Business Record-Keeping - Very Important!

This is information from the Canada Revenue Agency with regard to Record-keeping for Businesses:

Here is a listing of the ways that you can keep records:

• books, records, and supporting documents produced and kept in paper format;
• books, records, and supporting documents produced on paper, and later converted to and stored in an electronically accessible and readable format; and
• electronic records and supporting documents produced and kept in an electronically accessible and readable format.

Supporting documents are required for each of the above methods and may be kept in either paper or electronic format (including electronic imaging format).
Your books and records:

• must be kept in Canada unless our permission is granted to keep them elsewhere;
• must be made available to our representatives upon request; and
• include electronic records that are created and maintained by computerized record-keeping systems.

For more information about requirements for corporations, trusts, registered charities, registered Canadian amateur athletic associations, registered agents for registered political parties, official agents for candidates in a federal election, agents authorized under the Senate Appointment Consultation Act, hospitals, non-profit organizations and other qualified donees, see Guide RC4409, Keeping Records.

You have to keep all records in paper format, unless you keep them in an acceptable microfiche, microfilm, or electronic image format. Electronic imaging software is a popular method of keeping scanned images of paper documents, books, and records.

We consider you to have electronic records if you create, process, maintain, and store your information in an electronic format.

You have to keep your electronic records in an electronically readable format, even if you have paper printouts of those records.

If any of your source documents are first created, transmitted, or received electronically, you have to keep them in an electronic format.

Scanned images of paper documents, records, or books of account that are kept in electronic format are acceptable if proper imaging practices are followed and documented.

The Canada Revenue Agency: protecting Canadians from gifting tax shelter schemes

Ottawa ON, October 30, 2012 - The Canada Revenue Agency (CRA) is taking steps to better inform and protect taxpayers from gifting tax shelter schemes.

This is the time of year when promoters are heavily marketing their tax schemes to Canadians. For this reason, the CRA is reminding Canadians that if it seems too good to be true, it probably is. If a tax shelter promoter offers a tax receipt for a larger amount than the donation or payment, it is very likely not a valid donation.

Starting with the 2012 tax year, the CRA will put on hold the assessment of returns for individuals where a taxpayer is claiming a credit by participating in a gifting tax shelter scheme. This will avoid the issuance of invalid refunds and discourage participation in these abusive schemes. Assessments and refunds will not proceed until the completion of the audit of the tax shelter, which may take up to two years. All gifting tax shelter schemes are audited and the CRA has not found any that comply with Canadian tax laws. A taxpayer whose return is on hold will be able to have their return assessed if they remove the claim for the gifting tax shelter receipt in question.

The CRA has to date denied more than $5.5 billion in donation claims and reassessed over 167,000 taxpayers who participated in gifting tax shelter schemes. In addition, the CRA has revoked the charitable status of 44 charitable organizations that participated in these gifting tax shelter schemes. Since June 2000, the CRA has also assessed $63.5 million in third-party penalties against promoters and tax preparers.

The CRA urges Canadians who are considering entering into a tax shelter arrangement to obtain independent, professional advice before signing any documents. Independent advice means advice from a tax professional who is not connected to the tax shelter or to the promoter.

Looking to buy a business: Know what you're buying...

Before purchasing a business, you need to be sure you understand exactly what you're buying. That can be difficult. Valuating a business is not a simple exercise or an exact science. It simply provides a theoretical figure that will give you an idea of a fair price to pay.

Perform due diligence
The first thing to do when considering purchasing a company is to assess its financial statements, legal status and assets, including inventory, equipment and accounts receivable. You should use the services of in-house and outside experts to do this.

You should also confirm the vendor's good faith and the soundness of the business. If most of its sales are generated by only a few customers, for instance, you will need to confirm that they intend to continue doing business with the firm once you have acquired it.

You must also take into account any changes you intend to make to the company after acquiring it. No matter how essential these changes may be, keep in mind that their cost may substantially reduce the return on the capital you have invested.

Evaluating assets
The vendor should supply you with a detailed list of what is up for sale. These assets may include land, buildings, equipment, inventory, the name of the business, its customer list and any contracts it has with employees and suppliers, as well as prepaid expenses and intellectual property.

