CLARK
POLLARD
GAGLIARDI
FOR SECOND QUARTER
2004
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PERSONAL
TAX
A.
MEDICAL EXPENSES
RENOVATIONS
In
a December 5, 2003 Canada Revenue Agency (CRA) Technical Interpretation CRA
notes that medical expenses include renovations or alterations to a dwelling of
an individual who lacks normal physical development or has a severe and
prolonged mobility impairment to enable the individual to gain access to, or to
be mobile or functional within, the dwelling.
In
this example, the renovation costs were to the bathroom including installing a
special bathtub to facilitate unassisted baths/showers.
CELIAC
DISEASE
CRA
note in their website (www.ccra-adrc.gc.ca/tax/individuals/topics/celiac-e.html)
that individuals who suffer from celiac disease (gluten intolerance) may claim
the incremental cost of purchasing gluten-free (GF) products as a medical
expense for the 2003 and subsequent tax years.
INSTITUTIONAL
COSTS
In
a January 6, 2004 Technical Interpretation, CRA permits a medical expense for
amounts paid for the care and/or training, of a patient at a school, institution
or other place where the patient has been certified to be a person who, because
of a physical or mental impairment, requires the equipment, facilities or
personnel specifically provided by that place.
RETIREMENT
HOMES
In a February 11, 2004 Tax Court of Canada
case, the Court permitted a full medical expense for payments made to a
retirement home, which was not a nursing home, of $17,775 and $18,680
respectively.
SPECIAL
SCHOOLS
In
a July 8, 2003 Tax Court of Canada case, the taxpayer paid tuition fees and room
and board to the Robert Land Academy for his two attention deficit children and
successfully claimed a medical expense credit of $42,662.
B.
DISABILITY TAX CREDIT (DTC)
HEADACHES
In
a December 30, 2003 Tax Court of Canada case, the taxpayer was permitted a DTC
on the basis that her severe headaches affected her ability to “perceive,
think and remember”. Ms. N noted
that “I have my headaches all the time”.
SON’S
DIABETES
In a September 11, 2003 Tax Court of Canada
case, the taxpayer was permitted a DTC for his six year old son, who suffered
from Type 1 Insulin Dependent Diabetes.
EPILEPSY
In
a December 12, 2003 Tax Court of Canada case, the taxpayer received a DTC
because of her uncontrolled epilepsy that required the presence of another
person at her side at all times.
ASPERGER
SYNDROME
In
an April 30, 2003 Tax Court of Canada case, the Court found that the taxpayer is
eligible for the DTC as the Asperger Syndrome resulted in an inordinate amount
of time to carry on the activities of daily living.
DIRECTOR
LIABILITY
In
a November 3, 2003 Tax Court of Canada case, the issue was whether the taxpayer
as the sole director and shareholder of a corporation had effectively
resigned within the prescribed two year time limit to avoid certain
director liabilities. The
Court noted that even though the director did not follow strictly the
formalities of the Companies Act of British Columbia in resigning, he had
in fact resigned through his signed resignation.
Editor’s
Comment
It
is important to follow the specific requirements of the relevant Business
Company Acts when resigning as a director to reduce these contentious
issues.
EMPLOYMENT
INSURANCE
The
Human Resources and Development Corporation (HRDC) website (www.hrdc-drhc.gc.ca/ae-ei/yrs/4.0_e.shtml)
provides information on Employment Insurance (EI) issues such as:
1. How to create, submit
and print Records of Employment (ROE) over the Internet.
2. An EI work-sharing
program as an alternative to layoffs for businesses facing temporary work
slowdowns.
3. An employer program
to top-up an employee’s EI benefits while they are temporarily out of
work.
4. An employer program
to top-up EI maternity, parental and compassionate care benefits.
5. A work force
reduction plan for companies that are restructuring to remain competitive.
6. A program to reduce
EI premiums for employers who provide private disability coverage to
employees.
