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Archive for Grant Gilmour

Canada: What You Must Know About Provincial Sales Tax (PST)

Grant Gilmour-Provincial Sales Tax

Provincial sales tax (PST) is a retail sales tax that applies when a taxable good or service is purchased, acquired or brought into B.C., unless a specific exemption applies.

The PST generally applies to:

  • The purchase or lease of new and used goods in B.C.
  • Goods brought, sent or delivered into B.C. for use in B.C.
  • The purchase of:
    • software
    • services to goods such as vehicle maintenance, furniture assembly, computer repair
    • accommodation
    • legal services
    • telecommunication services, including Internet services and certain digital and electronic media content such as music and movies
  • Gifts of vehicles, boats and aircraft

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Canada Tax – Books And Records Kept Outside Of Canada

Grant Gilmour Books And Records Kept Outside Of Canada

Is a non-resident corporation that is registered for a Goods and Services Tax/Harmonized Sales Tax (GST/HST) account with the Canada Revenue Agency (CRA) required to keep records and books of account in Canada?

The Canadian Income Tax Act (ITA) requires everyone who registers for a GST/HST account to keep records and books of account in Canada in either English or French. However, CRA does allow the books and records to be kept outside of Canada in some circumstances. Read more

Canada: Speculation Tax On Real Estate

Grant Gilmour, Speculation Tax, Canadian Tax Help

What Is The Speculation Tax?

The 2018 budget released by the B.C. Government introduced a new tax on Real Estate effective in the 2018 tax year called Speculation Tax.

Real estate prices in B.C. have increased substantially in the last couple of years and there is increased interest and ownership of B.C. real estate by foreign parties. The speculation tax has been introduced by the B.C. Government as an attempt to help address this. The speculation tax is designed to target foreign and domestic home owners in B.C. who hold non-owner occupied properties which are not qualifying long-term rental properties. This tax will initially apply to homes in Metro Vancouver Regional District (excluding Bowen Island), the Capital Regional District (excluding the Gulf Islands), Chilliwack, Abbotsford, Mission, Nanaimo, Lantzville, Kelowna and West Kelowna.

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Security Deposit Required By Canadian Revenue Authority For Non-Resident Corporation

Grant Gilmour- Canada Revenue Authority Requires Security Deposit For Non- Resident Corporations

A non-resident corporation who is registered for GST/HST is required to provide and maintain a security deposit with the Canada Revenue Authority (CRA). However, if under a specified threshold of sales and net tax payable or refundable, a corporation may be exempt.

Discussion

The minimum amount of security is $5,000 CAD, but can be as a high as $1 million CAD. The initial security deposit amount is based on 50% of the estimated net tax for the year. Net tax is calculated using the company’s Canadian net profit (Canadian sales less Canadian expenses) for the year, multiplied by 5% GST rate (or HST if selling in provinces with HST — see International FAQ #39). Then 50% of the net tax amount is your required security deposit.

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Canada: Goods And Services Tax On Residential Real Estate

Grant Gilmour- Goods And Services Tax

In real estate, the beneficial owner of the property has the responsibility to collect GST and remit to Canada Revenue Agency (CRA). If the property is held “in trust” by another corporation or entity, the beneficial owner is still required to register and file GST returns. It is common for third parties such as agents or property managers to be designated to collect GST on rental income. There is a special election that allows the agent to remit GST on behalf of the owner, but responsibility is still on the beneficial owner.

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Tax Obligations For Holding Foreign Real Estate

Grant Gilmour, Canadia Tax Expert

If a Canadian corporation holds foreign real estate, there are certain reporting requirements:

  • T1135 return must be filed if you own property with a cost of $100,000 Canadian dollars or more (see International FAQ #12).
  • If a Canadian corporation owns 10% or more in shares of a non-resident corporation (foreign affiliate), then there is a requirement to file a T1134 return (see International FAQ #34).

These reporting requirements are just information returns. Any additional tax liabilities are reported on corporate or personal tax returns.

