William Khalilieh, CPA, CA
Providing Accounting and Tax Solutions to Small Businesses in the GTA

Dealing with CRA

Dealing with CRA in Oakville as a Small Business Owner

If you are a small business owner, then you worry about running your business successfully. You need to keep your customers and suppliers happy, meet payroll and work to expand. The last thing you need to worry about is being responsible for someone else’s tax debt. Unfortunately, the Income Tax Act and the Excise Tax Act can make your business responsible for paying your employees and your supplier’s tax debt. If you don’t comply, you will be dealing with CRA in Oakville collecting from you.

Obviously, the simple answer for dealing with CRA in Oakville is to comply with the order. If it is your employee that owes the money, you can deduct a percentage from their after-tax pay and remit directly to CRA. With a supplier, you send your payment to them directly to CRA instead of to the supplier, or the amount that they owe CRA – which ever payment amount is lower. Out of courtesy to your supplier or employee, you will want to explain to the employee or supplier what you are doing.

I’m discussing this rule because a client of mine recently faced this issue when dealing with CRA in Oakville. What made my client’s situation interesting was that we received a “Second Notice” without getting a “First Notice”. When I called the CRA collection agent, the agent informed me that she sent the First Notice to the taxpayer and not my client. Not exactly an effective method of collecting payment! The troubling aspect of it is that I may have to spend time to fix this error. Problems could arise if CRA sends the “Final Notice” to the taxpayer, rather than my client, and then begin to enforce a judgement against my client.

As I mentioned in a previous blog, always open your mail from the CRA! Dealing with CRA in Oakville doesn’t have to be difficult. If you don’t understand the CRA letter, please do not hesitate to contact me.

William Khalilieh is a Chartered Professional Accountant, based in Oakville, Ontario, who provides practical tax and accounting solutions to individuals and their businesses in the Greater Toronto Area.


Gain Tax Deferrals with an Active Income Model

Generally speaking as a Toronto business advisor, incorporating your business offers numerous advantages. Most importantly you will be able to defer income from personal taxation. For example, in Ontario you can defer 34% in taxes if you are in the top Ontario income tax bracket by earning income through a corporation you own. Of course, the CRA is not always fond of this loophole, but the Canadian government wants small businesses to expand successfully. To this end, tax law is quite generous in which corporations are offered this 34% deferral. As I outline below, it is fairly easy to qualify.

There are a few qualifications:

(a) The corporation must not be a public company that is owned > 50% by Canadians

and

(b) The corporation cannot be an “incorporated employee,” i.e. a person who provides services to their employer via a corporation rather than directly (more about that in a future blog) or a corporation that derives more than 50% of their income from “passive” income dividends, such as rent, unless the corporation has more than 5 full time employees through the year

Of course, many people are not aware of the second requirement but, as a Toronto business advisor, I can assure you that CRA is. In the past few months, I have seen at least 4 form letters from CRA that, in more complex terms, state, “We think your corporation looks like a passive income corporation and we will tax your corporation at the highest tax rate possible unless you prove otherwise.  You have 30 days to provide us with your proof.”

Given the relative simplicity of the law, if your corporation earns the majority of its income from rent or passive sources and the corporation does not have more than 5 full-time employees (they must be on the payroll), the company will have to pay the higher rate of tax. While a significant portion of this tax is refundable, your 34% deferral becomes about a 3% deferral.

If you are in this situation, please contact me to discuss how, as a Toronto business advisor, I can help you navigate the tax laws effectively.   

William Khalilieh is a Chartered Professional Accountant, based in Oakville, Ontario, who provides practical tax and accounting solutions to individuals and their businesses in the Greater Toronto Area.

 

 

 

 

2015 Federal Budget Summary & Analysis

Today the federal government released the 2015 budget to the public. Here are the highlights that will have an impact on you, your business, and your Toronto corporate taxes.

Personal tax changes

Lower minimum required withdrawals from Registered Income Funds (RIFs)

Easily the biggest change for personal taxes, this amendment lowers the minimum required withdrawal from your RIF if you are between 71 and 94. The amendment allows the minimum withdrawal to be approximately $17,885, and also  may allow seniors to keep or get the Guaranteed Income Supplement and/or Old Age Security.

Increase to the Tax-Free Savings Account Limit

The limit has been increased to $10,000. The limit will not increase any further. This is another beneficial change for seniors as well as those who have the funds to invest.

