Figuring out who should be receiving an IRS Form 1099-B

A large transfer agency with a Canadian client paying US sourced income enquired as to whether an IRS Form 1099-B, Proceeds from Broker and Barter Exchange Transactions – an information form used to report the proceeds received from the sale of securities during the current year – should be issued to non-residents of the US, or if this form is only required to be sent to Americans.

It was a good question and in a business where budgets are tight, it’s better to be safe than sorry.

I placed some calls to the IRS, spoke to people in the industry and checked through the IRS website and here was what my research turned up – and take notice of the wording used – as it is very similar to the wording used by the CRA regarding the T5008, Return of Securities Transactions.

“A broker or barter exchange must file Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, for each person:

For whom the broker has sold (including short sales) stocks, bonds, commodities, regulated futures contracts, foreign currency contracts (pursuant to a forward contract or regulated futures contract), forward contracts, debt instruments, etc., for cash,

Who received cash, stock, or other property from a corporation that the broker knows or has reason to know has had its stock acquired in an acquisition of control or had a substantial change in capital structure reportable on Form 8806, or

Who exchanged property or services through a barter exchange.”

Brokers

A broker is any person who, in the ordinary course of a trade or business, stands ready to effect sales to be made by others. A broker may include a U.S. or foreign person or a governmental unit and any subsidiary agency.

You are considered a broker if:

• You are an obligor that regularly issues and retires its own debt obligations or
• You are a corporation that regularly redeems its own stock.

Then the IRS pulls back a little bit here;

“However, for a sale, redemption, or retirement at an office outside the United States, only a U.S. payer or U.S. middleman is a broker.”

You are not considered a broker if:

• You are a corporation that purchases odd-lot shares from its stockholders on an irregular basis (unless facts indicate otherwise),
• You manage a farm for someone else, or
• You are an international organization that redeems or retires its own debt.

So a transfer agent, even through it is a Canadian Corporation, is paying out distributions in US dollars, which makes them an US payor for the purposes of the IRS legislation, must issue 1099’s to US persons no matter where in the world they reside.

W8 certified non-residents of the US instead receive a 1042S, which reports dividend income received on US stocks for foreign investors.

In additions, each transaction is reported (other than regulated futures or foreign currency contracts) on a separate Form 1099-B, so a US person could be receiving multiple 1099-B’s at year-end.  Transactions involving regulated futures or foreign currency contracts are reported on an aggregate basis.

Note: Sales of each of the following types of securities are reported on a separate Form 1099-B, even if all three types were sold in a single transaction:

• Covered securities (defined later) with short-term gain or loss,
• Covered securities with long-term gain or loss, and
• Noncovered securities (securities that are not covered securities) if you choose to check box 6a when reporting their sale.

The gross proceeds value on a 1099-B is reported minus commissions.

Other common 1099 forms used:

Form 1099-R

Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., is the US tax form used to report distributions made to taxpayers from their retirement accounts, including an IRA or Coverdell ESA

Form 1042-S

Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, is the federal information form used to report account information on accounts held by non-resident aliens, foreign corporations and other types of foreign entities. Information such as distributions of ordinary income dividends and short- and long-term capital gains, the tax withholding rate, and the amount of U.S. tax withheld and deposited is reported on Form 1042-S.

Form 1099-Q

This form is used to report an over-contribution from an Educational Savings Account (ESA).  Contributions to an ESA are not deductible, only the earnings are taxable.  The IRS does not require the use of tax codes on Form 1099-Q.

Related articles

• Taxes From A To Z (2013): Z Is For Zombie Debt (forbes.com)
• Bartering? Don’t forget the tax implications (dontmesswithtaxes.typepad.com)

Be Careful: Direct Deposit with the CRA is not for everyone!

I’m not afraid of the Canada Revenue Agency (CRA).

I don’t need to be, and neither do you.

If, however, you hesitate when you receive a brown envelope in the mail from the CRA because of what may be inside that envelope, then you might want to reconsider sending back your direct deposit banking information to the CRA.