When assessing the value of a company's equipment, make sure you have model numbers, dates of purchase and a record of how well the machinery is working, along with maintenance schedules and warranty details. When appraising inventory, check the age and condition of the stock. Are any of these items obsolete? If they're perishable, are they still well within their best-before date? When assessing accounts receivable, you'll need to determine how likely it is the amounts owing will be repaid. Are the receivables old? Are they collectible? Has adequate provision been made for bad debts? Are there any disputes involved?

Company liabilities
Depending on the nature of the assets, a company's loans or unpaid liabilities may become your responsibility as a buyer. A previous lender might even be in a position to seize the company's assets as repayment for an unpaid loan, leaving you with nothing. You need to know if the company has signed agreements that might lower the value of the assets or limit your freedom of action.

Determining fair market value (FMV)
There are a number of ways to determine an asset's fair market value. A specialist's appraisal may be needed for assets such as real estate, major equipment or specialized inventory. Likewise, a collection agency can help you evaluate the true value of accounts receivable, especially when assessing a company with many customer accounts.

Never rely only on the judgment of your accountant or the seller. It's always best to obtain an independent report from an expert specializing in business valuations. This is an unregulated field, but the Canadian Institute of Chartered Business Valuators provides guidelines and a code of ethics.

There are two main methods of valuating a business: one based on assets, the other on earnings and cash flow. An asset-based valuation can be based either on its book value - the company's assets minus its liabilities, as shown in financial statements - or its liquidation value: what a business could expect to fetch if it sold all its assets, paid down all debts including taxes, and then distributed the surplus to shareholders. An earnings-based valuation looks more closely at a company's current and projected future cash flow.

Although it's ideal to try to compare your potential acquisition with a similar transaction, in reality you will rarely be able to do this. In general, little information on such deals is publicly available, and the terms of any deal are often too closely tied to conditions in a particular economic sector to make them truly comparable.

Implications of buying shares
Anyone buying shares in a company takes a stake in the business, together with all of its assets and liabilities, whether they are recorded on the company books or not. A purchase agreement can include a provision that involves a buyer directly in the management of the company, or the purchaser can remain a silent partner. This latter option can smooth the transition between owners, lowering the price paid by the purchaser and allowing existing owners to show buyers how a business is run. The purchaser sometimes has the option of buying out the remaining shares and becoming sole owner later. Such a scenario is more likely if the target business is publicly traded and if the buyer has purchased enough shares to have some influence on how it is run. If a business is privately owned, the owners may prefer an outright sale.

There are always risks. Deals like these can sour if the buyer does not get along with the original owners or if the new and original owners have conflicting strategies. A purchaser may also unwittingly become responsible for liabilities such as unrecorded income tax reassessments, lawsuits and warranty claims that were not recorded in the financial statements. The new owner should also avoid being bound by the previous owner's depreciation schedules, which can be altered based on the purchase price.

Business Owners: Why you MUST have a Holding Company (Holdco)

Today, I would like to share an excellent article written by Tim Cesnick, clearly explaining the advantages of Holding Companies.  At HazloLaw, we advise clients on a daily basis about the necessity of putting in place this type of structure and we also suggest to add a Family Trust to your current structure.  Please email us at info@hazlolaw.com is you have any questions.
HOLDING COMPANY
This summer when you're standing around the barbecue with your business-owner neighbours, impress them with your knowledge of tax planning.

I can tell you from experience that you'll bore them to tears with the conversation, but they'll thank you later when the tax savings start rolling in. Specifically, share with them that holding companies can help them to defer tax. Here are the highlights.

THE RULES

If you happen to own a corporation that carries on an active business, give some thought to setting up your affairs to allow for a deferral of tax.

How? By establishing a holding company to own the shares of your active business corporation (ABC).

You see, if you own the shares of your ABC directly, then any payment of dividends from that corporation to you will be taxable in your hands personally in the year you receive those dividends.

If, on the other hand, you have a personal holding company that owns your shares in your ABC, you can pay a dividend to your holding company that will, in most cases, be tax free to your holding company.

It's subsection 112(1) of our tax law that allows, in most cases, your holding company to claim a deduction for taxable dividends received from your ABC. And, as long as your holding company and ABC are "connected" under our tax law (which will be the case in the vast majority of situations), you'll avoid another tax called the Part Four tax.

By passing some of those earnings from your ABC to your holding company, you'll defer tax, which is essentially the difference between the tax paid by your ABC on its profits, and the amount of tax you would have paid had the profits been paid out immediately to you as a bonus.

The tax deferred is approximately 30 per cent of the taxable income in most provinces for someone in the highest tax bracket.

