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Covid-19 Tax and Relief Programs

To say that we have embarked upon trying times is an understatement.  Many of us are concerned with an arrangement of topics from health, to business, to money troubles and employment.  Now more than ever we can feel grateful to live in a country that is doing what it can to help keep our economy afloat, but that doesn’t make the systems of relief necessarily easy to navigate.  

Over the past few weeks, our firm has been inundated with calls from concerned individuals of varying questions.  With the tax deadlines looming and our attention turned towards finding financial relief from the government, we thought it might be beneficial to compile a list of relief programs to help you self-navigate the key programs that have been put into place to help you weather the storm.  

Tax payment deadlines

The tax filing deadline has been moved to June 1, 2020 (June 15, 2020 for individuals with sole-proprietor income) with payments due September 1, 2020. The CRA has indicated returns filed by September 1, 2020 will have late filing penalties waived.

Corporate tax filings due between March 18, 2020 and June 1, 2020 are due June 1, 2020. This only impacts corporations with year ends between September 30, 2019 and November 30, 2019. December, January, and February 2020 year ends are due by September 1, 2020. As a firm policy though we try to complete this within 3 months of year end to align with GST filing deadlines and tax payment deadlines.

Corporate tax (including Alberta tax) payments due between March 18, 2020 and September 1, 2020 are now due September 1, 2020.

The CRA is still requesting GST be filed on time and paid on time, although they have indicated interest will not be charged on GST payments due after March 18 if paid by June 30.

A full list of changes can be found at the link below:

https://www.canada.ca/en/revenue-agency/campaigns/covid-19-update/covid-19-filing-payment-dates.html

Main Covid-19 relief programs

There are numerous Covid-19 relief programs, the main ones and a brief explanation are listed below. This is not an exhaustive list. Before applying it is imperative to read the details at the links provided to understand eligibility and application processes. Also note that these program criteria and details are constantly changing so consulting the government links is important for the most up to date information.

CERB: The Canada Emergency Response Benefit (“CERB”) provides relief to individuals who have suffered a loss of income due to Covid-19 are now earning less than $1,000/month. This includes income earned personally and in corporations controlled by the individual.

CESB: The Canada Emergency Student Benefit (“CESB”) provides similar relief as the CERB for students and recent graduates unable to work or find work due to Covid-19.

CEWS: The Canada Emergency Wage Subsidy (“CEWS”) provides businesses that have experienced a 30% drop in revenue year over year that are continuing to employ and pay salaries (including owner salaries if paid pre-pandemic) a 75% wage relief. The application process is complex and there are various other criteria that may or may not allow a business to be eligible. We highly recommend consulting with us prior to applying. Note that the CEWS should be reduced by the 10% wage subsidy if the company is eligible for the 10% wage subsidy.

10% wage subsidy: The 10% wage subsidy was a program in place as a 3-month measure allowing employers to reduce payroll remittances based on 10% of wages (up to certain maximums per employee and company) if they meet the criteria as an eligible employer.

CECRA: The Canada Emergency Commercial Rent Assistance (“CECRA”) is a program providing forgivable loans to commercial property owners to cover 50% of three monthly rent payments for tenants that have suffered a 70% drop in revenue. Applications are with the Canada Mortgage and Housing Corporation.

CEBA: The Canada Emergency Business Account (“CEBA”) provides interest free loans up to $40,000 to small businesses. If the amount is repaid by December 31, 2022 then $10,000 will be forgiven. It requires salaries in 2019 paid between $20,000 and $1.5 million, although the government has recently allowed other small businesses that did not meet this requirement to apply. This is applied through your financial institution.

The below link is our suggested starting point for navigating the Covid-19 relief programs:

https://www.canada.ca/en/department-finance/economic-response-plan.html

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Top 5 Ways to Prepare for Tax Season

Calgary 2020 Tax Planning

As the 2018 tax season wraps up, tax is likely the last thing you want to be thinking of. That said, now is probably the best time to get organized for the coming year. By setting up proper systems and processes early, a lot of headache and stress can be avoided close to the deadline.

  1. Assess your bookkeeping system: If you are going to change your bookkeeping system, whether it be from excel-based to cloud-based, or from a shoe box of receipts to excel, it is best to do it as early as possible in your tax year.
    When you hand things to your accountant, if you have different methods of bookkeeping used in a single tax year, the accountant will have to combine together multiple systems and perform reconciliations to ensure nothing is double counted or missed. That is why if you are changing your bookkeeping process it is best to set things up as if you are starting from the beginning of the year (January 1 assuming you are a sole-proprietor or have a December corporate year end).
    We would then recommend going back in time and re-doing any bookkeeping from the beginning of the tax year so everything is recorded in one system. You can read about cloud based bookkeeping and if it makes sense for your business here: https://kapasi.ca/is-cloud-based-accounting-right-for-you/

  2. Organize your paperwork: Today, a file folder organization system for receipts/invoices is not the only way to organize your paperwork. There are numerous software solutions, such as HubDoc, DropBox, and Evernote, that let you digitally organize and store your receipts, invoices, and other paper work.
    You can then shred the physical copies once you have uploaded and saved the electronic data with appropriate back-ups. Make sure you set up folders by month and set up time-stamping so you can easily sort and find receipts. Similar to your bookkeeping system, setting up and maintaining this type of tracking is best done early in the year.

