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Archive for Canada Tax

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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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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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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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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Canada Tax: Capital Cost Allowance For Real Estate And What It Means

Capital cost allowance (CCA) is the tax term in Canada for the deduction of amortization on capital assets. There are separate classes of CCA for property, plant and equipment and different rates that apply to each class. There are some specific rules for claiming capital cost allowance related to real estate.

Once construction is complete, a building can be sold as inventory and earn business income, used to earn property income, or used to operate an active business. If the building is not being sold, then it will generally become depreciable property for the corporation. In order to be classified as depreciable property, the building must meet the following conditions: Read more

Canada Tax: CRA Revised “Sprinkling” Proposals And What “Kiddie Tax” Really Means

The “sprinkling” proposals issued in July 2017 were amended in December 2017 effective for the 2018 taxation year.

As you may recall, the July proposals were designed to tax at the top rate, individuals now over age 18 who are in receipt on what is called “split income” or TOSI (tax on split income). Before 2018, the TOSI was called a “kiddie tax.”

For 2018, the TOSI rules extend to family members who are not active in the business that are receiving dividend income on any type of shares they hold and on capital gains on the sale of shares that are not qualified small business corporation shares. The pre-2018 rules applying to those under age 18 did not extend to capital gains on the sale of shares. Read more

Canada Tax: Qualifying Non-Resident Employer And Withholding Tax

A qualifying non-resident employer can be certified and thus will have to withhold tax from the salary or other compensation paid to qualifying non-resident employees in Canada (to be covered in a future FAQ). This eliminates withholding taxes. Which can be a big cash flow savings. The certification will be valid for up to two calendar years.

To be eligible to be a qualifying non-resident employer, the employer must be a resident in a country that has a tax treaty with Canada. Read more