THE STRATEGIES

What strategies should you be thinking about?

Multiple shareholders: If you're one of multiple shareholders in your ABC, setting up a personal holding company for each shareholder can provide flexibility to each of you.

Think of each holding company as a tap to control the payment of dividends to each of you personally.

Your ABC can pay dividends to each of the holding companies on a tax-free basis, and then each holding company can pay dividends to its shareholders based on his or her personal cash requirements.

Splitting income: Your holding company can be owned by more than one person in the family.

Your spouse, for example, could own some shares. This will allow you to sprinkle dividends to your spouse or others in the family so that the tax burden on those dividends can be shared.

It's not always advisable to issue shares in the holding company directly to your children (and if they're minors, this isn't possible), and so a family trust can be utilized, which brings me to the next strategy.

Establish a trust: I really like this structure. The shares of your ABC can be held by a family trust.

The beneficiaries of the trust will include you, your spouse, your children (regardless of their age), and your holding company.

Now, any dividends paid by your ABC to the trust can be distributed out to your holding company as a beneficiary of the trust, and you'll achieve the same tax-free payment to the holding company as you would achieve if the holding company owned the shares in the ABC directly, provided the two companies are "connected."

The advantages, however, include: The ability to sprinkle dividends to family members or the holding company as beneficiaries of the trust, at your discretion; the ability to multiply the lifetime capital gains exemption on a sale of the shares of your ABC (assuming the shares qualify for the exemption); creditor protection over the property of the trust, including the shares of the ABC, among other benefits.

Protection from creditors: Any excess profits of your ABC can be paid to your holding company as dividends, and can be lent back to your operating business on a secured basis, if the cash is needed for the business. This will protect those excess profits from other creditors of the business.

Retirement nest egg: The accumulation of assets inside your holding company can become the type of retirement nest egg or "pension" that you will need to look after yourself during retirement.

Top 10 ways to reduce your tax bill

Did you know?

There are a number of ways to reduce the amount of tax you owe and keep more money in your pocket at tax time. The Canada Revenue Agency (CRA) website can help you learn more about the various credits and deductions that you may be entitled to and that can save you money when you file your 2011 income tax and benefit return.

Important facts

For individuals:

1. Plan ahead - Go on CRA's website and Register for My Account, gather your receipts and NETFILE access code, and sign up for direct deposit before April 30. Submitting your income tax and benefit return before the tax-filing deadline means you can avoid having to pay late-filing penalties.

2. Families - Save those receipts! All the activities you have been paying for throughout the year (piano, karate, tutoring, hockey, and more) may save you money at tax time.

3. Tax-free savings account - A tax-free savings account (TFSA) is one great way to save money since you don't pay tax on any income you earn from investments in your TFSA.

4. Registered retirement savings plan - Any income that you earn in a registered retirement savings plan (RRSP) is exempt from tax, as long as the funds stay in the plan. RRSPs help you save for your retirement and give you a break at tax time too.

5. Public transit tax credit - If you or someone in your family is a regular user of public transit, then you may be able to claim a non-refundable tax credit based on the cost of eligible transit passes.

6. Pension income splitting - If you receive income from a pension, you can split up to 50% of eligible pension income with your spouse or common-law partner to reduce the taxes that you pay.

7. Students - Are you still in school? Students can claim the tuition, education, and textbook amounts. Have you graduated recently? You may be eligible to claim the interest that you paid on your student loans.

8. Child care expenses - If you have children, you may be able to claim child care expenses that you or your spouse or common-law partner paid so that either of you could work, do research, or go to school.

9. Home buyer's tax credit - If you're a first-time home buyer you may be eligible to claim $5,000 on the purchase of your new home, which can save you up to $750.

For people who are self-employed:

10. Hiring an apprentice - Did your business employ an apprentice? A salary paid to an employee registered in a prescribed trade in the first two years of his or her apprenticeship contract qualifies for a non-refundable tax credit for the employer.

Tax Tip: Lean more about potential tax savings for tradespersons

Did you know?

As a tradesperson, you may be eligible for certain deductions.

Important facts

If you were a tradesperson in 2011, you may be able to claim a deduction for the cost of eligible tools (to a maximum of $500). For more information, go to www.cra.gc.ca/trades.

You can claim certain expenses you paid to earn employment income as a deduction, but only if your employment contract required you to pay for your own expenses, and either you did not receive an allowance for them or the allowance you received is included in your income. For more information, go to www.cra.gc.ca/employmentexpenses.

