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Taxation

28
NOV
2014

GST/HST election for closely related persons: Important changes for 2015

The GST/HST joint election available to closely related persons (the “156 Election”) under section 156 of the federal Excise Tax Act (the “ETA”) saw significant amendments after the last federal budget was tabled last February.

Generally speaking, a Related Party Election may be made by qualifying members of a qualifying group (i.e., certain closely related corporations and partnerships). It allows corporations resident in Canada as well as partnerships each member of which is: (a) a corporation or partnership and is resident in Canada; (b) a GST/HST registrant; and (c) engaged exclusively in commercial activities, to make supplies to other similar corporations or partnerships in the same closely related group without being required to collect or remit any GST/HST. Under a Related Party Election, supplies between related persons are deemed to be made for nil consideration.

Mandatory filing in 2015

As of January 2015, to be effective, these elections must be filed with the tax the Canada Revenue Agency via form RC4116 (not yet released). This means that “retroactive” elections (where the parties acted as if an election had been made, but did not sign the required form) will likely no longer be valid without the approval of the CRA. Historically, these forms did not have to be filed, and could often be completed retroactively so long as the parties acted as if the election had been made.

A Related Party Election will have to be filed on or before the first day on which the particular specified member, or the other specified members, must file a GST/HST, for the period that includes the effective date of the election.

For related parties that currently have a Related Party Election in effect, the election will have to be filed before 2016. However, the parties are not allowed to file the election prior to January 1, 2015 (otherwise it is deemed not to have been filed). Taxpayers who have a Related Party Election in effect should ensure that they file their elections in 2015 (preferably in January, 2015); otherwise, they will no longer be valid.

Please contact your Lipton representative in order to discuss how these changes may apply to you.

Jeff Nightingale is the Senior Tax Partner and a Managing Partner at Lipton LLP, Chartered Accountants.  Jeff has written a number of publications and speaks to a variety of professional and business groups, including the Canadian Tax Foundation, the Institute of Chartered Accountants of Ontario and The Law Scociety of Upper Canada.  He has also completed the CICA In-Depth Tax Course as well as other advanced taxation courses and is a member of the Canadian Tax Foundation and the Society of Trust and Estate Practitioners.

Learn More about Jeff Nightingale

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25
FEB
2014

Let’s Talk – Winter 2014 Edition

A Message from the Managing Partners

Managing Partners Fred Arshoff and Jeff Nightingale discuss what Lipton LLP is striving to achieve in the months and years ahead.

Rule Changes with Respect to Foreign Income Reporting

The Canadian government has made it a priority to “crack down on international tax evasion and aggressive tax avoidance.”  As part of this effort, the government has released a revised Form T1135, the Foreign Income Verification Statement.  Tax partner,  Sunita Arora addresses what these changes mean.

Tax Season Tips

Tax season is just around the corner.  To make sure you’re prepared, assurance & advisory partner Paul Roberts offers his quick tips.

Software Compliance and Why it Matters

Manager of IT Services, Bryan Walderman provides his advice on how to avoid a software compliance audit.

Click Here to Read our Entire Newsletter

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20
NOV
2013

Getting Ready for 2014

With the exception of RRSP contributions (in most cases) and pension income splitting, any tax planning strategies intended to reduce one’s tax payable for 2013 must be implemented by the end of the calendar year.

While 2013 tax returns don’t have to be filed for at least another six months, it’s worth taking the time now to review possible tax-saving opportunities to make sure any necessary steps are taken before December 31st. Doing so can help avoid or minimize “sticker shock”, in the form of a large tax bill, when the annual tax return is completed next spring.

Make charitable donations for 2013

The federal and all provincial governments provide a two-level tax credit for donations made to registered charities during the year. To earn a credit for the tax year, donations must be made by the end of the calendar year. There is, however, another reason to ensure donations are made by December 31. For federal purposes, the first $200 in donations is eligible for a non-refundable tax credit equal to 15% of the donation. The credit for donations made during the year which exceed the $200 threshold is, however, calculated as 29% of the excess.

