How Brilliant is the Internal Revenue Service?
How brilliant is the IRS? Really? I am 100% serious.
These guys just rolled out something that the taxation industry has long been in need of and after going through it, I give it top marks for creativity, originality and for the final product.
You see, the IRS unveiled a website called “Understanding Taxes” and it contains some great educational content, including detailed lesson plans, interactive activities, simulations, and more!
The site is broken into resources for educators, and for students. So if you’re teaching tax, you can grab resources to assist, including lesson plans with links to the applicable national and state standards, which makes it really easy to integrate Understanding Taxes into an existing classroom curricula, or to teach to your tax staff. The intention is for this material to be presented to high school or community college classrooms with the assumption being that once you get into higher levels of education, those with an interest are taking courses in taxation, finance and accounting.
The Understanding Taxes Student Site provides high schools, community colleges, and the general public with a technology-based instructional tool aimed at raising the awareness of the IRS’ policies, practices and general taxation education. It’s a win-win and I cannot wait for the CRA to do the same.
In the meantime, happy reading.
The link to the site is below;
The difference between C & S Corporations for dividend payments and sales
The difference between C & S Corporations for dividend payments and gross proceeds payments as far as I can make it out to be:
For dividend payments it does not matter if it is a “C” Corporation or a “S” Corporation as they are treated the same for withholding and reporting – they are exempted from withholding and reporting.
For gross proceeds (sales) the “C” Corporation is exempted from withholding and reporting, however, the “S” corporations is subject to withholding (28%) and reporting on sales beginning in 2012.
IRS Special Edition Tax Tip 2011-05
I found this IRS tax tip quite interesting as it relates to third party tax functions and peovides a reminder to this people and companies who outsource that at the end of the day THEY are responsible for any tax debts and NOT the third party provider.
That is why tax forms for the CRA, MRQ and IRS require a signature.
So they have someone to hold liable.
Intaxicating tax tip: If you’re not sure, or do not understand what is contained on a form, slip or return. do NOT sign it!!!
Here is the IRS release:
Three Tips for Employers Outsourcing Their Payroll
Outsourcing payroll duties to third-party service providers can streamline business operations, but the IRS reminds employers that they are ultimately responsible for paying federal tax liabilities.
Recent prosecutions of individuals and companies who – acting under the guise of a payroll service provider – have stolen funds intended for payment of employment taxes makes it important that employers who outsource payroll are aware of the following three tips from the IRS:
1. Employer Responsibility. The employer is ultimately responsible for the deposit and payment of federal tax liabilities. Even though you forward the tax payments to the third party to make the tax deposits, you – the employer – are the responsible party. If the third party fails to make the federal tax payments, the IRS may assess penalties and interest. The employer is liable for all taxes, penalties and interest due. The IRS can also hold you personally liable for certain unpaid federal taxes.
2. Correspondence. If there are any issues with an account, the IRS will send correspondence to the address of record. The IRS strongly suggests you do not change the address of record to that of the payroll service provider. That could limit your ability to stay informed of tax matters involving your business (I do not necessarily agree with this as a good third party providor will either eat any penalty charged or should be providing updates to their client including copies of notices as part of thier day-to-day process.
3. EFTPS. Choose a payroll service provider that uses the Electronic Federal Tax Payment System. You can register on the EFTPS system to get your own PIN to verify the payments.
Information on EFTPS is available on the IRS web-site. The staff in the EFTPS are are VERY knowledgable and VERY friendly. Trust me… I know.
New CRA Non-Resident Forms starting January 1st, 2012.
Well, look how time flies!
The new CRA Non-resident treaty-rate requirements take effect on January 1st, 2012.
Non-residents of Canada who are eligible for benefits under a tax treaty entered into between Canada and another country will now have to complete a declaration or provide equivalent information to avail themselves of any reduced rate of tax or exemption provided under the relevant tax treaty instead of relying on their domicile.
