Kurt Rosentreter Tax Planning Tips May 2018

Transcription

1 May 2018 KURT ROSENTRETER Phe EXT 230 MAY 2018 Kurt Rosentreter Tax Plng Tips May 2018 Tax Ticklers Some Quick Pots Csider Of approximately 28 milli persal tax returns filed f 2016 year, 58% got refunds. 68% m by direct deposit. The aver refund was $1,735. Only last year CPP surviv nefits c generally accessed f late applicatis. D t delay submsi. Effective Decemr 3, 2017, parents able choose receive parental nefits under employment surce program, if eligible, stdard period (12 mths) extended period (reduced amount taken 18 mths). The tal nefits would same regardless opti selected. Ctents Special Interest Articles Tax Ticklers 1 Income Sprklg 2 Marijua A Growg Industry 5 Los a Relative s Busess 6 Busess Failure: Liability 7 Commsi Paid Cpati 9 See Kurt s Comments Inside!

2 2 Income Sprklg: Where Are We Now? On On Decemr 13, 13, 2017, Department Fce released a a numr updates relatg come sprklg proposals (igally nounced July 18, 2017). Below a summary proposals as as y are currently drafted. Individuals that receive certa types come derived a subject Tax Split Income () unless exclusi applies. subject highest persal tax tax rate rate with with no no nefit persal credits. Kurt s Comments Talk your accountt about how structure your 2018 come deal with new come sprklg rules. Commencg Juary 1, 1, 2018 potentially respect that are by by adults, just those under years. The applicati dividuals under (commly known as as kiddie tax ) would generally chge. Income Streams at at Rk Private cpati dividends, partnership allocatis, trust trust allocatis, allocatis, gas, gas, d come d come debt debt may may all all subject subject.. Related Busess A cludes y, where dividual recipient come does y followg: persally carries (th mes come come a sole proprietship a sole proprietship a a pers c pers subject c ); subject ); actively engd carried by by a a partnership, cpati trust; owns shares cpati carryg ; owns property value derived shares cpati havg a a fair market value less th 10% fair market value all all shares cpati; a memr a partnership carries. The defiti broadly drafted capture come derived directly directly.

3 3 Income Sprklg - ctued Exceptis d Exclusis Several exclusis rules f adult dividuals have en troduced. Some exclusis depend taxpayer at start taxati year. Different rules taxpayers at least 17 years at start year (i.e. se exceptis are first available year taxpayer turns 18) d those at least 24 years at start year (i.e. se exceptis are first available year taxpayer turns 25). F purposes th alys, first group referred as those " 17" while secd group referred as those " 24". The exclusis are as follows: 1. Excluded Busess: A taxpayer 17 subject excluded. An excluded e where taxpayer actively engd a regular, ctuous d substtial bas eir year come, y five previous years. The five taxati years need csecutive. Kurt s Comments It o so debate where you should get rid your extg Cpatis. Wait f a gnment chge see if me chges occur. An dividual deemed actively engd y year where dividual wks at least aver 20 hours/week durg pti taxati year that operates. A pers meetg th bright le test may also actively engd dependg facts, but th carry greater rk challenge by CRA. 2. Excluded Shares: A taxpayer 24 exempt respect come excluded shares, cludg gas realized such shares. My restrictis qualify f th exclusi, makes it quite complex d uncerta. The taxpayer must directly own shares accountg f at least 10% votes d value cpati s tal share. F 2018, th test c met by Decemr 31. In later years, it must met when