As a result of the two-level credit structure, it makes sense to aggregate donations in a single calendar year where possible. A qualifying charitable donation of $400 made in December of 2013 will receive a federal credit of $88.00 ($200 times 15% plus $200 times 29%). If the same amount is donated, but the donation is split equally between December 2013 and January 2014, the total credit claimed is only $60. ($200 times 15% plus $200 times 15%), and the 2014 donation can’t be claimed until the 2014 return is filed in April of 2015. And, of course, the larger the donation in any one calendar year, the greater the proportion of that donation which will receive credit at the 29% rather than the 15% level.

It’s also possible to carry forward for up to five years donations which were made in a particular tax year. So, if donations made in 2013 don’t reach the $200 level, it’s usually worth holding off on claiming the donation and carrying forward to the next year in which total donations, including carryforwards, are over that threshold. Of course, this also means that donations made but not claimed in any of the 2008, 2009, 2010, 2011, or 2012 tax years can be carried forward and added to the total donations made in 2013, and then the aggregate amount claimed on the 2013 tax return.

When claiming charitable donations, it’s possible to combine donations made by oneself and one’s spouse and claim them on a single return. Generally, and especially in provinces and territories which impose a high income surtax  (i.e., Ontario, Prince Edward Island and the Yukon) it makes sense for the higher income spouse to make the claim for the total of charitable contributions made by both spouses.

For Canadians who have not been in the habit of making charitable donations, there is now an additional incentive to make a cash donation to charity. In this year’s budget, the federal government introduced a temporary (before 2018) charitable donations super-credit. That super-credit allows individuals who have not claimed a charitable donations tax credit in any of the last 5 tax years (that is, 2008, 2009, 2010, 2011 and 2012) to claim a super-credit on up to $1,000 in cash donations made after the budget date of March 21, 2013. The super-credit is equal to 40% of donations under $200 and 54% of donations over the $200 threshold. Donations in excess of $1,000 will, of course, be creditable at regular federal charitable donation credit rates of 15% and 29%, as outlined above.

Make a registered education savings plan (RESP) contribution

It’s possible for Canadians to save for their children’s education on a tax-favoured basis, through a registered education savings plan. While no deduction is provided for contributions made to the plan, investment income earned by those contributions accumulates tax-free, and amounts paid out of the plan to pay for post-secondary education are generally taxed at lower rates in the hands of the student and not those of the original contributor.

The federal government assists contributors to an RESP through a grant program, the Canada Education Savings Grant (CESG). The CESG is equal to 20% of the first $2,500 in contributions made during the year, for a maximum annual grant of $500.

While it’s possible to carryforward grant entitlement to a future year, there are restrictions on the amount of such carryforward. The best way to ensure that the maximum possible CESG is received is to make $2,500 in RESP contributions in each calendar year, by the end of that year.

Consider accelerating medical expenses into 2013

While most out-of-pocket medical expenses incurred by Canadians may be claimed for purposes of the medical expense tax credit, the rules governing that credit can be confusing. The basic rule is that qualifying medical expenses (a list of which can be found on the Canada Revenue Agency website in excess of 3% of the taxpayer’s net income, or $2,152, whichever is less, can be claimed for purposes of the medical expense tax credit.

More practically, the rule for 2013 is that any taxpayer whose net income is less than $71,750 will be entitled to claim medical expenses that are greater than 3% of his or her net income for the year. Those having income over $71,750 will be limited to claiming expenses which exceed the $2,152 threshold.

The other aspect of the medical expense tax credit which can cause some confusion is that it’s possible to claim medical expenses which were incurred prior to the current tax year but weren’t claimed on the return for the year the expenditure was made. The actual rule is that the taxpayer can claim qualifying medical expenses incurred during any 12-month period which ends in the current tax year, meaning that each taxpayer must determine which 12-month period ending during 2013 will produce the greatest credit amount. That determination will obviously depend on when medical expenses were incurred, so there is, unfortunately, no universal rule of thumb.

Medical expenses incurred by all family members can be added together and claimed by one member of the family. In most cases, it’s best, in order to maximize the amount claimable, to make that claim on the tax return of the lowest income member of the family who has tax payable for the year.