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Unexpected Tax Bill For Canadian Professionals

Grant Gilmour, Canada, Work In Progress

In Canada, under a provision in the Income Tax Act, in previous years professionals did not pay tax on work in progress (WIP). Instead it was deferred as unearned income until the work had been completed and invoiced. The 2017 budget has proposed to do away with this provision for WIP of professionals for tax years beginning after March 22, 2017.

The removal of this provision will likely result in an unexpected tax bill for most professionals. To help soften the tax impact for these professionals, draft legislation was released in September 2017 which allows for transitional relief. Professionals can choose to phase-in their WIP earnings over 5 years by adding their WIP into taxable income at 20% each year until the full amount is included in taxable income in the fifth year.

WIP can be valued at either the fair market value or the lower of cost and fair market value. As WIP for professionals is typically based on charge-out rates or fair market value, professionals will have the option of declaring their WIP at cost instead. Presumably, cost would be the lower value and would therefore result in less taxes. However, there is no legislative guidance on how to cost WIP for professionals.

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2018 Canadian Corporate Tax Rates By Province And Territory

Grant Gilmour, Canadian Income Tax Rates

We would like to thank TaxConnections Member Grant Gilmour for his post on 2018 Canadian Corporate Income Tax Rates. The Table below outlines the Canadian corporate income tax rates for each province and territory as of January 1, 2018.

 

Have a question about Canadian taxes? Contact Grant Gilmour.

 

 

Canadian Corporate Director Residency Requirements

Grant Gilmour, Tax Advisor, Canada

Which provinces and territories allow Canadian corporations to have 100% foreign directors? And 100% foreign owners/shareholders?

In Canada a corporation must have at least one director (see International FAQ #27) but directors are not required to be shareholders. It must also have at least one shareholder. Therefore a company incorporated in Canada does not have to have Canadian resident shareholders, but may have to have Canadian resident directors depending on the province or territory they incorporate in.

The provinces and territories that require at least 25% to be Canadian resident directors. Which effectively limits foreign ownership and control. Canadian directorship is based on residency not citizenship.

  • Alberta
  • Ontario
  • Saskatchewan
  • Newfoundland and Labrador
  • Manitoba
  • Federal

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Cost Of Being Late On Tax Returns Versus Cost Of Being Wrong

How can being late be more costly than being wrong?

There are trade offs in taxes. Being wrong (filing on time but not having all the information to file 100% correct) can be a trade off you have to make versus filing late when all the information is assembled.

Tax is full of trade offs. Many times people don’t realize there is a trade off available to them. They think they must do a certain thing or file a tax return a certain way. When in fact there are options. Knowing your options is critical to long term tax reduction.

Here is what we consider a classic example:

Let’s say your business has a Goods and Services Tax (GST) return due today. You do not have all the information to complete it correctly. Maybe an invoice you know that should be printed and sent to the client is missing. There is some GST on that invoice. Or maybe you know you are missing some expenses and the GST on those expenses. You also know that it is impossible today to get that information in time to meet the filing deadline. The people that have that information are away or just not responding to your questions.

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Can Tax Really Be Avoided?

What do they mean when they say avoid tax? Can it really be avoided or is tax just a zero sum game like accounting?

The Income Tax Act has options for calculating and paying income tax. Tax is not a zero sum game. There are options to what rates are used. There are options to what number is used to calculate the tax. These options can reduce your taxes paid.

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Change In The Use Of Real Estate

In real estate, it is common to change the use of property from income producing to some other purpose such as personal use and vice versa. When a change of use does occur, the property may be deemed disposed of at fair market value. There are different types of changes in use that will be discussed further and their respective tax consequences.

In a partial change in use, a taxpayer is deemed to dispose only a portion of the property. For example, if a property is used 60% for business and 40% for personal and now the property will be used 100% for business, then there will be a capital gain or loss on only 40% of the property at the fair market value. This is under the assumption that the property is personally held. If the corporation owned 100% of the property, then there may not be a capital gain on this partial change of use. However, the individual may have to pay rent at fair market value for their personal use portion.

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