be reported for tax purposes.

Key Takeaways:

If you earn any income through the sharing economy, it is subject to the same taxation and GST/HST rules that apply to income earned from a property or business.
Taxpayers who earn more than $30,000 annually through the sharing economy need to register for a GST/HST account.
If you earn money from ride-sharing platforms, then you must register for a GST/HST account, regardless of whether you earn more than $30,000.

“All income earned through the sharing economy must be reported on tax returns.”

Big or small fish, anyone is bait for a CRA tax review – BNNBloomberg.ca

Taxpayers dread the possibility of getting a letter from the CRA announcing an audit or review of their return. Even more frustratingly for many, is that it is difficult to predict, who might be selected for such scrutiny. It seems to come down to a judgement call for each return, with those that are particularly sizable, or perhaps just being odd in some way, being more commonly picked for the review process. Tips to the CRA can also trigger an audit, so be careful who you talk to about your returns.

“There’s no way to prevent a review or audit. It’s more a function of how your tax return looks and the size. So if you’re driving a Maserati and you’re reporting $75,000 on your return, that won’t jive.”