As December 31st approaches, it’s a good idea to add up the medical expenses which have been incurred during 2013 as well as those paid during 2012 and not claimed on the 2012 return. Once those totals are known, it will be easier to determine whether to make a claim for 2013 or to wait and claim 2013 expenses on the 2014 return. And, if the decision is to make a claim for calendar year 2013, knowing what medical expenses were paid when will enable the taxpayer to determine the optimal 12-month period for the claim. Finally, it’s a good idea to look into the timing of medical expenses which will have to be paid early in 2014. It may make sense, where possible, to accelerate the payment of those expenses to December 2013, where that means that they can be included in 2013 totals and claimed on the 2013 return.

Take a look at the amount of tax instalments paid this year

Millions of Canadian taxpayers (in particular, the self-employed or retired) pay income taxes by quarterly instalments, with the amount of those instalments representing an estimate of the taxpayer’s total tax liability for the year.

The final quarterly instalment will be due on December 15, 2013. (However, since this year December 15 falls on a Sunday, the actual date on which payment is due will be Monday December 16.) By that date, almost everyone should have a reasonably good idea of what his or her income will be for 2013 and so will be in a position to estimate what the tax bill will be for the year. While the tax return forms to be used for the 2013 tax year haven’t yet been released by the Canada Revenue Agency, it’s possible to arrive at an estimate by using the 2012 form. Increases in tax credit amounts and tax brackets from 2012 to 2013 will mean that using the 2012 form will result, if anything, in a slight overestimate of tax liability for 2013.

Once one’s tax bill for 2013 has been estimated, it’s possible to compare that figure with the total of tax instalments already made for 2013 and to determine whether the tax instalment to be paid on December 15 can be adjusted downward.

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13
AUG
2013

Non-taxable benefits can help retain excellent employees

Good employees are difficult to find, so it may be worthwhile to offer benefits that will encourage them to stay.

Many owner-managers would like to provide their employees with additional benefits but may be reluctant to do so because Canada Revenue Agency (CRA) requires that many benefits be included in employee compensation. Unfortunately, this may attract additional income tax for the employees and add costs to both the employee and employer for employment insurance and CPP.

Some benefits, however, are not taxable to the employee, yet may provide a deductible expense to the employer.

If you, the owner-manager, could design the ideal benefit for your employees, what features would it include? The following four factors may be worth considering:

  1. A deductible expense to you;
  2. No extra costs for you, such as employment insurance or CPP;
  3. Non-taxable in the hands of the employee; and
  4. Attractive enough to keep hard-to-replace employees working for you.

You may be surprised to discover that a few such benefits already exist – if they meet the right criteria.

Uniforms and Special Clothing

In most situations, an employer cannot provide clothing to an employee without creating a taxable benefit for the employee. Uniforms and special clothing (including protective clothing, safety footwear and safety glasses) are exceptions, however.

The Employee Point of View

When employees receive special work-use clothing and protective gear, the benefits to the employee are two-fold: employees don’t have to spend their own money for these items and the CRA does not consider these items a taxable benefit.

The Employer Point of View

From the owner-manager’s point of view, the benefits are also two-fold: a distinctive uniform, usually containing the employer’s logo, is a walking advertisement for your business, while protective gear, if it helps to prevent injuries, keeps insurance costs down. The uniforms and protective gear are deductible expenses to the employer.

Reimbursement and Clothing Allowances

You can also provide employees with an allowance for uniforms, protective clothing, safety glasses, boots, etc., or reimburse them for purchases made with their own money. If the allowance is accountable (i.e., requires receipts) it is considered to be a reimbursement of expenses and is not a taxable benefit to the employee. If you do not require a receipt, the purchases must meet the following three criteria in order to be a non-taxable benefit to the employees:

  1. Laws require protective clothing on the worksite;
  2. The employee purchases the protective clothing; and
  3. The amount of the reimbursement is reasonable.

If laundry or dry cleaning costs are incurred to clean uniforms or protective clothing, employers may opt to pay a reasonable allowance to the employee or, alternatively, to reimburse the employee when receipts are presented. These costs are not taxable to the employee. (The reimbursement includes HST/GST recoverable by the employer.)