The Canada Revenue Agency (CRA) recently released three declaration forms to be used by non-residents of Canada for this purpose, namely;
Form NR301 – Declaration of eligibility for benefits under a tax treaty for a non-resident taxpayer.
http://www.cra-arc.gc.ca/E/pbg/tf/nr301/nr301-10e.pdf
Form NR302 – Declaration of eligibility for benefits under a tax treaty for a partnership with non-resident partners
http://www.cra-arc.gc.ca/E/pbg/tf/nr302/nr302-10e.pdf
Form NR303 – Declaration of eligibility for benefits under a tax treaty for a hybrid entity.
http://www.cra-arc.gc.ca/E/pbg/tf/nr303/nr303-10e.pdf
What information is the CRA now looking for?
Non-residents of Canada must disclose on these forms the following information:
(i) Legal name of non-resident
(ii) Mailing address of non-resident
(iii) Confirmation of type of non-resident (i.e., individual, corporation or trust)
(iv) Foreign and Canadian tax identification numbers if any
(v) Country of residence for treaty purposes
(vi) Type of income for which the non-resident is eligible for treaty benefits (e.g., interest, dividends, royalties, trust income, income from business carried on in Canada or gains from disposition of taxable Canadian property).
Where does the form go?
The non-resident must immediately notify the payer of any such income, or partnership or hybrid entity through which the income is derived, so they can be given the treaty rate.
Does this form expire?
Yes, These forms expire on the earlier of any change in the non-resident’s eligibility for treaty benefits or three years from the end of the calendar year in which this form is signed and dated.
What onus is now on the payor?
For its part, a Canadian resident payer is instructed NOT to apply a reduced Canadian withholding tax rate under Part XIII where:
(i) The non-resident has not provided the Form or equivalent information and such payer is not sure if the reduced rate applies,
(ii) The Form is not complete
(iii) A tax treaty is not in effect between Canada and the non-resident’s country of residence; or
(iv) Such payer has reason to believe that the information provided in the non-resident’s declaration is incorrect of misleading.
Who is liable?
If the non-resident does not complete the form and the treaty rate is given, the payor is held liable by the CRA for the difference between the treaty rate and the non-treaty rate, so usually 10%.
Big changes!
How are you preparing for them?
Canadian Taxation Back to Basics: What is a T3 return?
Often times with all the complexities that come with International taxation we sometimes lose sight of the basic questions that come our way in the taxation industry.
For example, what is a T3?
A T3 slip is a Canadian tax form that reports income from trusts for a tax year.
An individual taxpayer will include the amounts reported on the T3 on his personal tax return.
A corporation will include it as part of its investment income.
A trust (or trustee / intermediary / transfer agent, etc.) is required to provide the T3 slip to investors by the last day of February in the following year.
So what again is a T3 slip?
A T3 slip details the various types of income distributed from the trust for a taxation year.
Why would an individual get a T3 slip?
The most common reason is for distributions or dividend reinvestments in mutual funds or segregated funds. However, if these funds are held in tax-deferred retirement (RRSP) or education accounts (RESP), no T3 will be generated. The reason no slips is issued in those cases is because the income in those types of funds is reportable for tax purposes once they are withdrawn from the fund.
The trust is responsible for filing copies of all T3 slips along with a T3 Return to Canada Revenue Agency (CRA) by the end of February in the following year.
What kinds of income can trusts distribute?
Trusts can distribute interest, royalties, business income, pension income and most commonly dividends and capital gains.
Each is recorded on a separate line on the T3 slip. Each type of income is treated differently for tax purposes and appears in a separate location on the taxpayer’s personal income tax return. Capital gains may be offset by other capital losses in the year or from prior years.
Filing a T3
A T3 is filed as part of a taxpayer’s T1 personal tax return.
When is a T3 required?
Regardless of the fiscal year-end of the trust, the T3 is generated and reported in the year the income is received.
CRA releases New Forms for Treaty-Reduced Rates of Canadian Withholding Tax
The Canada Revenue Agency (CRA) recently released final versions of new forms, NR301, NR302 and NR303 which is to be provided by recipients of payments from Canadian residents to certify eligibility for treaty-reduced rates of Canadian withholding tax.