COMPASSIONATE
CARE EI BENEFITS
Effective
January 4, 2004, the Employment Insurance (EI) program will include
payments for compassionate care benefits.
To
qualify, you have to be away from work temporarily to provide care or
support to a family member who is gravely ill with a significant risk of
death within 26 weeks.
A
medical certificate is needed.
For
more information see http://www.hrdc-drhc.gc.ca/ae-ei/menu/faq_compassionate_
care_individuals.shtml.
LEGAL
FEES
In
a February 24, 2004 Tax Court of Canada case, the taxpayer, a police
officer, was charged with dangerous driving while off duty. He was removed from patrol duty pending the resolution of the
case. The taxpayer paid
$10,000 in legal fees as a conviction could seriously affect his
employment as a police officer.
Taxpayer
Wins!
The
Court permitted a deduction for the legal fees. The Income Tax Act permits a deduction for legal expenses to
collect or establish a right to salary or wages owed to the taxpayer.
EMPLOYER-PAID
HEALTH CLUB MEMBERSHIP
In
a February 26, 2004 Technical Interpretation, CRA notes that generally,
the payment or reimbursement of club dues or membership fees by an
employer for an employee results in a taxable benefit to the employee.
However, if it is clearly to the employer’s advantage for an
employee to be a member of a club, the employee will not be considered to
have received a taxable benefit.
PRIVATE
HEALTH SERVICE PLAN
In
a 2003 Advance Income Tax Ruling, CRA accepted a situation where the
employer established a Health Spending Account (HSA) whereby senior
executives submit medical expense receipts to the corporation for
reimbursement. The
reimbursements were set at a maximum.
If the expenses exceeded that maximum there was a one-year
carry-forward.
INDEPENDENT
CONTRACTOR VS. EMPLOYEE
In
a February 4, 2004 Ontario Superior Court of Justice case the issue was
whether drywall residential piece workers who worked on projects of the
Appellant were employees or independent contractors for Employer Health Tax
Act purposes.
The
Court found that they were independent contractors, not employees, and noted
that:
1. The workers do not
perform contracts exclusively for the Appellant.
2. The workers are not
required to do the work personally - they may employ their own workers to
perform the work.
3. The workers provide
their own tools, other than the drywall board.
4. The work is not
subject to continuing supervision. It
is simply checked at the end of the job by the Appellant. If the job is not done properly it must be redone at the
worker’s own cost.
5. The worker is hired
to do the drywalling by linear foot or square foot, at a price for so many
feet. Therefore, the test
relating to “the chance of profit or risk of loss” applies.
Editor’s
Comment
For
more information and guidelines see CRA’s Guide RC4110.
AUTOMOBILE
EXPENSE DEDUCTION LIMITS
The
limit on the deduction of automobile tax-exempt travel allowances paid by an
employer to an employee for the 2004 year will be 42 cents per kilometre for
the first 5,000 kilometres and 36 cents for each additional kilometre.
For the Yukon, Northwest Territories and Nunavut, the tax-exempt
allowance will rise to 46 cents and 40 cents respectively.
The
employer may also claim a GST Input Tax Credit (ITC) based on 7/107 of the
deductible allowance (15/115 of the allowance in provinces participating in
the HST system).
Some
interesting tax proposals in the March 23, 2004 Federal Budget include:
SMALL
BUSINESS DEDUCTION LIMIT
The
2003 Federal Budget implemented a phased increase in the corporate small
business limit, from $250,000 in 2004 to $275,000 in 2005 and $300,000 in 2006
and subsequent years.
Budget
2004 proposes that the increase to $300,000 be accelerated by one year.
Therefore, the small business limit will be $300,000 in 2005 and
subsequent years.
COMPUTER
EQUIPMENT
Budget
2004 proposes to increase the Capital Cost Allowance (CCA) rate for computer
equipment acquired after March 22, 2004, to 45% from the current 30%.