If you had expenses that included GST/HST in the course of your employment duties, and you deducted these expenses from your employment income, you may be able to claim a rebate of part or all of the GST/HST you paid on these expenses.

Keep all receipts and documentation to support the claims made on your return.

The deadline for filing your individual income tax and benefit return is midnight on April 30, 2012. However, if you or your spouse or common-law partner carried on a business in 2011, you have until June 15, 2012, to file your return. You must pay any balance owing for 2011 on or before April 30, 2012, regardless of your filing due date. In addition to these deductions, other credits, deductions, and benefits may be available to you. For more information, go to www.cra.gc.ca/trades.

Business Owners: The cold hard logic behind freezing your assets or Estate Freeze 101

The cold hard logic behind freezing your assets - written by Tim Cesnick and published in the Globe and Mail.

Paul is a close friend of mine. We don’t see each other often enough, but we got together for lunch this week. “Tim, I’m freezing my assets,” Paul said. For a minute, I was wondering if Paul was making a commentary on the sub-zero temperatures we’ve been experiencing. But that wasn’t it. Paul was actually freezing his assets. And I’m not talking about the fact that he left his lawn furniture and lawn mower out in the backyard this year to face the elements rather than putting those things away for the winter (he says he got busy and forgot).

 

No. Paul has decided to implement a tax manoeuvre called an “estate freeze.” Although it’s possible to “freeze” most assets, this is most commonly done by those who own shares in a private company and want to accomplish a few things. Let me explain.

The concept
Completing an estate freeze involves identifying certain assets – perhaps private company shares – and freezing those assets at their current value. When this is done, the future growth in value of those assets won’t accrue to you (the person completing the freeze), but will belong to others who you have chosen to receive that future growth. There are a number of benefits to this idea, but most notably you’ll pass the tax bill on that future growth to others. That is, you will have “capped” your tax liability on the assets frozen at today’s value.

The example

Paul owns the shares of a corporation that holds rental properties that he’s been accumulating over the years. The value of these properties is about $5-million today (net of any mortgages). He expects these properties to continue to grow in value in the future. Paul doesn’t need the income from these properties to support his lifestyle.

When Paul passes away, there’s going to be a tax bill owing on the shares of his corporation. After all, the shares are worth $5-million today (since the properties owned by the corporation are worth $5-million), but his adjusted cost base of his shares is nominal, at $100. In this case, Paul will owe about $1,160,227 in taxes upon death (he lives in Ontario and is in the highest tax bracket).
As the value of the properties grows, so will Paul’s expected tax bill on death. Paul decided to cap this tax liability by completing an estate freeze. How? Paul is going to exchange his common shares that he owns in his corporation for new preferred shares that are fixed, or frozen, in value (this exchange can take place without tax at the time of the exchange). These shares won’t appreciate in value as the properties grow in the future. Paul is going to issue new common shares in the corporation to his children. The future growth of the company will accrue to these common shares.
In actual fact, Paul isn’t going to issue the new common shares to his kids directly (although he could), but has decided to issue those shares to a family trust of which the kids are beneficiaries. This will allow Paul to continue to control those shares (as trustee of the trust) for the time being. He can distribute those shares out of the trust to the kids in the future if he chooses (this distribution can generally be done on a tax-free basis). But there are real benefits to having the trust in place to hold the shares today, including the ability to split income with the beneficiaries of the trust.

The nuances

Now, there’s more than one way to accomplish an estate freeze. Exchanging shares in an existing corporation for new frozen shares, as Paul is planning, is one method. It’s also possible in most cases to take assets that are currently outside of a corporation and transfer those assets to a corporation and take back, in exchange, shares in the corporation that are frozen in value. It may also be possible to place assets directly in a trust (without use of a corporation) so that the future growth will accrue to the beneficiaries, but this method may trigger a tax bill when transferring the assets to the trust if those assets have appreciated in value (in which case a corporation is likely the better route).
Freezing your assets won’t eliminate the tax bill that has accrued to date on those assets, but will stop the bleeding by passing the future growth to others who will likely pay the tax on that growth at a much later date than you. More on this topic next week.

Tim Cestnick is president and CEO of WaterStreet Family Wealth Counsel and author of 101 Tax Secrets for Canadians.

Tax Planning for Business Owners...

