When most people think of foreign accounts, they think of ex-pat living overseas and utilizing banks for the accumulation of their payments. However, many taxpayers may also be subject to the federal Foreign Bank and Financial Accounts or FBAR reporting without realizing it. The United States Treasury Department’s Financial Crimes Enforcement Network (FinCEN) 114 form is filed alongside taxpayers’ federal tax return and reports information for those that have a financial interest or signature authority over a foreign financial account.
Financial interest is defined as: directly owning an account; directly owning or indirectly owning more than fifty percent of a corporation’s voting power and/or shares when that corporation owns an account; directly owning or indirectly owning more than fifty percent of a partnership’s profits or capital when that partnership owns an account, or directly owning or indirectly owning more than fifty percent of the voting power, total value or the equity interest or assets, or interest in profits of any entity that owns an account.
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
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.
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.
A disposition of property can be categorized as business income or as a capital gain or loss. There are various factors to consider in determining if the disposition is business income or capital for a corporation.
As capital gains are only 50% taxable in Canada, it is generally more favorable for the taxpayer. However, capital losses are only deductible against capital gains. The capital losses can be carried back 3 years and carried forward against future capital gains. Therefore, your tax advantage may vary depending on the situation. Read More
If you are a certified qualifying non-resident employer, then you do not have to withhold taxes from the salary or other compensation paid to employees that are qualifying non-resident employees in Canada.
In order to be a qualifying non-resident employee, the employee must meet the following criteria:
- Be a resident of a country that has a tax treaty with Canada at the time of the payment;
- Not be liable for income tax in Canada due to the tax treaty and the type of payment received; and
- Either works less than 45 days in the calendar year in Canada or is present less than 90 days in any 12 month period in Canada.
In real estate, once a property is being developed or held for resale it will generally be classified as inventory. It is important that inventory is valued properly as it can have a significant impact on net income year to year.
Real property can be valued at the lower of cost or market value. The method used in valuing a corporation’s inventory must be consistently applied year to year. There must be an acceptable reason for changing methods and it must be acknowledged by Canada Revenue Agency (CRA).
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:
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.
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
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
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.
- 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.
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