How to request direct deposit

As part of a Government of Canada initiative, the CRA provides direct deposit as a standard payment method. Using direct deposit means:

• You will get your money faster.
• You can skip the trip to the bank to deposit your cheque.
• There’s no risk that your payments will be lost or delayed.
• Your payments will always be on time.
• You can start using the money or earning interest right away.

There are several obvious negatives of the CRA having your direct deposit information.  As we all know, the CRA is looking for ways to increase efficiencies and they have found over the years that regional intake centres do just that.  The objective of these centres is to take immediate action following the expiration of the 90 day Notice of Assessment collection restriction period on personal income taxes – since legal warning is provided in the actual Notice of Assessment.  On day 91 these efficient intake centres begin to take actions including calling the taxpayer, sending a legal warning letter or sending a wage garnishment or freezing a bank account.  The action taken depends on what information is available on the account.

So if you owe a reasonably small amount of money to the CRA, and give them your bank account information, the chances are good that they can quickly resolve this amount owing by taking it from your account, or if the balance is larger, they can get negotiations started by freezing your bank account.

Not everyone is able to stay on the good side of the Canada Revenue Agency, which is why Intaxicating Tax Services was created, so that I could assist others who are afraid to open that brown envelope or if they have opened it, are unable to act on the CRA’s requests because either they do not understand the request or because the just do not have the capacity to deal with it at this moment.  Whatever the reason, there are common and understandable delays which everyone encounters every now and then.  During my decade of employment at the Canada Revenue Agency I heard all the stories, I spoke to all the taxpayers I could and I helped in whatever way I could.

Which would you prefer?

Not to be paranoid, giving the CRA your direct deposit information does not necessarily mean they are going to use it against you.  If you have a clean record with the CRA and never owe them money then they have no reason to use your banking information to freeze your bank account.  If, however, you have had frequent issues with the CRA including long periods of time in collections, then giving them a fresh bank source is probably not the best thing to do at this point in time.

Keeping that banking source to yourself does not guarantee safety from the CRA.  If the CRA sends your refund to you via a cheque, and you deposit or cash that cheque, the CRA has the power to trace that payment and can get your banking information that way.  The best way to stay out of trouble with the CRA is to stay current, or if you are behind and own money to the CRA, then get the help you need to get current and stay current.

So please, do not be afraid of the CRA any longer.  You have us now, Intaxicating Tax Services, to give you the Common Sense approach to taxation and the CRA.  We’re not going to mislead you, engage in fear-mongering or present the scariest scenario possible in order to scare you.  We’re going to tell you the truth and together let our common sense lead us to the best solution possible for you.

Please visit us at http://www.intaxicating.ca

Or email us at info@intaxicating.ca

Your first consultation is free.

The only bad choice is no choice!

Related articles

• Canada Revenue Agency Offering to Close Dormant GST Accounts (intaxicating.wordpress.com)
• Learn How to Lodge a Service-Related Complaint with the CRA (intaxicating.wordpress.com)
• The Truth and Myths Around the CRA’s Taxpayer Relief Program (intaxicating.wordpress.com)
• What keeps me busy during the day… (intaxicating.wordpress.com)

Canada Revenue Agency Offering to Close Dormant GST Accounts

Taxation. (Photo credit: kardboard604)

I came across an interesting article on the H&R Block blog site regarding the Canada Revenue Agency (CRA) and their upcoming strategy regarding dormant GST accounts.  The original article can be found right here.  Having spent almost 11-years working for the CRA – almost 2 of those years dedicated to GST, I am very familiar with the problem the CRA faces by having many GST accounts open and unaccounted for.  When the CRA is unsure as to whether the account is open, active and not filing, or open, inactive and never used can often be difficult to determine is the phone number and address on file at the time of registration are no longer applicable.

As many of you are already aware, not filing GST returns is a criminal offence under the Excise Tax Act for which the CRA can, and will prosecute taxpayers.  When the CRA moves to action on these accounts their intention is in their approach so if they suspect the file was opened in error, or can be sure it is not required then they will call, or have a field officer drop by the residence or business to ask about the account.  If, however, they have reason to believe that the account is open and just not-filing, maybe as a result of a telephone conversation, then they approach this completely differently.