Salary/Dividend Planning Many factors must be considered in determining the most beneficial combination of remunerating the owner-manager of a closely-held corporation. As with other planning, each case must be examined separately and no one "rule of thumb" can apply to all situations. Here are a few factors that should be taken into consideration: The tax rate of the corporation The marginal tax rate of the individual Exposure to Alternative Minimum Tax The ability to benefit from child care expenses and paternity/maternity benefits and to make RRSP and CPP/QPP contributions, which are all based on salary and not dividend income Wage levies applicable to salaries, such as the Ontario Employer Health Tax and Quebec's Health Services Fund and 1% Training Tax (if the payroll exceeds $1,000,000) Quebec restrictions on the deductibility of investment expenses by individuals where expenses exceed investment income Whether eligible dividends can be paid to shareholders Full or partial loss of the dividend credit if taxable income is not high enough Higher net income with a dividend than with a salary, since dividend income is grossed up by 41% in 2011 (38% in 2012) for eligible dividends or 25% for non-eligible dividends, which can have an impact on certain credits and benefits Some planning techniques include: If the corporation has Refundable Dividend Tax on Hand (RDTOH), the payment of a dividend will result in a refund of 33 1/3% of the dividend payment up to a maximum of the RDTOH balance Remuneration that is accrued and expensed by a corporation must be paid to the employee within 179 days of the corporation's year-end. When a year-end falls after July 5, the corporation can cause the owner-manager's remuneration to fall into either the current or subsequent calendar year Freeze or Refreeze? An estate freeze is used to ensure that future growth in the value of a company accumulates in the hands of a shareholder's heirs. This is accomplished by "freezing" the current fair market value of the company in the form of preferred shares. If the value of a business subsequently decreases, the benefits of freezing may not be fully realized and it may be advantageous to consider "unfreezing" and "refreezing" a company. Refreezing enables taxpayers to exchange their old preferred shares, obtained at the time of the initial freeze, for new shares with a lower redemption price. Any future gains in value will then be passed on to the holders of common shares. This type of planning helps reduce tax on the death of taxpayers by lowering the redemption price of their preferred shares and transferring more value to their heirs. Income Splitting Investment income earned by an individual who invested money borrowed at low or no interest from a related person will be attributed back to the lender. Subject to a purpose test, this rule does not apply where the loan is to a related person other than a spouse or minor child. Nor will it apply where the loan is to a spouse or minor child if interest is charged at the prescribed rate in effect at the time the loan is made (the prescribed rate for the fourth quarter of 2011 is 1%). When utilizing this exception, interest must be paid no later than 30 days after the end of the year to avoid attribution of income. For instance, the high-income spouse could lend investment funds to the low-income spouse at the current 1% rate and receive (and pay tax on) the interest income each year, for as long as the loan remains outstanding. The low-income spouse would pay tax on the income generated by the funds and deduct the interest paid to the high-income spouse. Since the attribution rules are complex, caution is advised when contemplating a transfer of property or a loan to a spouse or a child (including transfers indirectly through a corporation or a trust). Some other basic planning ideas would include: Gifting growth assets to a minor child, as the resulting capital gain is not attributed to the donor; however, certain exceptions were proposed in the 2011 federal budget Gifting property to a child who is not a minor Segregating and re-investing "attributed" income of a spouse or minor child Deposit Canada Child Tax Benefit (CCTB), Universal Child Care Benefit (UCCB) and Quebec Child assistance payments (CAP) directly into accounts opened in the children's names Use the income of the spouse with the higher income to pay all the family's expenses so that the spouse with the lower income has more capital available for investment Using a trust for the benefit of family members to hold shares of a closely-held corporation. However, there are restrictions in regard to income-splitting with minor children Spouses can choose to share their QPP and CPP retirement pensions Have your spouse as your business partner or pay reasonable salaries to your spouse or children Shareholder Loans Any loan granted by a corporation to an individual who is a shareholder or to a person with whom the shareholder does not deal at arm's length will be taxable in the year in which the loan is advanced, unless a particular exception applies. If the loan meets one of these exceptions, the shareholder will be required to pay to the corporation interest at a rate at least equal to the prescribed rate no later than January 30 each year. If a shareholder loan exists at any time during the year, a taxable benefit must be calculated based on the prescribed interest rate, less the interest actually paid. When a loan is repaid, the shareholder may claim a deduction up to the amount that had been included in income. It might be worthwhile for a corporation to make a loan to an adult child of the shareholder at a time when the child does not have much income. The loan may be repaid in a subsequent year, when the child's marginal tax rate is higher. Since shareholder loans are not deductible from a corporation's income and do not generate refunds of RDTOH it is recommended that shareholders verify whether it would be more advantageous to be paid a salary or a dividend. It is very important that any loan contract between a corporation and one of its shareholders be adequately documented. Capital Gains Exemption A capital gains exemption is available for individuals to use in relation to gains realized on qualified small business corporation shares and some other properties. The maximum lifetime capital gain exemption is $750,000. Be aware of the possible disadvantage of selling investments eligible for the $750,000 capital gains exemption and investments with losses in the same year. Capital losses realized in the year must be offset against capital gains of that year including "exempt" gains. Consider selling investments with losses the following year. Subject to certain conditions, an individual may defer capital gains on eligible small business investments to the extent that the proceeds are reinvested in another eligible small business. The reinvestment must be made at any time in the year of disposition or within the first 120 days of the following year. Acquisition of Assets Accelerate the acquisition of depreciable property used in carrying on a business otherwise planned for the beginning of the next year. This will allow additional depreciation (CCA) to be claimed in the current year. The "available-for-use rules" should be considered (generally requiring the depreciable property to be used in operations for the depreciation deduction to be allowed). Conversely, consider delaying until the subsequent year the acquisition of depreciable property in a class that would otherwise have a terminal loss in the current year. Machinery and equipment acquired after March 18, 2007 and before 2012, primarily for use in Canada for the manufacturing and processing of goods for sale or lease is currently eligible for a temporary accelerated CCA rate of 50% and subject to the half-year rule. Otherwise, a CCA rate of 30% would apply and be subject to the half-year rule. The 2011 federal budget proposed to extend this temporary incentive for two years, to eligible machinery and equipment acquired before 2014. Death Benefit A corporation can make a onetime tax free payment of up to $10,000 to the spouse or heirs of a deceased employee. This payment will not be taxable to the recipient and will be fully deductible by the corporation. * provided by BGK -Chartered Accountants - more info at www.BGK.ca