Cellular Phone Service

If you provide employees with a personal cellular or other handheld device for business use, the portion attributable to business is not taxable to the employee. In theory, if an employee uses any of these devices for personal use, the personal-use portion would be considered a taxable benefit. The CRA has, however, recognized that it is impractical to try to draw a distinct line between personal and business use. Instead, the CRA states:

Generally, we do not consider your employee’s personal use of the service to be a taxable benefit if all of the following apply:

  • The plan’s cost is reasonable.
  • The plan is a basic plan with a fixed cost.
  • Your employee’s personal use of the service does not result in charges that are more than the basic plan cost.

Child-Care Expenses

Child care is not just a financial issue; it is also an emotional one. A non-taxable, child-care facility at work is an excellent way to keep employees happy. This benefit is only non-taxable to the employee if all the following conditions are met:

  • Child care must be provided at the place of business;
  • Services must be managed by the business;
  • All employees must have the option of utilizing the service;
  • The service must be provided free or with minimal costs attached;
  • Third parties (individuals who are not employees) cannot use the service.

Options to Consider

Assume for a moment you want to provide on-premises child-care facilities for your employees but the costs are so high you will have to offer the service to non-employees at a higher rate. If you decide to go that route, the difference between the cost to your employees (which may be as low as zero), and the price paid by third parties, will be considered a taxable benefit to your employees.

However, if you subsidize your employees to use the child-care services of a third party, the CRA considers the subsidy to be a taxable benefit to employees who use the service. If the subsidized care is for children 14 years of age or younger and for daily periods of less than 24 hours, you pay no HST/GST but you must contribute to CPP.

Internet

If you have employees working at home, you may wish to pay for the portion of their Internet service used for business. Internet costs for business use are a non-taxable benefit to the employee; however, the personal portion of Internet use must be included in the employee’s income as a taxable benefit. It is up to the employer to determine the fair market value and the percentage of business use. The fair market value should be based on the employer`s cost, including GST/HST.

Spouses and Business Trips

Under most circumstances, any reimbursement for the cost of having a spouse or partner accompany an employee on a business trip is taxable to the employee. If, however, the spouse or partner is involved in activities related to the business and attendance is requested by the employer, reimbursement of reasonable travelling expenses is not taxable to the employee.

Education Cost for Employees’ Children

Reimbursement of educational costs for employees’ children is a taxable benefit to the employee. The CRA recognizes, however, that education facilities may not be available to employees’ children because of the remoteness of the worksite or because the local curriculum is inadequate. If an allowance or reimbursement is paid and it is established that the following FOUR conditions are met, then the CRA may consider the amount to be a non-taxable benefit to the employee:

  1. Education is provided in one of Canada’s official languages used by the employee;
  2. The education facility must be the closest one available;
  3. Full-time attendance is required; and
  4. The reimbursement must be reasonable.

GST/HST is not included as part of this benefit.

Parking

Taxable benefits regarding parking are a contentious issue for both the employer and the employee because many employees need to drive to work and believe the cost of parking should be absorbed by the employer.

Under most circumstances, parking is a taxable benefit to employees. The benefit to the employee is calculated at the rate charged for the parking plus HST/GST. Any contribution by the employee toward parking costs is deducted from the benefit. There are, of course, exceptions to the general rule:

  • Employees with disabilities are not subject to the taxable benefit.
  • If the employer provides parking because it is necessary to conduct business AND the employee must regularly use a vehicle (their own or a company vehicle), the add-on to income as a taxable benefit does not apply.
  • Where your business operates from a mall or an industrial park and parking is considered free to all, a taxable benefit does not arise. The CRA recognizes that if an individual is not assigned a specific spot and therefore it is uncertain as to whether a parking spot is attainable, the benefit does not apply.

Be Prepared to Defend Yourself

In many of the situations discussed above, determination of the non-taxable portion of the benefit may be somewhat subjective. Owner-managers should be prepared to support their position with solid documentation in the event the CRA decides to challenge any claims.

Jeff Nightingale is the Senior Tax and Managing Partner at Lipton LLP, Chartered Accountants. Jeff has written a number of publications and speaks to a variety of professional and business groups, including the Canadian Tax Foundation, the Institute of Chartered Accountants of Ontario and The Law Society of Upper Canada. He has also completed the CICA In-Depth Tax Course as well as other advanced taxation courses and is a member of the Canadian Tax Foundation and the Society of Trust and Estate Practitioners.