4 4 Income Sprklg - ctued come come.. Also, Also, cpati cpati c c a pressial pressial cpati cpati (i.e. (i.e. a cpati cpati carryg carryg accountt, accountt, chiropract, chiropract, lawyer, lawyer, dentt, dentt, medical medical doct doct veterari). veterari). Furr, Furr, it it must must earn earn less less th th 90% 90% its its come come provi provi services. services. Fally, Fally, substtially substtially all all its its come come (generally (generally terpreted terpreted as as 90% 90% me) me) must must derived derived sources sources th th es, es, problematic problematic f f holdg holdg compies. compies. Kurt s Comments Cpatis are also neficial f lg term estate plng. Let s dcuss Reasable Reasable Return: Return: reflect reflect a reasable reasable return. return. F F taxpayers taxpayers 24, 24, amount amount reasable reasable based based wk wk perfmed, perfmed, property property ctributed, ctributed, rks rks assumed, assumed, paid paid payable payable,, d d y y facts facts respect respect may may applicable. applicable. F F taxpayers taxpayers 17, 17, but but 24, 24, rules rules are are me me restrictive. restrictive. Only Only a a reasable reasable return return respect respect ctributis ctributis csidered. csidered Certa Certa Capital Capital Gas: Gas: Although Although expded expded gas gas terests terests entities entities through through a carried carried,, some some gas gas excluded. excluded. F F example, example, gas gas arg arg due due a deemed deemed dpositi dpositi death. death. Also, Also, gas gas qualified qualified farm farm fhg fhg property, property, qualified qualified small small cpati cpati shares shares generally generally excluded excluded Retirement Retirement Income Income Splittg: Splittg: The The rules rules come come by by dividual dividual a if if recipient s recipient s spouse spouse was was fe fe year year are are d d amount amount would would have have en en excluded excluded had had it it en en by by recipient s recipient s spouse. spouse.

5 5 Marijua: A Growg Industry Marijua: A Growg Industry Income Sprklg - ctued 6. Additial exclusis f some come herited property d property acquired as a result a relatiship breakdown. Th new draft leglati a substtial chge current rules. The provis are lengthy, complex d nuced, d it likely that additial ccerns d challenges identified. It uncerta wher re furr chges, given ccerns have already en identified, as well as recommendatis Senate Fce Committee released same date as se proposals. As leglati legalize marijua f n-medical purposes wks its way through As parliament leglati (Bill C-45 legalize entered marijua Senate f phase n-medical Novemr purposes 27, wks 2017), its producers, way through parliament vends, regulats, (Bill C-45 enfcement, entered Senate d potential phase cusmers Novemr are 27, seriously 2017), producers, csiderg vends, implicatis. regulats, Although enfcement, it has en d expected potential legalizati cusmers would are seriously occur by July, csiderg 2018, implicatis. timele Although certa (as it has en Senate expected has recently legalizati en scrutizg would occur draft by July, leglati 2018, d timele stakeholders certa have (as ed Senate ccerns). has recently en scrutizg draft leglati d stakeholders have ed ccerns). Where are we at a tax perspective? Where On Decemr are we at 11, 2017, a tax perspective? federal d provcial/territial Fce Mters reached On Decemr Agreement 11, 2017, prcipal regardg federal d provcial/territial taxati cnab Fce f Mters itial two reached years after Agreement legalizati. prcipal Th agreement regardg followed taxati a csultati cnab with stakeholders. f itial two years after legalizati. Th agreement followed a csultati with stakeholders. The Agreement ed that additi general sales taxes, combed rate all The federal Agreement d provcial/territial ed that additi cnab-specific general sales taxes, combed exceed rate higher all federal $1 d per provcial/territial gram, 10% a producer s cnab-specific sellg taxes price. Of exceed tax generated, higher 75% $1 per go gram, provcial/territial 10% a producer s Gnments, sellg while price. 25% Of go tax generated, federal 75% Gnment. go The provcial/territial federal pti cnab Gnments, exce tax while revenue 25% capped go at $100 federal milli Gnment. nually with The federal excess pti gog cnab provces exce d tax revenue territies. capped at $100 milli nually with excess gog provces d territies. The exact allocati, rates, d method f taxati are dependent fal The leglati. exact allocati, rates, d method f taxati are dependent fal leglati. Where it retailed? While retailg cnab vary across country, my Where provces are it currently retailed? lookg While retailg eir cnab sell, at least vary regulate across sales country, through my provces provcial are liqu currently boards lookg commsis. eir sell, at least regulate sales through provcial liqu boards commsis.

