Current Issues

November 1, 2013

Increased Foreign Reporting Requirements

There have been recent changes to the foreign reporting requirements for Canadian taxpayers as issued by Canada Revenue Agency (CRA). Canadian taxpayers (i.e. individuals, corporations and trusts) are required to report all specified foreign property owned during the year if the cost base of all specified foreign property exceeds $100,000 at any point during the year. Any income earned during the year from the specified foreign property must also be separately reported. This reporting is satisfied by filing Form T1135 - Foreign Income Verification Statement with your tax return.

Specified foreign property that must be reported on Form T1135 includes:

The criteria for those taxpayers who are required to file has not changed, but for tax years ending after June 30, 2013, Form has been amended, requiring a significant amount of additional information to be reported. Currently, this form cannot be electronically filed. It must be paper-filed with the CRA, either attached to the paper-filed tax return or partnership information return, or separately and sent to the Ottawa Technology Centre by the filing due date of the applicable income tax return or partnership information return. Detailed instructions are provided with the form.

Taxpayers that are subject to this reporting requirement will need to identify the following for each foreign asset that must be reported to the CRA:

The revised reporting requirements allow an exclusion where the taxpayer has received a T3 or T5 slip from a Canadian issuer in respect of income earned from the particular specified foreign asset, in which case the details of the particular foreign property need not be disclosed on the form. An assessment would need to be made for each specified foreign property to determine if the exclusion applies. If a T3 or T5 slip is not issued in a taxation year, the foreign property will still need to be listed on Form T1135 for that particular year. This would include foreign securities that are bought and sold in the same taxation year.

Failure to file Form T1135 by the tax filing due date can result in substantial penalties amounting to $25 per day to a maximum of $2,500 in a particular taxation year. In cases of gross negligence, this penalty can be as high as $1,000 per day to a maximum of $24,000 or 5% of the unreported assets. In addition to these penalties, for the 2013 and subsequent taxation years, the period within which the CRA can reassess a taxpayer's return is extended by an additional 3 years if the taxpayer fails to report income from a specified foreign property on their return or if the T1135 is not filed on time by the taxpayer, or there is a false statement or omission on the form for that particular taxation year.

These revised foreign reporting requirements are quite onerous, therefore, we advise that you start reviewing your foreign investments now to determine whether this foreign reporting requirement will be applicable to you. If you have foreign investment holdings and transactions during the year, we recommend that you contact your investment advisor now to discuss how to obtain the required information to complete Form T1135 by the reporting deadline. You should provide a copy of the form to your investment advisor. Please note, the form on our website is a fillable form.

If you have any questions regarding the above or need assistance in gathering the information or completing the form, please contact us.

Download the Form T1135 - Foreign Income Verification Statement.

Please note: CRA PDF forms have been tested for compatibility with Adobe Reader 9 and higher. These forms may also be opened with other PDF viewers such as Foxit Reader, PDF-XChange Viewer, and Nuance PDF Reader; however, some form features may not be fully supported. These PDF viewers can be obtained for free from the vendors' Web sites.Google Chrome and Apple Safari come with built-in PDF viewers that are enabled by default to open PDF files directly in the browser window. If you are using one of these browsers, you must first download the CRA form and then open it using a compatible PDF viewer.

May 29, 2013

Charitable Giving

When we think about our estate and go through the process of drafting our wills with our lawyers, we make decisions on how our estate will be handled. This will include decisions on how our estate will be divided among our family and friends. What we may not consider is the estate tax implications of these decisions.

There are many ways of reducing the estate tax such as using a testamentary trust in our wills and/or giving to our favourite charity. The use of testamentary trusts is discussed in our newsletter entitled Testamentary Trusts.

Let’s consider leaving some of your estate to your favourite charity. How would you go about doing this? There are a couple of ways to do this. You can make the charity a beneficiary of your will and bequest cash or securities or you can use a life insurance policy.

Bequests under your will to your favourite charity results in a charitable tax receipt for your estate. The tax credit can be applied to taxes owing by you in the year of death, and possibly carried back to claim a refund of taxes paid from the previous year.

Bequests to a charity can be:

Life insurance is another effective way of charitable giving and is a very simple process:

The charity will certainly benefit from the life insurance policy and you will receive sizable taxable savings either during your lifetime or thereafter, depending on how you structure the arrangement. There are two ways to structure life insurance for charitable giving purposes:

The Charity Owns the Policy

All the life insurance premiums paid will be considered charitable donations if you make the charity the owner AND the beneficiary of the policy. The charity will send you charitable tax receipts for the entire value of the premiums paid. In Ontario, you will receive tax credits that will offset 41 percent of your premiums. If you donate a paid-up or partially paid-up policy, charities usually cancel the policy and give you an immediate tax receipt for its cash surrender value.

If you already have a life insurance policy, you can transfer the policy ownership and the beneficiary designation to the charity. Although you will not get any tax relief on the premiums you have paid to date, you will start to receive charitable donation receipts for future premiums paid. If the policy has a cash surrender value, the charity can issue a tax receipt equal to this amount at the time of transfer. You will also be able to claim the charitable donation credit each year for the premiums you pay after the policy ownership transfer takes place.

You Own the Policy

If you are the owner of the policy, you can name the charity as the beneficiary. This arrangement will allow you to easily change the charity that will receive the benefit.