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24
JUL
2013

CRA Announces Change to Reporting Foreign Income on Form T1135

Recently, the CRA released the revised Foreign Income Verification Form T1135 as announced in the 2013 Federal Budget. Effective immediately, taxpayers are required to use this new form.

Taxpayers must now provide additional information, including:

  • The name of the specific foreign institution, investment or other entity holding funds outside Canada.
  • The specific country to which the foreign property relates.
  • The cost of the property at the end of the year, the highest cost amount during the year and the income or gains generated from the foreign property, on a property by property basis.

 

However, there is some good news for those taxpayers who hold foreign property through Canadian brokerage and investment accounts. The new form states that “where the reporting taxpayer has received a T3 or T5 from a Canadian issuer in respect of a specified foreign property for a taxation year, that specified foreign property is excluded from the Form’s reporting requirement for that taxation year”. The Form includes a box that must be checked where such property is held, so it appears that the Form still does have to be filed even if all of the property is subject to T3/T5 reporting.

Where a taxpayer fails to comply with the requirements of the new form, proposed legislation adds a three-year extension to the normal reassessment period (which is generally three years from the date of the original notice of assessment) to the entire tax return. As a result, if a taxpayer fails to comply with the Form’s reporting requirements, the entire income tax return for the year will not be statute barred until six years after the date of the original notice of assessment.

We continue to keep current as more details are announced.

For additional information, please contact your Lipton advisor.

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22
MAR
2013

2013 Federal Budget Commentary

Like its predecessor, the March 21, 2013 federal budget is entitled “Jobs, Growth, and Long-Term Prosperity”. In his eighth budget, finance minister Jim Flaherty has tabled a document focused on balancing the books, targeted spending, and fine-tuning the tax rules.

Despite being challenged by lower-than-expected growth in the Canadian economy, the government says it is on course to eliminate the deficit and return to a balanced budget by 2015-16. It projects a $25.9 billion deficit for 2012-13, an $18.7 billion deficit in 2013-14, a $6.6 billion deficit for 2014-15, and a surplus of $0.8 billion in 2015-16.

Against this backdrop of deficit reduction, however, the government has introduced several new initiatives to stimulate economic activity and get more Canadians back to work. But even with this commitment to program spending, the deficit will continue to fall because of austerity measures already in place.

The Canada Job Grant program, which received a great deal of pre-budget attention, will provide up to $15,000 per trainee, $5,000 each from the federal and provincial or territorial governments, and $5,000 from the employer. The program is expected to help key industries, like companies in the energy sector, hire the people they need, although it may take up to a year for the federal government to renegotiate existing agreements with the provinces and territories.

The new Building Canada plan pledges more than $47 billion in new infrastructure spending over ten years, starting in 2014-15. This should help restore some of the crumbling infrastructure that is plaguing Canadian cities. What’s more, the initiative makes a link between federal construction and maintenance procurement practices and the hiring of apprentices.

For small businesses, there are a number of welcome changes that will streamline compliance. These include:

  • Enhancing CRA’s online enquiries service by allowing small business taxpayers to “go paperless” and rely exclusively on electronic notices stored in the secure My Business portal
  • Increasing accountability by introducing “Agent ID”, giving taxpayers access to the names and other identifying details of CRA call centre agents
  • Working to expand the use of the Business Number to more governments
  • Introducing a pilot program for pre-approval of SR&ED claims
  • Streamlining the approval process for authorization of third parties to conduct business tax matters on their clients’ behalf.

 

The budget also contains stimulus measures for the manufacturing sector, including:

  • A two-year extension of the temporary accelerated capital cost allowance for new investment in machinery and equipment
  • Renewal of the Federal Economic Development Agency (FedDev Ontario) for southern Ontario with funding of $920 million over five years
  • Investing $200 million over five years in the new Advanced Manufacturing Fund in Ontario
  • Streamlining foreign trade zone policies and programs by cutting red tape and improving access
  • Extending the Hiring
  • Credit for Small Business for an additional year

 

Please click the link to read Lipton’s full commentary of Mr. Flaherty’s latest budget.