Business transition via Employee Share Ownership Plans

Question: I would like information on Employee Share Ownership Plans (ESOPs) as a means of business succession. I am especially interested in ESOPs from a tax perspective. Answer: Generally an ESOP allows qualifying employees to purchase shares in their employer's company, with or without monetary assistance from the company. Many companies are using ESOPs as a form of succession when there is no other successor apparent. Whether an ESOP plan is created for succession or employee loyalty purposes, the plan must have a high participation rate to be effective. The type of business is also relevant. If it involves manufacturing and physical assets, valuations are easier to determine. The plan must be administered, which requires some work. That is why many ESOPs involve union structures that can help with administration. ESOPS also have many tax and legal implications for companies and their owners, so anyone considering them should seek professional help. Lawyers, accountants and some BDC consultants can help companies navigate the tricky route to establishing an ESOP.

Business owners: Did you review the "buy-sell" clause in your Shareholders Agreement?

It is wise for corporations and their shareholders to consider amending their shareholders' agreements periodically, as they can become out-dated over time. In particular, the structure of the buy-sell component of shareholders' agreements evolves regularly as a result of new tax legislation and interpretations of the law by the Canada Revenue Agency (CRA). This is particularly evident in connection with spousal rollovers after death. Under normal circumstances, when a spouse dies, all property of the deceased can pass to the surviving spouse as a tax-free rollover as long as the property vests in the spouse (i.e. unconditional ownership). The CRA now takes the position that a mandatory buy-sell of the shares of a company from a deceased's estate negates the ability to use the spousal rollover rules. The mandatory buy out, in the CRA's view, prevents the shares from vesting. There is thus no spousal rollover and the full capital gain will have to be reported on the deceased's final return. This result poses no problem if the shares are eligible for the capital gains exemption and the deceased had enough capital gains exemption to eliminate the gain. However, if these factors are not present, the lack of a spousal rollover eliminates the ability of the surviving spouse to use his or her capital gains exemption on a sale. To alleviate this problem, modern shareholders' agreements include what are commonly referred to as put/call provisions. Such provisions give the deceased's estate the right to require the shares to be purchased from the estate, and give the surviving shareholders the right to purchase the shares from the estate. Both parties have the option to buy and sell, but neither is obligated to do so. Buy-sell provisions should also provide enough flexibility to allow either for the company to purchase the shares from the estate, resulting in a deemed dividend, or to have the surviving shareholder(s) purchase the shares directly from the estate, resulting in a capital gain. Shareholders should inquire of their advisors regarding the tax consequences that result from these options. When structuring agreements, it is important to predetermine the buy/sell prices on an ongoing basis rather than using pre-determined valuation formulas, which can often be misleading and not representative of fair market value. Ideally, predetermined prices should be updated annually. Where shareholders are related (non-arm's length), a valuation may be required to support the value, though the CRA might question and challenge a valuation in these circumstances. Although the CRA can challenge an agreement to value between two unrelated shareholders, it is less likely to do so. In any event, no valuations are required until a shareholder dies. It is thus prudent to have a mechanism in place to determine fair market value, ideally by an independent business valuator. Notwithstanding any of the above strategies, care should be taken in implementing any changes to shareholders' agreements. Some older agreements have been maintained in their original form specifically to preserve certain tax advantages that might remain valid even though more current tax laws have changed. For any questions regarding the above and/or if you wish to discuss your situation, please do not hesitate to contact me.