These Forms are not to be provided to the CRA, but rather to the Canadian resident payer of the withholdable amount or to certain intermediaries along a chain of payments subject to withholding.
Until recently, the CRA generally accepted reliance on the payee’s address for determining whether to apply a treaty rate. By releasing these forms, it signals that the CRA is requiring a greater level of diligence on the part of payers of withholdable amounts to be as sure as possible that the correct reduced treaty rate is applied.
Although the use of the Forms is not mandatory, and they will not guarantee avoidance of penalties, interest, or liabilities for underwithheld tax, many taxpayers will likely apply a 25% withholding rate on payments of withholdable amounts to recipients who do not complete the Forms.
The CRA is looking at the payor, to review the information provided by a non-resident on these forms, or in another format, and to make sure they have enough information to support that the non-resident is eligible for tax convention/treaty benefits on the income being paid.
In cases of inconstencies, the CRA is looking for intermediaries, prior to establishing a withholding tax rate, to question the information given and look at other information received from the non-resident, or known about the non-resident, if the payer knows or has reasonable cause to believe that the information on the form:
• is not correct or is misleading;
• contradicts information in the payer’s files; or
• is given without knowledge or consideration of the facts of a situation.
Forms are valid for the earlier of 2 years, or a change in the eligibility for convention benefits.
* Completing Form 301 is not mandatory. However, if a non-resident refuses to provide certification of beneficial ownership, residency, or eligibility for treaty benefits on request by a payer, the full statutory rate should be withheld.
One question that came up after the release of these forms was that they do not address holding global securities through CDS or DTC.
For some direction, you need to check the update to IC76-12, “Applicable Rate of Part XIII Tax on Amounts Paid or Credited to Persons in Countries with Which Canada Has a Tax Convention” related to Forms NR301, NR302, and NR303.
In this update, the CRA states that payments made to CDS on securities registered in the name of Cede & Co. (the nominee name for DTC) are made without tax. Tax will be withheld by CDS based on information received from DTC and collected by DTC’s participants.
I recommend you read the news release below to familiarize yourself with these forms.
The link to the release follows; http://www.cra-arc.gc.ca/formspubs/frms/nr301-2-3-eng.html
Here are the forms;
Form NR301, Declaration of eligibility for benefits under a tax treaty for a non-resident taxpayer; http://www.cra-arc.gc.ca/E/pbg/tf/nr301/nr301-10e.pdf
Form NR302, Declaration of eligibility for benefits under a tax treaty for a partnership with non-resident partners; http://www.cra-arc.gc.ca/E/pbg/tf/nr302/nr302-10e.pdf
Form NR303, Declaration of eligibility for benefits under a tax treaty for a hybrid entity; http://www.cra-arc.gc.ca/E/pbg/tf/nr303/nr303-10e.pdf
Why I love reading the IRS press releases…
I received this notice in my inbox this afternoon;
Notice 2011-32 designates the Japan earthquake and tsunami occurring in March 2011 as a qualified disaster for purposes of § 139 of the Internal Revenue Code.
But don’t go Googling Notice 2011-32 just yet, as it will be published in Internal Revenue Bulletin 2011-18, dated May 2 , 2011.
hen right after this email blast, I received this email;
IRS Announces Qualified Disaster Treatment for Japan
Washington — The Internal Revenue Service today issued guidance that designates the earthquake and tsunami in Japan in March 2011 as a qualified disaster for federal tax purposes. This guidance affects recipients of disaster relief payments as well as employer-sponsored private foundations.
The guidance allows recipients of qualified disaster relief payments to exclude those payments from income on their tax returns. Also, the guidance allows employer-sponsored private foundations to assist employee victims in areas affected by the March 2011 earthquake and tsunami in Japan without affecting their tax-exempt status.
Charities usually fall into one of two categories – public charities or private foundations. Under the tax law, a private foundation that is employer-sponsored may make qualified disaster relief payments to employees affected by a qualified disaster. These payments generally include amounts to cover necessary personal, family, living or funeral expenses that were not covered by insurance. They also include expenses to repair or rehabilitate personal residences or repair or replace the contents to the extent that they were not covered by insurance. Again, these payments would not be included in the individual recipient’s gross income.