FINES
AND PENALTIES
Recent
jurisprudence held that deductibility generally extends to fines and penalties
incurred in the course of earning income, unless the offense was so egregious or
repulsive that the fine or penalty could not reasonably be considered to have
had an income-earning purpose.
Budget
2004 proposes to deny the deductibility of any fine or penalty imposed after
March 22, 2004 by a statutory authority.
TAXPAYER-REQUESTED
ADJUSTMENTS
Currently an individual or testamentary trust
may request an adjustment to a tax return under the Fairness Provisions of the
Income Tax Act back to 1985.
Budget
2004 proposes that for applications made after 2004, adjustments will be limited
to taxation years that end in any of the ten preceding calendar years.
Therefore, taxpayers may only request adjustments back to 1985 until
December 31, 2004.
CANADA
LEARNING BOND
Budget
2004 introduces a new Canada Learning Bond (CLB) for children born on or after
January 1, 2004 and, only if the child’s family is entitled to the National
Child Benefit (NCB) supplement. This
is available until the child turns 15 years of age.
An
initial CLB of $500 will be provided for the first year.
Subsequent CLBs will be for $100 per year.
CHARITIES
Canada’s
80,000 registered charities will have new rules including:
(i) a $500 fine for failing to
file financial reports on time, with escalating penalties for repeat offences.
CAIS
The
Canadian Agricultural Income Stabilization (CAIS) program has information at its
website www.agr.gc.ca/puttingcanadafirst and at the main CAIS phone line at 1-866-367-8506.
The
CAIS program is available for 2003 and subsequent years.
The program offers producer protection for up to 60% of their negative
margins as long as certain conditions are met.
NISA
WIND DOWN
As
the CAIS program is replacing NISA, farmers have the option of withdrawing their
NISA Funds 1 and 2 in full or withdrawing the balances over five years beginning
March, 2005. Money is withdrawn
equally from Fund 1 (tax free) and Fund 2 (taxable) until one or both accounts
are depleted.
All
NISA funds must be paid out by March 31, 2009.
See
the NISA website (www.agr.gc.ca/nisa) for details:
RETIRING
ALLOWANCE
In
a 2003 Advance Income Tax Ruling, CRA agreed that a farmer may pay a retiring
allowance to a spouse/employee eligible for a rollover to an RRSP.
This Ruling included a few years in which the person was an employee but,
not paid a salary.
Editor’s
Comment
The
eligible rollover amounts are $3,500 per year employed prior to 1989 and, $2,000
per year employed from 1989 to 1995.
QUALIFIED
FARM PROPERTY
In
a March 11, 2004 Technical Interpretation, CRA notes that where a taxpayer made
a 1994 election for farmland to take advantage of the capital gain exemption,
that farmland is deemed to have been disposed of and reacquired.
ROLLOVER
OF RRSP TO FINANCIALLY DEPENDENT CHILD
In a March 19, 2004 Technical Interpretation,
CRA notes that when an annuitant under an RRSP dies, the RRSP is generally
required to be included in the annuitant’s income. However, this may be included in a child or grandchild’s
income where the RRSP is paid, as a consequence of the death of the annuitant,
for a child or grandchild who was, immediately before death, financially
dependent on the annuitant for support.
Where
an amount is paid from an RRSP directly to the Estate of the deceased annuitant,
and a financially dependent child or grandchild is a beneficiary of the
deceased’s Estate, the beneficiary and the Estate may file a joint election on
all or a portion of the RRSP payment.
Editor’s
Comment
If
the child is dependent by reason of a physical or mental infirmity, a transfer
to an RRSP, RRIF, or an eligible annuity for the child is available.
SOCIAL
SECURITY BETWEEN CANADA AND THE UNITED STATES
An
Agreement on Social Security between Canada and the United States came into
force on August 1, 1984. The
Agreement helps persons to qualify for old age and disability benefits from
Canada and the United States if you contributed to both the Canada Pension Plan
(CPP) and the pension program of the United States or, if you lived in Canada
and the United States.