2013 Federal Budget Commentary

Jeff Nightingale is the Senior Tax Partner at Lipton LLP, Chartered Accountants.  Jeff has written a number of publications and speaks to a variety of professional and business groups, including the Canadian Tax Foundation, the Institute of Chartered Accountants of Ontario and The Law Scociety of Upper Canada.  He has also completed the CICA In-Depth Tax Course as well as other advanced taxation courses and is a member of the Canadian Tax Foundation and the Society of Trust and Estate Practitioners.

Learn More about Jeff Nightingale

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20
FEB
2013

6 Tips for Tax Season

It’s that time of year again, when we dig deep into our shoeboxes full of receipts and wait eagerly for official tax documents toarrive in the mail.  Are you ready for it this year? Did you keep a good record of all the charitable contributions you made, the receipts you can write off?  Are you aware of all the incentives you might qualify for?

Most of us aren’t.  Don’t worry, you still have time to get it all in order. Here are the six steps to get ready for tax season.

1. Get organized

Try to set aside at least one weekend to get your tax receipts and documents in order. If you’re filing on your own return, you may need an extra day to sit down and input the numbers. Find the obvious stuff first: T4 slips, or if you’re self-employed all your invoice advice documents. Print out the official RRSP tax receipts and track down all your official charitable contribution documents.

2. Inquire about All Incentives

Visit the Canada Revenue Agency (CRA) website to investigate the incentives you and your family qualify for. Check out things like the child fitness credits, moving credits and education credits. There are numerous tax incentives that you may be able to take advantage of. Live agents are also on hand to answer tax questions and you can call in anonymously. Talk to colleagues doing a similar job and cross-reference each of your returns to make sure you’re not missing anything.

3. Using a Professional vs. Going it Alone

If you have a particularly complicated tax return, it might be in your best interest to seek the advice of a professional. If your tax refund is fairly simple you can use one of the reputable online tax filing programs to complete your refund. Remember to file online, sending your refund through mail delays your process by up to six weeks.

4. Have a Plan if you Owe Money

If your calculations show you owe money to the CRA, start putting that money away now. This will help you save enough to pay the balance off before it costs more in the form of interest and penalties. The faster you pay off your tax bill, the better.

Also investigate what changes you need to make this year to avoid paying next year. One of the easiest ways to lessen your tax impact is by contributing to your RRSP.  Check the Notice of Assessment you received last year.  You can calculate how much room you have.

5. Income Splitting

You can reduce your tax bill significantly by implementing income-splitting strategies if your spouse is in a lower income bracket. When you retire and withdraw money from your RRSP you will be taxed. By setting up a Spousal RRSP, you can transfer a portion of that income into your spouse’s RRSP to be taxed at lower rates upon withdrawl by your spouse after age 65. The contributor to the Spousal RRSP is able to bring their contribution room down and still enjoy the benefit of getting a larger refund.

6. Learn from your Mistakes

Start planning now for the 2013 tax season. Create a filing system to keep all your important documents organized. Have a permanent place for your records, charitable receipts and RRSP contribution documents. Using technology, such as a scanner to digitize all of your receipts and financial documents is also an efficient way to manage your documents, while removing the clutter.

Important Deadlines:

  • Your RRSP deadline for contributing for the 2012 tax year is March 1, 2013.
  • If you have a balance owing for 2012, it must be paid by April 30, 2013.

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19
DEC
2012

Tax-Free Savings Accounts

No one likes receiving unexpected notices from the Canada Revenue Agency (CRA).  Some owners of tax-free savings accounts may have received notices and may be confused about the rules governing such accounts.

Effective since January 1, 2009, Canadians over 18 have been able to contribute up to $5,000 a year to tax-free savings accounts (TFSA).  They do not obtain a tax deduction for contributions, but any investment income or capital gains earned in a TFSA is not taxed.  Withdrawals from the accounts are also tax-free and can generally be withdrawn at any time.

Confusion has arisen, however, over whether withdrawals can be replaced in a TFSA within the same tax reporting year.  They cannot, if such deposits take the contribution total over the $5,000 limit.

