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Canada: Capital Cost Allowance For Real Estate

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.
Discussion:

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:

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Tax Treatment Of Leasehold Improvements

Grant Gilmour, Tax Advisor, Tax Blog, Vancouver, Canada, TaxConnections

In real estate, property and building leases are common signed agreements between two corporations. Leasehold improvements are generally building additions for the lease space paid for by the tenant (lessee). These costs are considered capital and amortized over the length of the lease.
Discussion:

Common lease periods for real property are 5 to 10 years.

The lease rates are negotiated by the lessor and the lessee at fair market value. The periodic lease payments are a deduction for the corporation. Upon termination of the lease, the leasehold improvements usually revert back to the lessor unless the lessee can remove them. Read more

Canada Tax: Qualifying Non-Resident Employer And Withholding Tax

Grant Gilmour, Tax Advisor, Tax Blog, Vancouver, Canada, TaxConnections

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

Ownership Structures In Real Estate

Grant Gilmour, Tax Advisor, Tax Blog, Vancouver, Canada, TaxConnections

The common types of ownership structures in real estate are owned as an individual, in a corporation, in a partnership or in a joint venture. The type of structure generally depends on the purpose of the use.

Individual Ownership

  • Less complexity but income is taxed at personal tax rates which can be the highest rates.
  • Any losses incurred can be offset against any income.
  • There is no liability protection for the individual besides the insurance policy on the property.

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Canada Tax: Capitalization Of Development Cost Under The Income Tax Act

Grant Gilmour, Tax Advisor, Tax Blog, Vancouver, Canada, TaxConnections

During the development phase or period of construction, there are many costs that are incurred. The majority of these expenditures are added to the capital cost of property or to the cost of inventory.

Soft costs do not have to be capitalized once the construction is complete or on the day that the building is substantially (at least 90%) used for its intended purpose. An occupancy certificate or completion certificate issued by the municipal building department is sufficient evidence that construction is complete. Read more

Real Estate Expenses After Acquisition Of Property For Tax Purposes

Grant Gilmour, Tax Advisor, Tax Blog, Vancouver, Canada, TaxConnections

After a property is purchased, there is generally a time period that a property is held before it is developed. Common expenses that are incurred are property taxes and interest. Other expenses incurred can be classified as an operating expense, added to inventory cost or capitalized for tax purposes.

Property taxes and interest on vacant land are generally capitalized or added to the cost of inventory for real estate. These expenses on vacant land can only be deducted in the same tax year if there is property income received and the corporation is not in the business of development. Read more

Tax Consequences For Corporate Entry Into Canada

Grant Gilmour, Tax Advisor, Tax Blog, Vancouver, Canada, TaxConnections

A company is considered to have immigrated to Canada if the corporation’s central management and control has moved to Canada, regardless if initially incorporated in Canada or not. Therefore, when a business owner moves to Canada, so does the business.

When the company enters Canada, the company is deemed to have disposed of and reacquired all of the company’s assets and liabilities at their fair market value (FMV) right before coming to Canada. As the assets and liabilities of the company are being re-valued at the FMV, this is considered to be the company’s valuation date. Read more

Non-Active Canadian Corporations Are Not Required To File A Corporate Tax Return…Or Are They?

Grant Gilmour, Tax Advisor, Tax Blog, Vancouver, Canada, TaxConnections

Non-resident corporations that have no activity in Canada during its fiscal year are not required to file a Canadian corporate tax return. However, without filing a Canadian corporate tax return, the Canada Revenue Agency (CRA) will not know that you did not have activity in Canada. Therefore, CRA may send you a letter requesting that a return is required to be filed.

If CRA requests that a return be filed, even though your company had no activity in Canada, you may be tempted to file a return in order to be in compliance. Read more

Real Estate Expenses During Pre-Acquisition

Grant Gilmour, Tax Advisor, Tax Blog, Vancouver, Canada, TaxConnections

There are various real estate expenditures that are deductible to the corporation and others that are capitalized or allocated to inventory. In this FAQ, we will discuss the real estate expenses that are deductible during the pre-acquisition phase as an operating expense to the corporation in the fiscal year that expenditures were incurred.

There are many “soft” costs in real estate such as representation costs, site investigation costs and financing expenses.

Representation costs are eligible for a deduction for amounts paid in the year. Examples of these costs are rezoning applications, project planning and preliminary design costs. Read more

FinCEN Further Restricts North Korea’s Access to the U.S. Financial System and Warns U.S. Financial Institutions of North Korean Schemes

Willliam Byrnes, Tax Advisor

The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a final rule under Section 311 of the USA PATRIOT Act that severs Bank of Dandong, a Chinese bank that acts as a conduit for illicit North Korean financial activity, from the U.S. financial system. FinCEN also issued today an advisory to further alert financial institutions to schemes commonly used by North Korea to evade U.S. and United Nations (UN) sanctions, launder funds, and finance the North Korean regime’s weapons programs.

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Petty Cash Management: A Good Practice System

Grant Gilmour, Tax Advisor

Petty cash is a float that gets replenished monthly and is a convenient way to reimburse staff for company purchases or to cover minor expenses. Petty cash is considered a current asset on the balance sheet.

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