Qualified disasters include Presidentially declared disasters, as well as other catastrophic events. Because of its catastrophic nature, the IRS has determined that the earthquake and tsunami in Japan that occurred last month is a qualified disaster for purposes of the federal tax law.
The IRS has made similar determinations regarding prior international disasters, such as the Haitian earthquake in 2010 and the Indian Ocean tsunami in 2004.
The IRS will presume that qualified disaster relief payments made by an employer-sponsored private foundation to employees and their family members in areas affected by the earthquake and tsunami in Japan are consistent with the foundation’s charitable purposes.
Today’s guidance does not affect individuals interested in contributing to victims of the Japan earthquake and tsunami. The IRS reminds taxpayers that there are some simple steps they can take to ensure that their contributions go to charities eligible to receive tax-deductible contributions.
The IRS has posted more information on IRS.gov.
So there.
This earthquake is now officially a “qualified disaster” because the IRS said so!
Hey, it’s them or the President making the call on disasters.
Remind me again why we don’t have that same cool option here in Canada?!?
From PWC Tax: Canadian corporate and personal tax rates on your Blackberry
Thanks to our friends at PWC Tax, you can now get notification of tax rate changes sent directly to your Blackberry. This is going to save quite a lot of time investigating current rates.
Here is the PWC email that came out;
“Whether you’re sitting in a budget meeting, considering the sale of an asset, or just want a quick fact – our free Blackberry app will give you access to Canadian and provincial corporate tax rates and personal tax rates right at your fingertips. We’ve built upon the success of our annual Tax Facts and Figures publication to bring you up-to-date tax rate information, no matter where you are.
Click http://appworld.blackberry.com/webstore/content/28203?lang=en to download the PwC Tax Rates app onto your hand-held device.”
Government Waste Awards give Lifetime Achievement to former Toronto Mayor David Miller
The 13th Annual “Teddy” Government Waste Awards Winners were announced by the Canadian Taxpayers Federation (CTF) last week.
The CTF is a citizen advocacy group dedicated to less waste, lower taxes and responsible government spending of our hard earned dollars.
These awards confirm what I had been saying all along, that a left-wing mayor in the City of Toronto was going to cause an increase in taxes and result in less money in the pockets of Torontonions, as David Miller was given the lifetime achievement award.
Please, read on.
The “Teddy” award is named after Ted Weatherill, a former federal bureaucrat who was fired for outrageous expenses in 1999 (I’ve included his expenses below). Each year the CTF holds the ceremony to recognize a government, public office holder, civil servant, department or agency that most exemplifies government waste.
The winners:
Federal Teddy Winner:
G8/G20 costs: $1.24 billion spent to host leaders from the other G8/G20 nations to ironically discuss how to trim government over-spending.
Provincial Teddy Winner:
Ontario tax collectors paid severance for keeping jobs: Approximately $56-million in severance for changing their business cards from ‘Ontario PST collector’ to ‘Federal HST’ collector.”
These guys moved across the street from 5150 Yonge Street to 5001 Yonge street and were topped up to make up for the fact that the Feds pay less than the province.
Municipal Teddy Winner:
Edmonton City Council for wasting $5,000.00 on a haiku contest. Citizens were asked to write poems (or haikus) about riding the bus, despite already having paid $5,000 to have one written.
Lifetime Achievement Teddy:
David Miller
“And the Lifetime Achievement Teddy goes to…former Toronto Mayor, David Miller, for a career of reckless taxing-and-spending. As Mayor, Miller grew the city’s operating budget by 44 per cent, $2.8 billion, increased the city’s debt by more than $1 billion and increased property taxes every year well beyond the rate of inflation. He fought for and got new taxing powers which he used to impose a host of new taxes, including a: plastic bag tax, garbage tax, car tax, billboard tax, and land transfer tax.”
