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Tag Archive for Canada tax

Canada Tax: Disposition Of Real Estate For Business Income Vs. Corporation Capital

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

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

Canada Tax: Qualifying Non-Resident Employee And Withholding Tax

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

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.

Discussion:

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.

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

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

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

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

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

Is Cancelling NAFTA Bad For Canada?

Joe Barbieri, Tax Advisor, Tax Blog, Toronto, Canada, TaxConnections

The spectre of NAFTA being cancelled is on many people’s minds since the election of President Donald Trump. Washington has pulled out of the Trans-Pacific Partnership (TPP) and wants a better deal for the U.S. in the NAFTA agreement. The recent possible tariffs coming from the Trump administration is also heightening trade concerns. Is cancelling NAFTA a bad thing for Canada? There are 2 ways to examine this question.

The Current State

The first approach is looking at how things currently are and what is likely to happen using this assumption. Canada is the U.S.’s second largest trading partner and the U.S. is Canada’s largest trading partner by a large margin; the U.S. is Canada’s closest trading partner by physical location. Read more

Missed The March 15 1042-S Filing Due Date? Better Hurry Up!

Daniel Gray, Tax Advisor, Tax Blog, Toronto, Canada, TaxConnections

The following penalties apply to the person required to file Form 1042-S. The penalties apply to both paper filers and electronic filers. Late filing of correct Form 1042-S. A penalty may be imposed for failure to file each correct and complete Form 1042-S when due (including extensions).

The penalty, based on when you file a correct Form 1042-S, is: $50 per Form 1042-S if you correctly file within 30 days after the required filing date; the maximum penalty is $545,500 per year; if you file after August 1 or you do not file correct Forms 1042-S; the maximum penalty is $3,275,500 per year. If you intentionally disregard the requirement to report correct information, the penalty per Form 1042-S is increased.
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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

FBAR Must Be Filed Electronically Through FinCEN’s BSA E-Filing System, Not With The Federal Tax Return

Daniel Gray, Tax Advisor, Tax Blog, Toronto, Canada, TaxConnections

FBAR must be filed electronically through FinCEN’s BSA E-Filing System. The FBAR is not filed with a federal tax return.

Public Law 114-41 mandates a maximum six-month extension of the filing deadline. To implement the statute with minimal burden to the public and FinCEN, FinCEN will grant filers failing to meet the FBAR annual due date of April 15 an automatic extension to October 15 each year. Accordingly, specific requests for this extension are not required.

Thus, before the FBAR extended due date of October 15, file streamlined FBARs for each of the most recent 6 years for which the FBAR due date has passed (i.e., is delinquent, and of course timely file the current year FBAR too). Read more

Unintended Consequences Of Tax Jobs And Cuts Act On Canadian Citizens And Others Abroad

John Richardson, Toronto, Canada, Tax Lawyer, Tax Blog, TaxConnections

“This legislation is being interpreted by a number of tax professionals to mean that individual U.S. citizens living outside the United States are required to simply “fork over” a percentage of the value of their small business corporations to the IRS. Although technically “CFCs” these companies are certainly NOT foreign to the people who use them to run businesses that are local to their country of residence. Furthermore, the “culture” of Canadian Controlled Private Corporations is that they are actually used as “private pension plans”. So, an unintended consequence of the Tax Cuts Jobs Act would be that individuals living in Canada are somehow required to collapse their pension plans and turn the proceeds over to the U.S. government” -John Richardson Read more

Passive Investment Income Proposed Tax Changes

Grant Gilmour, Tax Advisor, Vancouver, BC, TaxConnections

The Canadian tax system is built on the concept of tax integration. Based on the view of principles of fairness and neutrality, tax integration aims to ensure that an individual is indifferent between earning income through a corporation or directly as the after tax results should be the same.

Currently corporate tax rates are lower than personal tax rates; however, when after tax profits earned in a corporation flow out to an individual the net result is comparable to the net result had the individual earned it directly. The difference occurs when a corporation’s after tax profits are saved inside the corporation as a passive investment to be flowed out to the individual at a later date. Read more

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