  3. Discuss your tax planning strategy: Early in the tax year is a good time to discuss tax planning and strategy with your accountant for the upcoming year. This is because changes in the approach can impact what is required today.
    For example, changing from dividend to salary withdrawals from a corporation will require source deduction payments monthly to CRA. Also, any corporate re-organizations or succession planning started early in the year gives lots of time for the legal paperwork and tax filings to be made on time, avoiding the December rush.

  4. Discuss any changes to tax rules: Discuss with your accountant if there have been any changes to tax rules that would impact you in the upcoming year. Recently, changes to income sprinkling and passive investments came into effect, which impacted how and to who dividend distributions are able to be made out of the company. See our post here for details: https://kapasi.ca/income-sprinkling-rule-changes/

  5. Watch for letters from the CRA: The CRA has been increasing the number of reviews and audits they perform. It is important to give all these letters to your accountants as soon as possible as these letters have a deadline to respond to and can impact the taxes you owe if they are not addressed within 30 days. In addition, your accountant should review any notice of assessments and re-assessments sent by CRA to ensure they agree with filings made.

We would be happy to discuss ways to proactively tackle the above tasks. Please feel free to reach out to us here: https://kapasi.ca/contact-us/

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Tax Season 2019: What to know this year

Tax season - Calgary, Alberta

As the holidays are over and winter sets in we all know in the back of our minds that tax season is approaching.

The deadline for filing T4 and T5 slips is February 28. The deadline for filing T3 slips is March 31. If you are a corporate client, we will mail you your T4 and T5 slips in February with instructions for completing personal taxes.

The deadline for filing your personal tax returns is April 30 for most individuals. If you earn self-employed income that deadline is pushed out to June 15. If you are not sure if you qualify for the extension, it’s best get in contact with us. We will start the process of completing personal taxes in late March.

There are a few key changes with this tax season to be aware of:

  • There have been changes to the tax on split income and passive income rule changes for corporate clients. You can see our article posts on these topics titled “Income Sprinkling Rule Changes” and “Budget 2018: Passive Investments and More.” Please inquire with us on how these changes impact distributions from your corporation.
  • The Public Transit credit is no longer applicable for personal tax returns.
  • New in the prior year but an important reminder are the changes to the Canada caregiver tax credits for infirm dependents. Reach out to us for more information if you have infirm dependents you support.
  • If you sold a principle residence, even though the gain is tax free (subject to certain conditions) you still have to report it on your tax return. Please keep these details on hand so they can be properly reported. With that said, the penalty for unreported dispositions is quite high so it is important this is not missed.

Please contact us for a copy of our personal tax checklist for this season. Also, feel free to reach out if you have any questions or concerns.

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Income Sprinkling Rule Changes

Questions about your business or personal taxes

The liberals have released their new proposals (on December 13, 2017) on income sprinkling (or income splitting) from private corporations. These rule changes have potentially large impacts on those corporations that practice income sprinkling. These rules are collectively referred to as Tax On Split Income, or “TOSI” rules.

The effective date of the changes is for 2018 and subsequent years. Year ends up to December 31, 2017 are under the old regime and not impacted by the rule changes.

The rules are fairly complex and the below is not a comprehensive analysis of all the ins and outs. The purpose here is to explain where the rules may apply to your situation and to prompt you to seek further guidance for your specific situation.

-The “split income” generally refers to dividends received from private corporations, but also includes capital gains on the disposition of shares and income allocations from a family trust.

-If you are caught under the new TOSI rules, the receiving individual is taxed at the highest marginal rate on that income, regardless of the actual marginal tax rate they fall into.

-For children below the age of 18, the TOSI rules will generally apply to income allocated to these individuals, except in very specific cases such as marital breakdown, death, or sale of a business. These rules were previously known as “kiddie tax” rules and have not changed considerably.

-For individuals between the age of 18-24, they may be subject to TOSI unless they have worked in the business in the current or five preceding years at an average of 20 hours per week through the year. There are some exceptions based on capital contributions to the business and related business rules which are quite technical and beyond the scope of this post.

-For individuals over 24, the TOSI rules may apply unless: 1) the 20 hours per week threshold described above is met, OR 2) less than 90% of the business income is from providing services, the business is not a professional corp and you own more than 10% of the shares of the business. If either of these do not apply than there is still some ability to sprinkle the income to these individuals if it is considered a reasonable return based on the contributions of that individual, the details of which are technical and beyond the scope of this post.

-There is an exception for those that are the age of 65 or older and are the person who contributed to the business. In this case you can split with a spouse, even if that spouse is under 65 years of age.

The above points are not all comprehensive and there are many other considerations to plan for. We are happy to discuss your personal situation and what the best strategy is going forward.