CRA Reminder! This Monday, June 15th 2015, is the Deadline for Self-Employed Individuals to File their 2014 Income Tax and Benefit Return!

inTAXicating and The Canada Revenue Agency (CRA) would like to remind those taxpayers who are self-employed individuals (and their spouses or common-law partners) that the 2015 personal tax (T1) tax filing deadline is midnight on Monday, June 15, 2015.

If you had an outstanding balance for 2014, it would have had to be paid to the CRA on or before May 5th 2015, which is different from the normal April 30th deadline as a result of that extension granted by the CRA this year.

If you miss the deadline, you might be liable for a late-filing penalty (cumulative if you have been filing late in multiple consecutive years), and / or a late-filing penalty on amounts owing which applies to returns received after the June 15, 2015 deadline.

The CRA suggests you file electronically, using NETFILE , which allows you to file your individual income tax and benefit return over the Internet quickly and easily.  For a list of software and web service options, including those that are free for everyone, go to http://www.netfile.gc.ca/software.

If you have a balance owing, you can make your payment using your financial institution’s telephone or Internet banking service. For more information about online payments, go to http://www.cra.gc.ca/payments or contact your financial institution, or search through the blog posts at inTAXicating.wordpress.com for a post on how to make payments to the CRA.

You can also pay using the pre-authorized debit online service offered through the CRA’s “My Account” feature. The pre-authorized debit allows you to:

  • Set up a payment to be made from your bank account to the CRA on a pre-set date
  • pay an overdue amount
  • make instalment payment

You can also make your payment using the CRA’s “My Payment” service. My Payment lets you make one or more payments in one simple online transaction.  You can use this service if you have access to online banking at a participating financial institution.

You can also sign up for direct deposit to receive your refund in your account at your Canadian financial institution-no more waiting for a cheque to arrive in the mail, however as I have mentioned in many previous posts, signing up for this service provides the CRA with your banking information which is the first place they will try to seize if you ever have a balance owing to them.

Save time – go online!

The CRA’s online services make it faster and easier to handle your business’s tax matters. You, your employee, or your representative can file, pay, and access detailed information about your tax accounts-all online, all at your fingertips. To learn more about the CRA’s electronic services for businesses, go to http://www.cra.gc.ca/businessonline.

If you have questions or concerns regarding your taxes or a letter / notice you have received from the CRA, drop us an email at info@intaxicating.ca or intaxicatingtaxservices@gmail.com.  Take advantage of our free consultation.

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Thursday Thirteen: 13 Tax-Related Things That Confuse Canadians.

I came across this interesting article from the Globe and Mail newspaper called “10 Tax Related Things that Leave Canadians Stumped”, and while I suggest you read the original article, I have used this article for inspiration to provide 13 Tax-Related Things that Confuse Canadians.

  1. Why can’t spouses file joint income tax returns as they can do in the US?
  2. Why are parents only allowed a transfer of $5,000 of their child’s unused tuition, education and book credits?  The parent is often the one who paid the costs of tuition, should they not be able use all of it?
  3. If I received an actual dividend of $1,000, why do I report $1,380 on my tax return ($380 is called a “dividend gross-up” and the purpose of grossing up a payment is to bring the dividend back up to the amount of money the corporation earned before it paid corporate tax.
  4. Why must child care expenses be claimed by the lower-income spouse?  Understanding that the motivation behind this child care deduction is to get people with children back to work to help drive the economy, but the way this deduction is written it is claimed by the lower-income spouse based on 2/3rds of their income.  By doing this, the deduction is constrained by that spouse’s income.  Should it not be based on the higher-earning spouse so that the family could often get a larger child care claim to offset the costs and since it’s being paid, why are they not allowed to claim it in full in each and every case?
  5. When one spouse has a tax refund and the other owes money, why can’t you net the refund and tax payment against each other? Again, this would simplify our tax system and reduce the administration and paper work for the CRA, but the privacy rules are cited for this not happening. but should the situation be different – a spouse with a debt – and they are all over that!
  6. Why do people hold on to their investments too long before converting them, resulting in a capital gain becoming a capital loss?  Yes, the tax on capital gains is 23% but paying tax on a gain is much better than losing money, isn’t it?
  7. How is it that the CRA never knows when people move when they are looking for missing filings or returns but they always know where I am when they need to send a legal warning letter or register a lien against a property.?
  8. Why do people pay no attention to the RRSP contribution limit information on their income tax assessments when planning their contributions for the year, usually at the last-minute in March? An individual’s RRSP contribution limit for the upcoming year is printed right on the Notice of Assessment for the prior year and can be found through the “My Accounts” section of the CRA website.
  9. Why can self-employed people claim mortgage interest as a home-office expense while employees cannot? If you have an employer that requires you to work from home and they sign a T2200 form saying so, why should an employee’s deductible expenses be restricted in comparison to a self-employed person’s?
  10. Why can I deduct my car expenses when I drive directly to my client’s office from my home – but when I drive to my own office to work with the client via teleconference or telephone, why is the mileage considered personal?
  11. Why is the maximum childcare expense set at $7,000, when the monthly child care cost far exceeds $1,000 in many cities? It drops to $4,000 for children aged 7 to 16.
  12. If the CRA send me a refund cheque in error – their error – and whether I cash it or not, they charge me penalties and interest when they recover it?
  13. How a CRA audit deemed to be a “random” audit where the auditor states that they are not looking for anything, always has something behind it which caused it.  Why can’t they just say, “You’ve been snitched on”, or “You claimed an expense with a fake invoice” or even “You took cash from your business and deposited it into your personal account.”  That way, knowing the gig is up, the auditor could transfer all like issues over and assess and give the person a warning that will have meaning.