Concluding the ceremony CTF federal director, Kevin Gaudet remarked, “over the years David Miller has provided so much material for the Teddies we will see if future municipal nominations will suffer with his departure.”
Other nominees included:
Federal – Space Agency/Agriculture Canada: $400,000 for failed “Canadian Content” astronaut food program.
Federal – Border Services Agency Employee: Bureaucrat spends five hours/day at work surfing porn and is not fired.
Federal – National Defence: $515,000 for not conducting security checks on NORAD facility builders.
Federal – Public Works: $550 million for maintenance including $1,000 for removing one light switch.
Federal – Senator Lavigne: $30,000 for expenses – while suspended from the Senate.
Provincial – ON E-Health: $224M for consultant abuse including charges to consult on consulting charges.
Provincial – ON Parks: $400K for Niagara Parks Exec expenses including roller coasters.
Provincial – NS Premier Dexter: $10,600 to expense full membership fees to the bar association, then reducing status to “not practicing” when forced to pay himself.
Provincial – MB Health: $38,000 to build “rooftop oasis” for health bureaucrats while patients down the road fundraise for theirs.
Municipal – Summerside, PEI: $1.3 million for fraudulent Michael Jackson tribute concert.
Municipal – Regina, SK: $5,000 for bizarre sponsorships including $450 for a ‘pickleball tournament.’
Municipal -Richmond, BC: $59 million for city purchase of land for five-times real value to be “as fair as possible.”
Municipal – Toronto, ON: Public transit boss caught expensing $2,400 for taxis.
http://taxpayer.com/node/13985
Now, back to the name of these awards… The “Teddys”, named after Ted Weatherill who was the Chair of the Canada Labour Relations Board since 1989. Between 1995 and 1996, Mr. Weatherill charged at least $21000 to taxpayers for business travel he incurred as President of the National Academy of Arbitrators, an Alabama-based private organization.
“Mr. Weatherill concedes that he could have sent the expenses to the National Academy of Arbitrators…but Mr. Weatherill believed his participation in the NAA’s conferences that year to be a wise investment for the Canada Labour Relations Board. So, he chose to bill his expenses to the Canadian government instead.”
The Ottawa Citizen, 7 April 1997
There’s more than just travel, though. The following is a “taste” of the meals Mr. Weatherill has billed to the Canadian taxpayer over the past eight years:
Breakfast: Relais Christine, Paris $25.00
Meal (for 2): RPG Arpege, Paris $733.43
Dinner: Le Cercle Universitaire d’Ottawa $1 084.40
Room Service (one night): Chateau Frontenac, Québec City $95.27
Meal: Royal Windsor Hotel, Brussels $531.50
Mr. Weatherill billed the federal government on average $18,500 a year in meal costs alone, for a grand total of $148,000 over the first eight years of his ten year term. He has billed the federal government more that $200 for a meal on 107 different occasions since he was hired.
Many of Mr. Weatherill’s lunches have included alcoholic beverages. Treasury Board guidelines state that “reasonable expenses means the specific, itemized expenses incurred, based on receipts, excluding alcohol.”
Form 1042-S
What is a 1042-S?
Form 1042-S, or Foreign Persons US Source Income Subject to Withholding, reports for non-US persons or entities interest payments, dividends and substitute payments in lieu and applicable US source tax withholding, thereon, from US securities paid to foreign investors.
This information is also reported to the IRS.
It is possible to receive multiple 1042-S forms reporting different types of income during a given tax year.
Box 1 contains a code indicating the type of income being reported, shown below:
Code Income Type
6 Dividends
24 Substitute payments in lieu – dividends
01 Interest
29 Deposit (credit balance) interest
30 Original issue discount
33 Substitute payments in lieu – interest
50 Referral fees
Box 2 contains the gross US source income of the type indicated in box 1. Box 5 contains the withholding tax rate applied as determined by statute or applicable US tax treaty.
Box 6 contains an exemption code if the reportable income is exempt from withholding, for example interest and original issue discount.
Box 7 is the total amount of US federal tax withheld.