You will not receive a charitable donation receipt for the premiums paid; however your estate will receive a tax receipt for the entire death benefit received. Your estate can benefit from a large tax credit and reduce your final year's taxes (and possibly those the year before), which may allow you to leave more to your heirs.

Other Benefits

There are other benefits, in addition to the tax savings. Your gift of life insurance happens outside your will and therefore, will not go through probate, rather the benefit will go directly to your charity. You will not have to change your will. Gifts of insurance need not be mentioned in your will, but you should leave instructions with your executor to inform your life insurance company of your passing, ensuring your donation is made in a timely manner.

This article provides the basics of Charitable Giving through a will or a life insurance policy. To ensure you set up the arrangement that best suits your wishes, please contact us.

December 19, 2012

Mandatory WSIB Coverage for Construction Industry

Effective January 1, 2013, mandatory WSIB coverage is required for nearly everyone working in the construction industry. The Ontario government has changed the law to include not just workers, but business owners, too.

With the new law, most independent operators, sole proprietors, partners in a partnership and executive officers in a corporation working in construction will also need to have WSIB coverage. As an executive officer or partner, you must begin to pay premiums on your own earnings, as well as for your workers.

The following exemptions are available:

There are also changes regarding clearance certificates. Principals must obtain a clearance certificate before contractors/subcontractors can begin any construction work.

For more information, call us or visit the Be Registered. Be Ready. website.

December 19, 2012

Changes to tax treatment of Group Sickness or Accident Insurance Plans

Effective January 1, 2013, premiums paid by employers for group sickness and accident insurance plans are to be included in the employee's income as a taxable benefit. The benefits received by the employee from the benefit plan will not be taxable.

This is a change from the current situation in that, if the employer paid the premiums on the employee's behalf for critical illness and accidental death and dismemberment plans, the premiums were not included as a taxable benefit to the employee (i.e., added to their income), however the benefits that the employee received from the plan would be taxable.

This change does not affect the tax treatment of short and long term disability plans and private health service plans. Contributions to disability policies and private health service plans for employees still do not result in taxable benefits for employees.

Businesses may want to reconsider their employment benefit packages, particularly if they are currently designed such that the employee pays all of the critical illness coverage themselves.

Contact us to discuss your options further.

December 19, 2012

Personal Taxes

Over the years, there is one common error that we see as we are preparing our clients' tax returns and that is the transfer of securities that are in a loss position. Do not transfer securities that are in a loss position in your non-registered investment account to your RRSP, RRIF, RESP or TFSA accounts. The loss will be denied.

The loss is also denied if you sell the security in your non-registered investment account and then purchase the identical property in your RRSP, RRIF, RESP or TFSA account within 30 days of the sale. Losses will be denied if you sell or transfer property or securities to a related party, including your spouse, your corporation or a trust that you have a beneficial interest in. In these cases, the denied loss is added to the cost base of the property for the person/corporation that purchased the property.

Losses will also be deferred if you sell a property or security and then decide to buy it back within 30 days. These loss deferral rules also apply if you purchased the identical property or security 30 days prior to the sale.

Similarly, if you sell a property or security at a loss and your spouse or the corporation that you control or a trust where you have a major beneficial interest purchases an identical security either 30 days before or after the sale date and still holds it 30 days after the sale date, the loss will be denied and will be added to the cost base of the person who bought it.

Call us to discuss planning for the sale or transfer of property between related parties.

December 19, 2012

Registered Retirement Savings Plan (RRSP)

The maximum RRSP deduction limit for 2013 is $23,500. This means you need to earn $130,556 in 2012 to generate the maximum RRSP room in 2013.

If you did not use all or your RRSP deduction limit for the years 1991 to 2012, you can carry forward your unused contributions room to 2013 or you can make contributions for 2012 in the first 60 days in 2013 and have them count as 2012 contributions.

If you made RRSP contributions in the first 60 days of 2012 and you did not claim them on your 2011 tax return, you can claim the contribution on your 2012 personal tax return.

You can check you RRSP deduction limit a number of ways, such as:

Any losses triggered when you transfer or sell securities to your self-directed RRSP, RRIF or spousal RRSP cannot be claimed, however gains must be recognized.

For more RRSP tips, refer to our RRSP Tips Newsletter. Call us if you have any questions regarding planning for your RRSP contributions.

December 19, 2012

Charitable Giving: Donations

The tax treatment for donations is very different depending whether the donation is made personally or from your corporation. Donations are generally limited to 75% of a person's or corporation's net income.

Donations made personally result in a personal tax credit. It does not matter what your personal tax bracket is, the benefit of the donation will be the same as long as you have adequate income.

Donations are treated as a deduction for corporations. The benefit of a donation made by a corporation depends on the tax rate of the corporation.

Cash donations are generally best to be made personally since the personal tax credit is higher than the tax savings that a corporation with active business income will receive.

Investment holding companies receive a larger benefit from any donations made.

Donations of public company shares can result in significant tax savings over cash donations because the capital gain on the public company shares will not be taxed. If donating public company shares, increased tax benefits can be realized by making the donation from a corporation, particularly one with active business income greater than $500,000. If you are planning to donate public company shares to your favourite charity, consider transferring them to your corporation prior to making the donation.

If you are considering charitable giving options, call us to discuss the planning opportunities available.