Can anyone answer any of these?

 

Time will tell.

Employee or self-employed worker? Federal Court of Appeal’s 2-Step Process.

[109/365] Taxation.
Taxation. (Photo credit: kardboard604)
It is important to determine whether a worker is an employee or a self-employed individual.  Employment status directly affects a person’s entitlement to employment insurance (EI) benefits under the Employment Insurance Act.  It can also have an impact on how a worker is treated under other legislation such as the Canada Pension Plan and the Income Tax Act (ITA).

The facts of the working relationship as a whole determine the employment status.  If the worker is an employee (employer-employee relationship), the payer is considered an employer.  Employers are responsible for deducting Canada Pension Plan (CPP) contributions, EI premiums, and income tax from remuneration or other amounts they pay to their employees. They have to remit these deductions along with their share of CPP contributions and EI premiums to the Canada Revenue Agency (CRA).

An employer who fails to deduct the required CPP contributions or EI premiums has to pay both the employer’s share and the  employee’s share of any contributions and premiums owing, plus penalties and interest.

If the worker is a self-employed individual and in a business relationship, he or she is considered to have a business.

The best way to be sure if there is any doubt is to request a ruling from the CRA.  A ruling determines whether a worker is an employee or is self-employed, and whether that worker’s employment is pensionable or insurable. If you have a payroll account and are registered on My Business Account, you can use the “Request a CPP/EI ruling” service in My Business Account.

As well, an authorized representative for the payer can also request a ruling electronically through the Authorized Representatives Section of the CRA website, here.

A payer or a worker can request a ruling by sending a letter or a completed Form CPT1, Request for a Ruling as to the Status of a Worker Under the Canada Pension Plan and/or the Employment Insurance Act, to their tax services office (TSO).

Recently, the Federal Court of Appeal (FCA), in the case of 1392644 Ontario Inc. (Connor Homes) v. Canada (National Revenue), 2013 FCA 85 (CanLII) weighed in to reconcile competing tests on the proper way to determine whether an individual is a contractor or truly an employee through a 2-step process.

This appeal in this case  involved 3 women who worked for Connor Homes, a licensed operator of foster homes and group homes for children with serious behavioural and developmental disorders, as area supervisors and/or child and youth workers.  Each worked under a contract that stipulated she was an independent contractor “responsible for payment of all necessary remittances, including CPP, EI and Taxes”.  Each was paid at a specified hourly rate or flat rate that depended on the service provided and provided those services in accordance with the homes’ policies and procedures manual.

The CRA ruled that each of these workers were engaged in employment for purposes of the Canada Pension Plan and the Employment Insurance Act., which Connor Homes disagreed with.

In hearing the appeal, the FCA commented that the question of an individual’s working status has become increasingly important with the trend towards outsourcing and short-term contracts and the consequent effect on entitlements to Employment Insurance and Canada Pension Plan benefits. The Court also acknowledged that although the question is simple in theory, it is difficult to apply with any degree of certainty given its fact specific nature and the ever-changing workplace.

Many employers also tend to categorize employees as independent contractors so they are not responsible for withholding and remitting CPP, EI and Tax to the CRA on behalf of the employee and to avoid being responsible for benefits.  If the CRA determines  otherwise, the employer is responsible for both the employer and the employee portions of CPP, EI and tax (plus P&I) until they are current.

The FCA refined a number of lower court decisions into a two-part test;

1st step: Is there a mutual understanding or common intention between the parties regarding their relationship? This step generally will be determined by the written contractual arrangements and behaviour of the parties and is quite subjective.  For example, is there a written agreement, were invoices issued for services rendered, was the service provider registered for GST/HST, were the income tax filings consistent with that of an independent contractor?

If so, then;

2nd step:  Do the pertinent facts support that the worker is providing services as a business on her own account?  The factors to consider include the level of control exercised over the worker’s activities, and whether the worker provides her own equipment, hires helpers, manages and assumes financial risk, and has an opportunity of profit in the performance of her tasks.  This step is very objective.

In this appeal, the FCA found that, although the parties intended their relationship to be that of independent contractors, they were, in fact, employees.  The degree of control exercised over their work was the same as that exercised over employees, they were limited in what they could earn and they took on no financial risks.  Although the individuals were expected to use their own motor vehicles, this factor was insufficient to outweigh all others.

So if after this ruling and after a review of the CRA website, you are still unsure if you, or your worker is an employee or an independent contractor, then it’s best to get a ruling to be sure.

Canada Revenue Agency Offering to Close Dormant GST Accounts

[109/365] Taxation.
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

June 15 filing deadline for the self-employed

Reminder: there is less than one week until the June 15, 2010 deadline for self-employed individuals and their spouses or common-law partners to file their 2009 individual income tax returns. Returns that are postmarked or received by the CRA after June 15 will incur a late-filing penalty as well as interest on amounts owing. Read the CRA’s news release for more information. Similar rules apply to self-employed Quebec residents who must submit their personal income tax returns to Revenue Quebec.