Home Accessibility Tax Credit

At the end of the year, this credit will allow people 65 or older and individuals who otherwise get the disability tax credit to claim expenses (up to $10,000) as a non-refundable tax credit (i.e. the credit can only reduce your tax bill to zero and not generate a refund) to help these individuals to continue to live in their home. Examples of expenses that qualify include wheelchair ramps, walk-in bathtubs, wheel-in showers and grab bars. While I am not a fan of these boutique tax credits, this credit is easy to support. Other “minor” changes:

  • Simplified reporting of foreign assets if your foreign asset is between $100,000 and $250,000.
  • Sales of qualified farming and fishing property are now valid for a $1,000,000 capital gain exemption rather than $800,000 (indexed to inflation) for small business corporations.
  • Registered Disability Savings Plans (RDSP) can still be opened by relatives of individuals who cannot enter into a contract – extended to 2018 from 2015.
  • Repeated Failure to Report Income Penalty is reduced for individuals who unintentionally failed to report income. This change benefits lower income earns who didn’t report income from CPP or something similar in cases where the tax was small compared to the income.
  • Procedural changes that make it easier for CRA to advance theories in tax litigation.
  • CRA agents can now share information between “tax” and “non-tax” departments.   For example, CRA will now be able to use income tax returns to determine an individual’s student loan repayments.
  • Changes to the Family Tax Cut that allow tuition credits to be used to help split income.

Changes to Toronto corporate taxes

Reduction in the tax rate to corporations that get the small business deduction (“SBD”)

Currently, corporations that qualify for the SBD pay 11% tax to the federal government. The tax rate will be reduced by .5% per year for the next four years to take it to 9% starting in 2016. This change is a bit of a surprise as it was not mentioned in any political commentary.

As a result of these changes, dividends received from these corporations will have a higher effective tax rate due to a lower  “dividend tax credit” resulting from lower Toronto corporate taxes being paid. However, a side effect of this change is that if your corporation earns rent and other passive income you may be better off taking some dividends out now to save tax overall.

New small businesses can remit their payroll quarterly

Currently, all new small businesses must remit payroll taxes monthly before qualifying to go quarterly. This change allows all small business to go immediately remit quarterly starting in 2016 assuming all of the qualifications are met.

Employment Insurance Premium Rate reduction

The rate will be reduced to $1.49 per $100 of earnings in 2017 from $1.88 per $100 of earnings in 2016. However, if Ontario goes ahead with its Ontario Pension Plan in 2017, you may not see this reduction.

Other changes that will impact your small business

  • The government is inviting comments on whether changes should be implemented in regards to the types of income that qualify for the small business deduction.  Businesses like campgrounds, hotels, and self-storage units that do not employ more than 5 full time employees are affected by these laws.  Any relief to these types of businesses would be welcome.
  • The government may release draft legislation regarding the conversion of the “eligible capital property” system into the regular capital cost allowance system sometime this year.

This analysis is intended as a brief overview and does not include all of the details to ensure you can take advantage of these rules as applicable.   Please contact me to see how these changes can impact you and your Toronto corporate taxes. 

William Khalilieh is a Chartered Professional Accountant, based in Oakville, Ontario, who provides practical tax and accounting solutions to individuals and their businesses in the Greater Toronto Area.

Have you not filed tax returns for several years? You should or CRA will do it for you

I have seen a fair number of clients not file tax returns for several years. Some of them have been lucky and CRA has not found them or have left them alone (for now). However, in other cases, if you do not file, CRA will make up numbers and say that this is your tax return.  And dealing with CRA in Toronto is never enjoyable. What is to stop the CRA from saying you made $1,000,000 a year if you don’t file your tax return?

Nothing!

And if the CRA issues you a “Notice of Assessment” with $1,000,000 as your income and you do nothing, you will get a call from a CRA collection agent asking for the tax on $1,000,000. If you continue to ignore them, they will empty out your bank accounts, place a lien on your home and garnish your wages or your business income until it is paid off.

I wish I was making this up. I had a case where a corporation had GROSS SALES (not profit) of $100,000 per year. The corporation had filed for a couple of years but then the owner got sick and due to customers skipping payments, the owner was forced to cease operations. Since the business had ceased operations, the owner did not file tax returns for the later years. When CRA “filed’ the outstanding returns for the corporation and issued Notice of Assessments, CRA claimed the corporation made $150,000 of TAXABLE INCOME per year.  How did they get that number? Who knows. But under Canada’s tax law, if CRA states a number and you don’t challenge it, it becomes a valid number and you have to pay it. You might get it reduced but you are at CRA’s mercy, which is not something I would not want in this situation.

Fortunately, the owner came to me and I was able to put together the corporation’s tax returns and filed a Notice of Objection (a formal letter to CRA saying you do not agree with the Notice of Assessment) with the CRA to ensure CRA would process the real returns. The CRA (eventually) processed the correct returns and the corporation’s $200,000 tax bill disappeared. Because we began dealing with CRA in Toronto immediately and directly, we could ensure the owner was not forced into a financial downward spiral.

This example shows the importance of reviewing all CRA letters (see my previous post on opening the mail) and dealing with it on a timely basis .

Most importantly you should always file your tax returns on time.

If you haven’t filed your old tax returns for you and/or your business, please contact me. I would be happy to help you in dealing with CRA in Toronto and sorting your taxes.

William Khalilieh is a Chartered Professional Accountant, based in Oakville, Ontario, who provides practical tax and accounting solutions to individuals and their businesses in the Greater Toronto Area