6 6 Marijua: A Growg Industry - Ctued F example, Ontario, Liqu Ctrol Board Ontario (LCBO) itself see sale d dtributi recreatial cnab through a subsidiary cpati. Stdale stes, would also sell liqu, set up d le dtributi made available. Approximately 150 stdale locatis are expected open by In Alrta, -pers sales are plned occur through private cpatis but regulated provcially, while -le sales cducted directly by provce. Most provces/territies are still wkg out details. Most provces/territies are still wkg out details. Gettg complit? CRA Gettg has complit? significt, d rapidly improvg ols f detectg underground ecomy. In CRA additi, has significt, y have d methods rapidly f improvg estimatg ols yields f detectg d unrepted underground come havg do with ecomy. grow In operatis. additi, y have methods f estimatg yields d unrepted come havg do with grow operatis. If e wted get complit d side with CRA, a voluntary dclosure may made. However, If e wted it imptt get complit e d that side Voluntary with CRA, Dclosure a voluntary Program dclosure chgg may March made. However, 1, 2018 such it that imptt reduced relief e that Voluntary some cases, Dclosure d no Program relief available chgg March s. 1, 2018 such that reduced relief some cases, d no relief available s. Los a Relative s Busess: What Happens When It Goes Bad? Los a Relative s Busess: What Happens When It Goes Bad? You ve loed mey a family memr s cpati. Perhaps it was vestment, may You ve it loed was a mey fav, both. a family Or, memr s perhaps, it cpati. was made f Perhaps a completely it was separate vestment, reas. Regardless, may it was sometimes a fav, both. lo Or, may perhaps, go bad it d was you made are f a able completely collect separate reas. debt. What Regardless, happens sometimes a tax perspective lo may go when bad th d occurs? you are able collect debt. What happens a tax perspective when th occurs? If lo was made earn come d cditis are met, you may able write-f If lo half was agast made your earn regular come come d as cditis allowable are met, you vestment may able loss (ABIL). write-f A half recent agast tax court your case regular shed come some light as allowable defg wher vestment lo was loss made earn (ABIL). come. A recent tax court case shed some light defg wher lo was made earn come.

7 7 Taxpayer ws : Despite cflictg recds, Court oped that terest rate cluded agreement was legitimate d that re was tent earn come. The ABIL was allowed. The Court did ope wher tenti earn come requirement would have en met if agreement ly stipulated that terest would g charged accrued at time that repayment commenced (i.e. terestfree lo f first two years, but terest generatg reafter). Los a Relative s Busess - ctued In a Novemr 3, 2016 Tax Court Cada case, at sue was wher ABIL could claimed respect lo a taxpayer h daughter s start-up compy. With approximately two years, operatis had ceased d daughter had claimed persal bkruptcy. The lo agreement stipulated that terest at at 6% was was charged charged set, set, but but no no payments payments would would made f approximately first two years,, as it would turn out, was after eventually ceased. The Mter argued that no terest was charged, d refe, re was no tent earn come. Th was partially based accountg recds daughter s compy were cstent ir reflecti accrued terest. Acti Pot: Los es relatives are me closely scrutized by CRA due herent possibility that it was made f n-come earng reass. If csiderg a lo a relative s, ensure that come earng nature clearly documented. Busess Failure: Persal Liability f Cpate Tax Debt There are special laws hold a direct persally liable f certa that ir cpati fails deduct, withhold, remit, pay. Most commly, se clude federal sales tax (GST/HST) d payroll withholdgs (come tax, EI d CPP). It does generally clude nmal cpate come tax liabilities. In a June 22, 2017 Tax Court Cada case, at sue was wher direct a cpati could held liable liable f $66,865 f $66,865 unremitted unremitted source source deductis, deductis, penalties, penalties, d terest d terest six years six after years after cpati went cpati bkrupt. The went taxpayer bkrupt. presented The taxpayer various presented defenses. various defenses.

