2018 Ontario Budget Commentary

On March 28, 2018, Ontario’s Finance Minister Charles Sousa delivered the 2018 budget. This budget anticipates a surplus of $500 million in 2017-18 and deficits of $6.7 billion for 2018-19 and $6.6 billion for 2019-20.

The budget also includes changes to Ontario’s personal income tax rates and brackets although these proposed changes have no impact on the top marginal income tax rates. No changes to corporate income tax rates were announced.  The budget also provides increases to the Ontario Research and Development Tax Credit and the Ontario Innovation Tax Credit as well as changes to the Employer Health Tax exemption.

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Are you ready for T1 Tax Season?

The April 30, 2018 deadline to file your 2017 personal income tax return is quickly approaching. As a result of changes in tax laws and the ever-increasing complexity in preparing personal tax returns, please gather your required tax information (as outlined in the attached 2017 Personal Tax Checklist) and submit them to us no later than Monday, April 2nd, 2018.

Provided below is a link to everything you will need to allow us to prepare your 2017 T1 Income Tax Return.

Should you have any questions or concerns about anything pertaining to the preparation of your 2017 T1 Income Tax Return, please feel free to contact your Lipton advisor.
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U.S. House and Senate Conference Committee Releases Final Tax Bill

On December 15, 2017, the final version of the U.S. “Tax Cuts and Jobs Act” was released, which reflected a compromise between the United States House and Senate versions of the tax reform legislation.

We are pleased to provide you this comprehensive update prepared by the law firm Hodgson Russ, LLP. Headquartered in Buffalo, New York, we have had the pleasure of working with this widely respected firm for a number of years on behalf of clients who are either U.S. persons for tax purposes or those having business interests in the United States.

Click here to access the US Update Newsletter.

If you have any questions regarding any of the content found in this update, please feel free to contact your Lipton advisor.

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Income Splitting Using Prescribed Interest Rate Loans

Prescribed interest rate loans allow higher income earners to split income with lower income earning family members. The steps involve the higher income earner loaning money directly or via a trust to the lower income earner. The lower income earner then invests the funds in order to earn investment income. If assets other than cash are loaned, consideration must be given to potential taxes that may arise on the transfer.

In order to avoid the application of the income attribution rules (which cause the income earned from the loaned property to be taxed back into the hands of the higher income earner), the loan must bear interest at least at the “prescribed interest rate”. At the moment, the prescribed interest rate is at the historically low rate of 1%. This rate will be increasing to 2% as of April 1, 2018. This plan creates a tax-saving opportunity due to the spread between the prescribed interest rate paid and the income actually earned. As a result, now is a good time to implement or even increase an existing prescribed interest rate loan plan.

The advantage of setting up the loan when the prescribed interest rate is 1% is that the Income Tax Act only requires the lender to charge the prescribed interest rate at the time the loan is originally made.

It should be noted that the tax rules require that the prescribed interest rate is actually paid for each calendar year to the lender by January 30th of the following year.

If the lender or borrower is a U.S. person for tax purposes, the implications of this type of planning must also be considered.

Please contact your Lipton advisor if you would like to discuss this tax planning opportunity further.
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2017 T4 Information

In order to facilitate the accurate preparation of your 2017 T4 information returns, we are pleased to enclose a summary of significant taxable benefits that may apply to your employees.

Click Here to view the Summary 

It should be noted that, as mentioned last year, if you are submitting more than 50 information returns (slips) you are required to file electronically.   If you fail to comply with this requirement, you may be subject to an incorrect filing format penalty.  We can assist you in ensuring your compliance with these new rules.

If your T4 information return is being prepared by Lipton LLP, we will be electronically filing all 2017 T4 information returns whenever possible.

If you have any questions concerning the preparation of 2016 T4 information returns and slips, please contact our office.

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Congratulations to our 2017 CFE Graduates

Lipton LLP Chartered Accountants is proud to announce that all six of our writers, Nimesh Ratnarajah, Julie Ann Sedore, Taraneh Rashed, Sierra De Sousa, Mo Du and Cecilia Lam (not pictured), were successful in passing the 2017 Chartered Professional Accountants of Canada (CPA) Common Final Examination (CFE).

The CFE is the final examination that Chartered Professional Accountant (CPA) students take in pursuit of their CPA designation.

For 40 years, Lipton is proud to have assisted many of our CPA students in obtaining their designation.
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Ontario’s Fall Economic Statement

On November 14, 2017, Ontario Finance Minister Charles Sousa delivered the Fall Economic Statement.

Please click here to read our summary of the upcoming changes.

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Phase-Out of Recaptured ITCs – Reminder

Ontario introduced the Phase-Out of Recaptured ITC rules (RITC) for large businesses effective July 1, 2010. These rules have had the effect of restricting the input tax credits (ITCs) for large businesses related to the provincial component of the Ontario HST for specified property or services acquired, imported or brought into Ontario.

In general, a large business is defined as a business with more than $10 million in annual revenues, including revenues from related entities, as well as most financial institutions. Special rules apply for reorganization transactions and new businesses.

A specified property or services includes qualifying energy, telecommunications, meals and entertainment expenses and motor vehicles under 3,000 kilograms.

RITC phase-out period

Ontario has begun and continues to phase out the RITC rates as follows:

Recapture periods Ontario RITC Recapture Rate
July 1, 2015 to June 30, 2016 75%
July 1, 2016 to June 30, 2017 50%
July 1, 2017 to June 30, 2018 25%
July 1, 2018 and beyond 0%

Selected compliance matters

Large businesses must apply the recapture rate that applied at the time the HST first became payable or was paid without having become payable for a particular specified property or service. As such, these businesses have to ensure that the appropriate recapture rate (100%, 75%, 50% or 25%) applies for a particular invoice, and also must ensure that the RITCs are reported in the proper reporting period.

Large businesses may also have to adjust other systems and calculations, such as employee expense accounts and their estimation/reconciliation RITC method, if applicable.

Large businesses that do not report the RITC correctly for a prior reporting period must correct the particular reporting period related to that particular RITC. They cannot simply adjust the current reporting period to remit any additional tax owing. Related penalties for misreporting RITCs may also apply.

We can help

Your Lipton adviser can help you review your systems and HST returns with respect to the reductions of the recapture rates during the balance of the phase-out period. We can assist you with these tax compliance obligations as well as other indirect tax obligations.

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Tax Planning Update – U.S. Closer Connection, Form 8840

U.S. tax rules contain a mathematical formula to determine tax residency. This formula involves counting the number of days that you are physically present in the U.S. over a three-year period. This residency formula is called the Substantial Presence Test (SPT). Based on the SPT formula, if you exceed 182 days, you are deemed to be a resident of the U.S. for income tax purposes. With respect to 2016, the SPT formula takes all of the days in the current year (2016), 1/3 of the days in the previous year (2015), and 1/6 of the days in the second previous year (2014). You total the results from this formula, and if you were in the U.S. for at least 31 days in 2016, and at least 183 days based on the three-year formula, then you are deemed to be a U.S. resident in 2016 for U.S. income tax purposes.

The Closer Connection Exception:

If you meet the SPT but you were in the U.S. for less than 183 days in 2016, you may file a form with the Internal Revenue Service (IRS) to report that you have a closer connection to Canada and are thus exempt from the U.S. residency designation.

Due date:

This form must be submitted to the IRS by June 15 of the year following the tax year in question (June 15, 2017 for 2016).

Form completion:

We can help you determine if you need to complete this form for 2016 if you provide us with the number of days that you were present in the U.S. in 2016, 2015 and 2014.

Please contact your Lipton adviser if you have any questions in connection with this or any other matter.

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