As an example, if a TFSA owner has deposited the maximum of $5,000, then withdraws $2,000 – or even transfers it into another bank account – then deposits $2,000 later in the year to top up the account, CRA deems that $7,000 has been deposited in the TFSA.  There is a penalty for excess contributions amounting to one per cent of the excess, assessed each month within the taxation year.  Some account owners have unexpectedly received notice of penalty assessments.

Many people were unaware of this aspect of the rules governing TFSA contributions.  You have to wait until the following taxation year to replenish a TFSA if the replenishment will mean that your total deposits exceed $5,000.

The CRA has acknowledged that there has been genuine misunderstanding about the rules and is willing to reconsider the penalties in such cases.  If you have received reassessment notices concerning TFSA contributions, Lipton understands the CRA’s procedures for seeking a review of penalties and have already made representations on behalf of clients.

Jeff Nightingale is the Senior Tax Partner at Lipton LLP, Chartered Accountants.  Jeff has written a number of publications and speaks to a variety of professional and business groups, including the Canadian Tax Foundation, the Institute of Chartered Accountants of Ontario and The Law Scociety of Upper Canada.  He has also completed the CICA In-Depth Tax Course as well as other advanced taxation courses and is a member of the Canadian Tax Foundation and the Society of Trust and Estate Practitioners.

Learn More about Jeff Nightingale

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22
NOV
2012

Saving for an Education

Tuition may be increasing, but education is still the best investment we can make for our children or grandchildren.  Today more than ever, it pays to plan ahead for a child’s education – and Registered Education Savings Plans (RESPs) are an excellent tool to help you do it.

Establishing an RESP helps you save along the way so that you aren’t faced with huge expenses all at once.  Parents, grandparents and certain other family members or friends can contribute up to $4,000 per year to a maximum of $42,000.  Plus, they can save taxes at the same time.

Even though the annual contributions to the plan are not tax-deductible, the money grows tax free until it is withdrawn.  The student then pays the tax owing on the income when it is withdrawn – and usually at a much lower rate.

You can also benefit from the Canada Education Savings Grant, a federal government program whereby the government contributes an additional 20 per cent on the first $2,000 of annual RESP contributions.  This guarantees a rate of return of at least 20 per cent on an annual basis – which means you can save even more.

But do your homework,  if you’re considering setting up an RESP, seek advice first.  Different plans have different conditions.  There are certain limitations relating to the Education Savings Grant.  You want to make sure that the terms of the plan you choose meet your intentions and requirements, and provide the best education fund for your children.

Jeff Nightingale is the Senior Tax Partner at Lipton LLP, Chartered Accountants.  Jeff has written a number of publications and speaks to a variety of professional and business groups, including the Canadian Tax Foundation, the Institute of Chartered Accountants of Ontario and The Law Scociety of Upper Canada.  He has also completed the CICA In-Depth Tax Course as well as other advanced taxation courses and is a member of the Canadian Tax Foundation and the Society of Trust and Estate Practitioners.

Learn More about Jeff Nightingale

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24
AUG
2012

Partnership Year-Ends – Tax Changes

W hat are the tax implications of a member of a corporate partnership having a fiscal yearend different from that of the partnership? The latest federal budget provides a new answer to that question. Previously, partnerships owned by corporations could defer taxes on their income. They did this by setting the year-end of the partnership on a date after the year-end of the corporate partners. For example, if a corporate partner had a March 31 year-end, the partnership could have an April 30 year-end in order to defer the partners’ income taxes on 11 months of income from the partnership. The budget proposals of March 22, 2011 will do away with this deferral opportunity.

Henceforth, each corporate partner will be required to include in its current fiscal year its share of the partnership income calculated on the deferred portion of the partnership’s fiscal year. This period is referred to as the “stub period.”

There will surely be some fine-tuning of the calculations but generally this new rule applies to all corporate partners, other than professional corporations,
that have year-ends of March 23, 2011, or later. “Some clients were concerned about the additional tax burden of having to include additional income in
their fiscal years ended March 31,” says Tax Partner Sunita Arora.

“The government has made a transitional reserve available to permit the stub-period income to be brought into income over five years, using a graduated formula.”

Furthermore, the Canada Revenue Agency has stated that they will also apply similar rules to members of joint ventures and co-tenancies. At this point, these
details have not been released.