8 8 Busess Failure - Ctued Two-Year Limitati In general, CRA must sue assessment agast direct with two years time y last ceased a direct. The taxpayer argued he should liable sce he was fced f property d denied access by Trustee bkruptcy me th two years fe assessment. However, Court determed that ly ce e removed as direct under gng cpatis act such liability absolved. In th case (under Ontario Busess Cpatis Act), bkruptcy does remove directs ir positi. As taxpayer never ficially ceased a direct, In th case (under Ontario Busess Cpatis Act), bkruptcy does remove two-year period had commenced, d refe, had expired at date directs ir positi. As taxpayer never ficially ceased a direct, assessment. two-year period had commenced, d refe, had expired at date assessment. Due Diligence Liability c absolved if direct c show due diligence. In th case, direct Due Diligence argued that he was waitg f large vestment tax refunds fund liability, d Liability c absolved if direct c show due diligence. In th case, direct also, entered a credit proposal so as enable cpati ctue pay argued that he was waitg f large vestment tax refunds fund liability, d f liability. However, Court ed that diligence was required prevent nremittce rar th simply diligence pay after fact. As re was sufficient also, entered a credit proposal so as enable cpati ctue pay f liability. However, Court ed that diligence was required prevent nremittce rar th simply diligence pay after fact. As re was sufficient pro demstrate diligence at preventi st, th argument was also unsuccessful. pro demstrate diligence at preventi st, th argument was also unsuccessful. With All Due Dpatch Fally, taxpayer argued that suce assessment 6 years after With All Due Dpatch bkruptcy was date d unreasable, reby ctraveng requirement Fally, taxpayer argued that suce assessment 6 years after assess with all due dpatch. The Court, however, found that th requirement bkruptcy was date d unreasable, reby ctraveng requirement assessment a filed tax return as opposed assessment direct liability. In assess with all due dpatch. The Court, however, found that th requirement particular, law allowg CRA hold direct liable states that Mter may assessment a filed tax return as opposed assessment direct liability. In at y time assess y amount payable. Th defense was also unsuccessful. particular, law allowg CRA hold direct liable states that Mter may at y time assess y amount payable. Th defense was also unsuccessful. The Mter s assessment liability direct was upheld. The Mter s assessment liability direct was upheld.

9 9 Commsi Paid a Cpati: Any Issues? Csider successful real estate surce nt, fcial product vend, area sales representative, y pers earng commsi come. One day y are asked, if y ever csidered runng ir activities through a cpati as opposed providg services persally. There are defitely some valuable possibilities, but re are dgers o. In a July 11, 2017 Technical Interpretati, CRA oped that wher a cpati actually carryg a d earng commsi come a questi fact d requires me th a mere assignment come. CRA ed that if surce nts, realts, mutual fund salesperss, pressials are legally precluded assigng ir commsis a cpati, n commsi come must repted by dividuals, d c repted through a cpati, regardless documentati provided. Care must taken document that it truly cpati providg services d just dividual. Commsi ctracts identifyg cpati as service provider rar th simply dividual would valuable. While some pressials earng commsi come are legally prohibited cpatg (due provcial/ territial laws), s may practically precluded dog so due, f example, a refusal by cusmers key suppliers ctract with a cpati. If a cpati does earn commsi come, e must ensure that cpati would csidered a persal services (PSB). A PSB essentially dividual actg as employee f a third party, but f presence ir own persal cpati as termediary. F example, csider John, employee a car mufacturer (CarCo). If John set up a new cpati, had CarCo pay h cpati, but kept dog same thgs under same terms d cditis as h previous employment ctract, he would likely cductg a PSB. If classified as a PSB, wker d ir cpati could subject substtially higher taxes, plus denial several types deductis.

10 10 KURT ROSENTRETER Mulife Securities Incpated Church Street T, Ontario M5E 1M2 Phe EXT 230 Fax: Kurt.rosentreter@mulifesecurities.ca Fd us Web: How Kurt d Team C Help You with Taxes Oversee nual tax return preparati Though persal d tax plng opptunity reviews Implementg life surce c taxes at death Tax smart ptfolio vestment strategies Small advced tax plng Tax effective design retirement cash flows Tax we Will design Persal tax deductis d tax credits Mutual funds, scks, bds, GICs, d Fcial Plng services are fered through Mulife Securities Incpated. The opis expressed are those auth d may necessarily reflect those Mulife Securities Incpated. Insurce products d services are fered through Mulife Securities Insurce Inc. (a licensed life surce ncy d affiliate Mulife Securities) by Mulife Securities Advs licensed as life nts. The opis expressed are those auth d may necessarily reflect those Mulife Securities Incpated. Mulife Securities Incpated a Memr Cadi Invest Protecti Fund. Upper Cada Capital our trade name (i.e. name) under we fer all our services. Upper Cada Capital a trade name used f both securities d surce. Scks, bds, d mutual funds are fered through Mulife Securities Incpated. Fcial pls are fered through Mulife Securities Incpated. Insurce products & services are fered through Upper Cada Capital Inc. d Mulife Securities Insurce Incpated.