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USA Citizens: Risks of Tax Non-Compliance

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Reasonable Automobile Allowances: GST/HST Claim

A travel allowance paid to an employee for the use of their personal vehicle for business purposes will be non-taxable if it is reasonable. Where such reasonable allowances are paid, an input tax credit (ITC) may be claimed by the employer.The ITC is computed as the imputed GST/HST in the allowance, without adjustment for the fact that some costs likely did not attract GST/HST. In non-harmonized provinces/territories (such as Alberta and B.C.), the ITC would be 5/105 of the allowance.The ITC in a harmonized province is different.For example, in Ontario, with 13% HST, the ITC would be 13/113 of the allowance.Other HST provinces would apply this formula to their respective rate.
In a November 10, 2017 Tax Court of Canada case, CRA denied ITCs of $4,935 related to motor vehicle allowances paid to employees that were also shareholders. CRA argued that the allowances were not reasonable.
Taxpayer wins The allowances were based on the maximum per kilometre rates that the employer could deduct…

Door to Door Tax Scam

The Times Colonist (Victoria, BC) reports about a CRA fraudster coming to a citizen's door with handcuffs. Read more here.

Corporate Passive Investment Income: Proposed Changes

A new passive investment tax regime for Canadian Controlled Private Corporations (CCPCs) is proposed to apply to taxation years commencing after 2018. Passive income may include interest, rental, royalties, dividends from portfolio investments and taxable capital gains. 
Two significant changes are proposed. First, a limit to the small business deduction for CCPCs generating significant income from passive assets, and second, a new regime to stream the recovery of refundable tax to the payment of specific types of dividends (eligible versus non-eligible).
Access to the Small Business Deduction (SBD)The first prong of the proposals will reduce access to the SBD for CCPCs having more than $50,000 of passive income. CCPCs with passive income in excess of the threshold will incrementally lose access to their SBD, until $150,000 of passive income is reached, at which point the entire SBD will be lost. The prior year’s passive income will determine the current year’s SBD limit.
For purposes of…

Family Members: Can I Pay Them a Salary?

For a small business, whether operated as a corporation, proprietorship or partnership, it is quite possible that relatives of the owners or partners may be engaged as employees. Due to the closer familial relationship between employer and employee, CRA pays particular attention to ensure that the salary is truly an eligible deduction to the business. 
According to CRA, salaries to children and spouses are deductible as long as all of these conditions are met: the salary is actually paid;the work the family member does is necessary for earning business or professional income; andthe salary is reasonable when considering the family member’s age and the amount one would pay someone else.

CRA also states that T4s are required for all employees, including family members, and subject to payroll deductions, as appropriate. Payment in the form of room and board is not accepted by CRA.
CRA suggests that the average salary for an arm’s length person providing similar services under similar conditi…

Digital Currency: Basics and Tax Implications

What is Digital Currency (DC)? DC is essentially electronic money. It’s not available as bills or coins. Cryptocurrency is a type of DC created using computer algorithms with the most popular being bitcoin.
No single organization, such as a central bank, creates DC. DC is based on a decentralized, peer-to-peer network. The “peers” in this network are the people that take part in DC transactions, and their computers make up the network.
DC can be used to buy goods and services, whether in store or online. DC may also be bought and sold on open exchanges (similar to a stock market).
DC is often created through a complex process known as “mining” and then monitored by a global network of computers. About 3,600 new bitcoins are created each day, with about 16.5 million now in circulation. Like all currencies, its value is determined by how much people are willing to buy and sell it for.

Tax – Buying and Selling Digital Currency
Gains or losses from selling or buying DCs must be reported on one’…

Commission Paid to a Corporation: Any Issues?

Consider the successful real estate or insurance agent, the financial product vendor, the area sales representative, or any other person earning commission income. One day they are asked, if they ever considered running their activities through a corporation as opposed to providing the services personally. There are definitely some valuable possibilities, but there are dangers too.
In a July 11, 2017 Technical Interpretation, CRA opined that whether a corporation is actually carrying on a business and earning commission income is a question of fact and requires more than a mere assignment of income.
CRA noted that “if insurance agents, realtors, mutual fund salespersons, or other professionals are legally… precluded from assigning their commissions to a corporation, then the commission income must be reported by the individuals, and cannot be reported through a corporation, regardless of the documentation provided”. Care must be taken to document that it is truly the corporation providi…