TAX TIPS & TRAPS

FOR FIRST QUARTER 2004

To receive a copy of this newsletter, please click here.
To view previous newsletters, please click here.

IN THIS ISSUE:

 

 

PERSONAL TAX

EMPLOYMENT INCOME

BUSINESS/PROPERTY INCOME

CAPITAL GAINS

CORPORATE TAX

CHARITIES

PENSIONS/RRSP

FARMING

GST

WEB TIPS

DID YOU KNOW

2003 PERSONAL INCOME TAX RETURN CHECKLIST

 

PERSONAL TAX

CAREGIVER CREDIT

In an October 3, 2003 CCRA Technical Interpretation, the taxpayer is a single daughter who lives with her parents in a house owned by her father.  The daughter pays the costs of maintaining the house.  The father’s  and mother’s incomes are $20,000 and $7,000 respectively.  The father claims the spousal credit for the spouse.

CCRA note that the daughter may claim the Federal caregiver credit for her mother ($586 for 2003 - worth about $800 when added to the Provincial credit.

RETIREMENT HOMES AND NURSING HOMES

In a September 25, 2003 Technical Interpretation, CCRA notes that:

(i)  All regular fees paid to a nursing home (including food, accommodation, nursing care, administration, maintenance and social programming) qualify as medical expenses.  Additional personal expenses, which are separately identifiable, such as hairdresser fees, are not allowed.

(ii) A resident of a “retirement home” may claim medical expenses if he/she meets certain disability criteria.  A receipt, or other support, to identify the actual remuneration paid for “attendant care” is needed.

MEDICAL EXPENSE

In a September 17, 2003 Technical Interpretation, CCRA note that the application of veneers by a dentist is a medical expense as it is performed by a “medical practitioner” - a dentist.

MEDICAL EXPENSES INCURRED OUTSIDE CANADA

In a November 4, 2003 Technical Interpretation, CCRA notes that amounts paid for cancer treatments in the United States qualify as medical expenses if paid to a medical practitioner or to a public or licensed private hospital.  Qualifying medical expenses also include laboratory, radiological or other diagnostic procedures or services.

Also, an individual may claim transportation and travel expenses if substantially equivalent medical services are not available in the individual’s locality.

MEDICAL EXPENSE - HOME CONSTRUCTION COSTS

In a July 28, 2003 Tax Court of Canada case, the taxpayer had multiple sclerosis (M.S.) and, in the construction of a new home, incurred costs of $15,125 for items such as wider passageways, an elevator shaft, dugout to create walkout access, wider stairs, lower windows for viewing, and appropriate kitchen and vanity design.

The Court permitted these expenses as medical expenses.

PHARMACIST - MEDICAL PRACTITIONER

In a December 2, 2003 Technical Interpretation, CCRA notes that they have reviewed the legislation in each jurisdiction in Canada and are satisfied that an amount paid by an individual to a pharmacist in respect of a “medical service” qualifies as a medical expense.

LATE FILING PENALTIES

The Income Tax Act has a first offense late filing penalty of 5% of the tax unpaid plus 1% per month to a maximum of twelve months for a total of 17%.  This penalty is in addition to interest on the amounts due.  If there are no taxes owed there will be no late filing penalty.

  BACK TO TOP

EMPLOYMENT INCOME

THE $500 GIFT AND $500 AWARDS PLAN

In a September 25, 2003 Technical Interpretation, CCRA note that employers may give, on a tax deductible basis, two non-cash gifts per year tax-free to an employee for special occasions such as Christmas, Hanukkah, birthday, marriage or a similar event where the aggregate of the gifts is not more than $500 per year.  Similarly, employers may give two non-cash awards per year on a tax-free basis in recognition of special achievements such as reaching a set number of years of service, or meeting or exceeding safety standards.  The total cost of the awards must not be greater than $500 per year.

EMPLOYMENT INSURANCE (EI)

In an October 8, 2003 Technical Interpretation, CCRA notes that related persons and non-arm’s length non-related persons may be exempt from EI even though they own less than, or equal to, 40% of a voting class of shares.

HUMAN RIGHTS VIOLATION

In an October 16, 2003 Technical Interpretation, CCRA notes that a settlement with an employee for a human rights violation is a tax-free receipt.

The Human Rights Code states that a person must not refuse to employ or, continue to employ, a person, or discriminate against a person regarding employment or any term or condition of employment because of their race, colour, ancestry, place of origin, political belief, religion, marital status, family status, physical or mental disability, sex, sexual orientation or age of that person or, because that person has been convicted of a criminal or summary conviction offense that is unrelated to the employment or to the intended employment of that person.