In this case, the CRA will begin to collect information for their permanent diary and see how the story differs from the information provided by the taxpayer.  Once they notice a difference, they move in with a Demand to File, which is an indication that they intend to prosecute.

The CRA understand that taxpayers register GST accounts then move and fail to update their address with the CRA (HUGE mistake!) at which point the CRA needs to determine if the account is inactive or a non-filer.  If this is you, or someone you know, it’s best to take care of this right now.

A common example would be this; a taxpayer opened a business which operated as a sole proprietorship (SoleProp) for 18-months until it incorporated.  The new corporation (NewCorp) registered a GST account and began to make its quarterly installments, while the SoleProp no longer had any income attached to it, but instead of closing it, the owner filed nil returns for the next 3-years.

This is an example of an account the CRA would happily close over the phone because the trail is clear and both are current.

Normally, you need to complete a RC145 Form (used to be a GST11)– Request to Close Business Number Program Accounts in order to close your GST account, however under this program, the CRA will close the account if you give them permission over the phone.

Whether the account is closed or not, you still have to file all your outstanding GST/HST returns and pay any amounts owing up until the day your business ends because closing your account does not exempt you from paying any GST owed back to the CRA.  In addition, if you have business assets and shut down the operation, the assets are deemed disposed of at Fair Market Value (FMV) on the day you stopped operating so you will need to calculate the GST on the value of your assets, too.  You will also want to make sure that you capture any bad debts on that final GST return if you have not previously.

If you sell to a purchaser who is a GST registrant and who continues to operate the business, you can jointly file a Form GST44, Election Concerning the Acquisition of a Business or Part of a Business, so the purchaser does not have to collect and you do not have to pay GST.

The important thing to remember about the GST is that once you open an account it remains open until you take action to close it.  If you have a dormant GST account and the CRA is calling you, it will save you time to answer the phone and provide permission to close it.  If you fail to close it and the CRA is unable to get in touch with you, they can enforce collection actions against you and raise director’s liability to hold you personally liable to corporate debts, as well as the previously mentioned criminal prosecution.  Stopping this kind of action can be difficult once the CRA has determined that you are hiding something from them.

Do not wait for the CRA to come collecting their returns or their GST, but if you are already embroiled into a battle with the CRA over notional assessments or GST amounts owing, or worse if you have received a Demand to File notice from the CRA that they are intending to assess you as a director of the corporation and are seeking a due diligence defence, you need professional help right away.

I can help!

Just visit http://www.intaxicating.ca and see how Intaxicating Tax Services can assist you in all your CRA matters.  Passionate about Tax.  Passionate about helping people.

info@intaxicating.ca

Canadian Live-in Caregiver Program Services: Why using Service Canada’s Contract makes sense

With Canada’s Temporary Foreign Worker Program under attack again as a result of RBC’s announced plan to lay off Canadian employees and hire employees overseas, it’s important to understand that this program also has the Canadian Live-in Caregiver Program (LICP) as a part of it, and that program is essential to working Canadian parents who need to hire a Live-in Caregiver (nanny) from overseas for cost efficient reasons.  The LICP provides opportunity for parents to sponsor and bring trained, educated nannies from overseas, who live in their homes and work for them at a wage very close to the minimum wage.

At the outset, many feel that these nannies are being taken advantage of, however, I see it differently.  Yes, there are employers who ask their employees to work long hours, and do tasks which are outside of the normal requrements of the program, but there are also opportunities for these nannies to speak up and have this addressed, and the outcome is that the employer is banned from using the program.  Times have changed and thankfully this government has also changed the program to make it harder for employers to scam the system and also more difficult for employees to scam their employers.  Of course, there are exceptions…

One big way that employers and employees can start this relationship on the right foot is by following the rules of the LICP, and making sure that the employer and the employee know exactly what they are required to be doing during their time in the program and also to make sure that the employee and employer are also moving forward with plan for once the program ends so that the employee is making smart decisions about their future and the employer is able to assist and know where they stand regarding their caregiver.