The
Human Resources Development Corporation (HRDC) has a website (www.hrdc.gc.ca/isp/pub/info_sheets/usa-info_e.shtml)
which notes that the United States will also consider periods of contribution to
the Canada Pension Plan as periods of contribution under the pension program of
the United States.
U.S.
REAL ESTATE SALES
The
United States generally levies a withholding tax of 10% on the selling price
when U.S. real estate is sold by a non-U.S. person. The two main exemptions to the withholding tax are:
(i) The “use as a
residence” exemption applies if the selling price does not exceed $300,000 and
the buyer intends to reside at the property at least 50% of the time. To qualify the buyer must sign an Affidavit.
(ii) The “withholding
certificate” exemption applies where the 10% withholding tax exceeds the tax
that would otherwise be payable on the gain.
DIRECTOR
FEES PAID TO A NON-RESIDENT
GST
NEW HOUSING REBATE
An individual may apply for the GST New
Housing Rebate within two years of substantial completion of a new house.
In a November 10, 2003 Tax Court of Canada case, the Court noted that
there must be a common-sense approach in determining what constitutes
“substantial completion”. In
this case, CCRA took the position that “substantial completion” occurred on
August 18, 1998, the date the inspection report Certificate indicated that the
complex was partially completed for residential occupancy.
However,
the Certificate was dated early because of pressure by the taxpayers to move
into the house because of a terminal cancer condition of the spouse.
Taxpayer
Wins!
The
Court agreed with the taxpayer’s later date for “substantial completion”.
INPUT
TAX CREDITS
CRA
requires a taxpayer to retain proper invoices with GST registration numbers to
qualify for an input tax credit claim for the GST paid.
However,
in a December 17, 2003 Tax Court of Canada case, the Court noted that where the
documentation is lost the Court may permit the input tax credit if, on a balance
of probabilities, the Court is satisfied that the expenditures and eligible GST
were incurred.
Editor’s
Comment
COMMERCIAL
PROPERTIES AND BUSINESSES FOR SALE
If
you wish to expand, relocate or purchase another business,
this website is a great starting place.
Owned
and operated by The Canadian Real Estate Association (CREA), this website
lists thousands of commercial properties and businesses for sale or lease
across Canada.
MUTUAL
FUND FEE CALCULATOR
Do
you know how different mutual fund fees and costs affect the bottom line of your
investment?
This
calculator does several things such as:
(i) allowing you to compare
two funds side by side,
(ii) assess fees on the mutual funds
you already hold, and
(iii) see how fees vary or
accumulate over time.
The
website that hosts this calculator was established by the
Ontario Securities Commission to educate investors in an unbiased manner about different financial
instruments.
BUSINESS
DEVELOPMENT AND MAINTENANCE
Although intended for business in the United
States, this website hosts 100’s of pages of valuable data for Canadian
companies. If you wish to start a
new business or make changes in your current operations, this website may help.
The
information on this site ranges from an analysis on the items needed to start a
business:
- to getting
financing,
- to
marketing your products,
- to
managing your assets and facilities,
- to
managing your employees and contractors,
- to
protecting your assets, and
PHARMACIST
In
a December 2, 2003 Technical Interpretation, CRA note that a pharmacist
qualifies as a medical practitioner. This
Ruling may help pharmacists expand the range of services that they offer.
AUDITING
CHARITIES
This
is important reading for most charities.
REGISTERED
CHARITIES NEWSLETTER NO. 18
For more charity information contact the Charities Directorate at 1-800-267-2384 or see the website www.cra.gc.ca/tax/charities.
TAXATION
OF NON-PROFIT ORGANIZATIONS’ (NPO’S) INCOME FROM PROPERTY
This could apply, for example, in the rental of building space that is in excess of an association’s normal requirements.
| The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a commentary such as this, a further review should be done. Every effort has been made to ensure the accuracy of the information contained in this commentary. However, because of the nature of the subject, no person or firm involved in the distribution or preparation of this commentary accepts any liability for its contents or use. |
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