EMPLOYER-PAID GYM MEMBERSHIPS

In an October 17, 2003 Technical Interpretation, CCRA notes that generally the payment or reimbursement of club dues or membership fees by an employer is a taxable benefit to the employee.  However, if it is clearly to the employer’s advantage for the employee to be a member of a club, the employee will not have a taxable benefit.

Editor’s Comment

BACK TO TOP

BUSINESS/PROPERTY INCOME

SCIENTIFIC RESEARCH AND EXPERIMENTAL DEVELOPMENT (SR&ED)

In two studies by consultants KPMG Chartered Accountants it was noted that many firms which are eligible for SR&ED are not making the claims, either because they have had bad experiences in the past with detailed audits and questions, or they have heard of bad experiences or, they are not aware, of the SR&ED credit (35% refundable investment tax credit for Canadian-controlled private corporations and 20% for others).

It is important to note that CCRA has simplified the process, assists companies that wish to make claims, and expedites the refunds.  Therefore, this is an important area, especially for companies that are in the high tech industry or manufacturing.

DAMAGE PAYMENTS

In an October 30, 2003 Technical Interpretation, CCRA notes that a damage payment is deductible as a current expense if it is incurred to earn income from a business or property, it is not on account of capital, it is not related to a personal expense and the amount is reasonable.

In a November 5, 2003 Technical Interpretation, CCRA notes that where a business makes a damage payment for breach of contract in the course of an ongoing business, the payment would normally be currently deductible.

RESERVE DEDUCTIONS

The Income Tax Act permits a taxpayer to claim a reserve deduction on a business inventory sale for proceeds which are not due at the yearend.  The reserve is limited to three years.

The Income Tax Act also permits a taxpayer to claim a reserve deduction for services to be rendered after the end of the year.  However, this does not include a reserve in respect of guarantees, indemnifications or warranties.

PET EXPENSES

BACK TO TOP

CAPITAL GAINS

NON-COMPETITION PAYMENTS

BACK TO TOP

CORPORATE TAX

CORPORATE INTERNET FILING

CCRA now permits corporate internet filing for corporate federal income tax returns.  (T2 Form)

BACK TO TOP 

CHARITIES

ART FLIPS AND TAX SHELTER DONATION ARRANGEMENTS

CCRA has reassessed over 3,000 Canadians who claimed a charitable donation tax credit on the donation of art flips - adding up to about $7 million in unpaid taxes.  See http://www.ccra-adrc.gc.ca /newsroom/factsheets/2003/nov/1125taxshelter-e.html for CCRA’s three-page warning on “tax shelter donation arrangements”.

However, a July 23, 2003 Tax Court of Canada case involved a successful donation of 981 art pieces to a public gallery.

The Closer

On December 5, 2003 the Department of Finance introduced amendments to the Income Tax Act to limit the tax benefits of certain charitable donations made under tax shelter and other arrangements.

As of 6:00 P.M., December 5, 2003, the value of a gift will be limited to a donor’s cost of the property where it is donated within three years of acquisition or is otherwise acquired through a gifting arrangement or in contemplation of a donation.

These proposals will not apply to gifts of publicly traded securities, certified cultural property, ecological gifts, or real property situated in Canada.

POLITICAL ACTIVITIES

Information Circular 87-1 has recently been updated to include CCRA’s comments on political activities of charities.  On September 27, 2003 CCRA noted that partisan political activity involves the direct or indirect support of, or opposition to, any political party or candidate for public office and is clearly prohibited.

BACK TO TOP

PENSIONS/RRSP

REGISTERED RETIREMENT SAVINGS PLAN (RRSP)/ REGISTERED RETIREMENT INCOME FUND (RRIF)/ REGISTERED PENSION PLAN (RPP)

In an October 3, 2003 Technical Interpretation, CCRA notes that the Income Tax Act permits a deceased taxpayer to transfer the RRSP/RRIF/RPP to a “financially dependent” child.

A mentally or physically impaired child may transfer the amount to an RRSP or a RRIF.  A minor child may acquire an annuity up to the age of eighteen.  Otherwise, the amounts are included in the income of the child.

CANADA PENSION PLAN (CPP)

STARTING CPP AT AGE 60

In a Human Resources Development Canada (HRDC) Internet Publication, HRDC notes that:

1.   If opting to receive CPP between the ages of 60 and 65, the pension will be reduced by .5% per month to a maximum of 30%.  The reduced rate continues for the life of the pension.

2.   To receive CPP early you must either:

(i)   Not be working by the end of the month before your pension begins and during the month in which it begins, OR

(ii)  In the month before your pension begins and the month it begins, you must earn less than the monthly maximum CPP retirement pension payable at age 65.  (In 2003 it is $801.25 per month.)