At Intaxicating Tax Solutions, we are on the leading edge around requirements and changes to this program as we offer assistance at every stage of the process – from deciding whether to sponsor a nanny through this program, or hiring a live-out caregiver already in Canada, to the setting up and payroll account with the Canada Revenue Agency (CRA), networking, course suggestions for caregivers and dispute resolution surrounding tasks, requirements and working hours.  Our website is www.intaxicating.ca and you can find plenty of materials written by us around the program on the web.

With all that being said, I thought it might be useful to post the link to Service Canada‘s Live-In Caregiver contract.

The best way to get a working arrangement off on the right foot is by making sure that the employer and employee are both clear around requirements and what happens if these requirements need to be adjusted.  As a contract is a requiremt of the program for sponsoring a live-in caregiver, those hiring live-out caregivers and those nannies who are living in, but not through a formal program like the LICP, also benefit from having a formal contract in place to keep requirements clear.

The contact forms the basis of a legal agreement between employer and employee as to what is expected and agreed upon by both sides and is used in case of disagreement to support the previously agreed upon terms.  Before employment begins both parties have to agree to all the work arrangements in the contract which should outline every detail from hours worked, to amounts renumerated to specific tasks and vacation pay.  It’s like going to get a job anywhere else in the world, where you sign the contact before your employer agrees to hire you and having a formalized contract as part of this program helps prevent employers from taking advantage of nannies and allows nannies to understand what they are getting into to before they agree to start work.

Too often I hear and read about employers who think their live-in nannies are on call 24/7 at their disposal to take care of them and their kids, and their house and their pets…  I also hear and read in parenting groups about employers placing curfews on their nannies, or making them address you as Mr. or Mrs. like they are a servant. Most of it is not allowed and some of it is just not right. If you accepted a job working at a top law firm, or in the warehouse of WalMart would you allow for them to treat you like that?  I suspect that answer is no.

Now that the contract is part of the application process – prospective nannies who come to apply to the program here, http://www.cic.gc.ca/english/work/caregiver/apply-how.asp, now understand that there are tight guidelines governing their requirements and rights, as well as the employers.  Nannies MUST sign a written contract with their future employer, and the employer must also sign the contact which is them submitted together with the positive Labour Market Opinion (LMO).

The positive LMO is issued to the employer by the government after a lengthy review of the submitted documents where the information is verified, a phone interview is conducted, and if everything checks out, the employer is deemed to be a suitable employer who has followed all the government requirements and regulations for the LICP.  Employers must also provide to the government their payroll BN number with the CRA, and have available suitable space in their home for a nanny to live, and prove that they have children in need of caring for and the financial capabilities to support a nanny.

The contract must be the same employment contract submitted to HRSDC/SC by your employer, unless you provide an explanation of any changes (for example, a new start date).

The written employment contract will ensure there is a fair working arrangement between you and your employer. The employment contract must demonstrate that the Live-in Caregiver Program requirements are met by including a description of:

•mandatory employer-paid benefits, including:

◦transportation to Canada from your country of permanent residence or the country of habitual residence to the location of work in Canada

◦medical insurance coverage provided from the date of your arrival until you are eligible for provincial health insurance

◦workplace safety insurance coverage for the duration of the employment

◦all recruitment fees, including any amount payable to a third-party recruiter or agents hired by the employer that would otherwise have been charged to you

•job duties

•hours of work

•wages

•accommodation arrangements (including room and board)

•holiday and sick leave entitlements

•termination and resignation terms

The contract the government is expecting to see does not have to look exactly like the one provided for in the link – that one is merely a template – but it must contain all the information and clauses indicated as mandatory and the use of an alternate contract format may cause delays to the processing of the LMO application as HRSDC and Service Canada officers will need to determine if the contract complies with LCP requirements.  A copy of that contract can be found here.

Before you jump into hiring an employee through the Canadian Live-in Caregiver program, or someone already in Canada, make sure that you have all the requirements covered and that you and your employer are on the same page.  If you would like further information or have questions, please feel free to post them in the comment section, or contact us at info@intaxicatingtaxservices.ca.  You can find details around our T4/T4 summary services, our payroll services or our consultation services on our website or by contacting us.