3.   Remember, if you have a company pension plan you should check to see if it will be affected by your CPP pension.

4.   If a person does not work after the age of 60 and delays receiving CPP until age 65, the extra five years of no earnings may lower the amount of CPP retirement pension payable at the age of 65.

SHARING YOUR CPP

Married or common-law partners who are both at least 60 years of age can share the CPP benefits earned during their time together.

CHILD REARING DROP-OUT PROVISION

Months of low or zero earnings spent caring for your child under age 7 may be excluded from the calculation of your CPP.

CREDIT SPLITTING UPON DIVORCE OR SEPARATION

BACK TO TOP

FARMING

CANADIAN AGRICULTURAL INCOME STABILIZATION (CAIS) PROGRAM

The CAIS replaces the Net Income Stabilization Account (NISA) and many provincial relief plans effective in 2003.

The NISA will be wound-up and farmers will have up to five years to withdraw the money.  The first minimum 20% withdrawal must occur by March 31, 2005.  Funds from Fund 1 (the tax-free portion) may be rolled into a farmer’s CAIS to meet deposit requirements.

BACK TO TOP

GST

ELECTRONIC GST/HST FILING

CCRA has three methods to file GST/HST returns electronically: GST/HST TELEFILE, GST/HST-EDI and, the newest filing option, GST/HST NETFILE.  Taxpayers with a nil balance or a refund of $10,000 or less can use NETFILE or TELEFILE.

To determine if you are eligible to use NETFILE or TELEFILE see if an access code is printed on your personalized GST/HST return.  For more information see www.ccra.gc.ca/gsthst-netfile or call 1-800-959-2038.

BACK TO TOP 

WEB TIPS

TAXPAYER INFORMATION FROM THE CCRA

CCRA has launched a personal tax information website - “My Account”.  This personal tax online program allows you to view information on items such as your assessment dates, dates when returns are received, assessment results, RRSP deduction limits for current and prior years, Home Buyers Plan information, account balances, detailed yearly breakdown of provincial, federal, CPP assessments, and current information on your Child Tax Benefit and GST/HST credits.

To access the information, you need your social insurance number, date of birth, total income from line 150 for either 2001 or 2002 and the eight character access code found on your notice of assessment.

The service can be found by going to: http://www.ccra-adrc.gc.ca/eservices/tax /individuals/myaccount/

FINDING PHONE NUMBERS AND ADDRESSES

www.411.ca

On this website you select whether the phone number is of a business or a residence.  You then select the province, city, last name and first name.  After hitting “submit”, you will be presented with a small list of people who fit the criteria.

www.superpages.ca

You enter the same information as for www.411.ca and get the same type of result.  However, you also get the person’s address and, with the click of a button, can get directions to their house.

FINDING DIRECTIONS/DISTANCES

www.mapquest.ca

USED CAR VALUATION

http://www.gmcanada.com/english/financing/fin_financ.html

BACK TO TOP 

DID YOU KNOW

PIPEDA

On January 1, 2004 the Personal Information Protection and Electronic Documents Act (PIPEDA) takes effect.

Businesses should establish a PIPEDA strategy regarding:

(i)  protection of information on their employees and subcontractors, and

(ii) protection of client information.

The Canadian Institute of Chartered Accountants website at www.cica.ca/privacy has information on this.

HUMAN RESOURCES DEVELOPMENT CANADA (HRDC)

Beginning January 4, 2004, up to six weeks of Employment Insurance (EI) Compassionate Care Benefits will be available to EI-eligible workers who must be absent from work to provide care or support to a child, parent, spouse or common-law partner who has a serious medical condition with a significant risk of death within 26 weeks.  The six weeks of benefits can be taken within a 26-week (six months) time frame.

There will be a new “reason for separation” on the Record of Employment for this type of leave.  A doctor’s certification will be required.

For more information see http://www.hrdc-drhc.gc.ca/ae-ei/yrs /4.0_e.shtml, or call your local HRDC office.

BACK TO TOP 

2003 PERSONAL INCOME TAX RETURN CHECKLIST

APPENDIX A 2003 PERSONAL INCOME TAX QUESTIONNAIRE

This is a comprehensive list of possible information require in order to complete your 2003 Personal Income Tax return

• Tax instalments made during the year .
• Direct Deposit for refunds. If you had direct deposit last year, then Canada Customs & Revenue Agency will continue depositing your refunds until you tell them otherwise. If you have changed banks or account number, or you would like to start direct deposit this year, please indicate the following information:
• Name of Bank
• Bank Branch Number
• Account Number
• Property taxes or rent paid in 2003
• Did you own or hold foreign property at any time in 2003 with a cost of more than CAN$100,000?

Website by Netscapades Inc.
Copyright© 1999 Clark Pollard & Gagliardi