The Tax-Free Savings Account (TFSA) not quite so simple for some

As you may know, the The Tax-Free Savings Account allows you to contribute up to $5,000 of after-tax funds to a tax-free savings account, invest in anything you want, and the income or gains accrue tax-free for life and can be withdrawn tax-free at any time, for any reason. However, several rules need to be followed - Today, I would like to share an excellent article written by Jamie Golombek from CIBC and published in the National Post. &&&& When it was first announced, it seemed so simple. You contribute up to $5,000 of after-tax funds to a tax-free savings account, invest in anything you want, and the income or gains accrue tax-free for life and can be withdrawn tax-free at any time, for any reason. Miss a year? No problem because the $5,000 annual contribution limit automatically carries forward for life. Need to withdraw funds? Piece of cake — you can recontribute them beginning the following year. Sounds like a walk in the park, right? You would think so, but in 2009, the inaugural year of the TFSA, of 4.8 million Canadians who opened a TFSA, 72,786 (1.5%) received a letter in 2010 from the Canada Revenue Agency about possible excess contributions. This was the subject of new special report titled Knowing the Rules issued this week by the Taxpayers’ Ombudsman. The role of the ombudsman includes conducting “impartial and independent reviews of service-related complaints about the CRA,” as well as identifying and reviewing “systemic and emerging service-related issues within the CRA that have a negative impact on taxpayers.” The special report, subtitled Confusion about the rules governing the TFSA, was prompted in part by numerous media reports (several by yours truly) on the difficulties experienced by taxpayers who found themselves in a TFSA overcontribution situation, facing penalties of 1% per month of overcontribution, many through no apparent fault of their own. The issue was a lack of awareness of when a TFSA withdrawal can be recontributed. The ombudsman received complaints from taxpayers who had received letters from the CRA advising that they were being penalized for overcontributing to a TFSA and who complained that “TFSA rules regarding withdrawals and overcontributions were confusing.” The ombudsman’s office began its review in June 2010, but delayed issuing a report until now since the CRA was reacting to complaints by continually updating information on its website and training its staff on the TFSA. The conclusion was that while the CRA has already taken steps to address the issues surrounding TFSA contributions, and continues to do so, it “should have been more proactive in informing Canadians about the tax consequences of the TFSA.” It recommended that the CRA take steps to make Canadians more aware of the information it provides about the TFSA and be proactive in informing Canadians about how to find the tax rules governing the TFSA as well as to continue to work with the financial-services sector to ensure the CRA’s information about the TFSA is widely available. The CRA, in response to the report, issued a news release welcoming the report as an opportunity to improve services to Canadians and developed an action plan to address the recommendations which includes updated TFSA web pages, the issuance of relevant tax tips, community newspaper articles, and communications to financial institutions. Taxpayers who are still uncertain of how TFSAs work should also seek the advice of a reputable financial advisor well versed in the apparent intricacies of what first appeared to be a simple, new savings option for Canadians. **** Jamie Golombek is the managing director, tax & estate planning with CIBC Private Wealth Management in Toronto.

Business Owners: Income Splitting 101 and how to save taxes!

if you follow my blog, you know that I enjoy reading Tim Cesnick's article published in the Globe & Mail. Once again, Tim's article is a MUST read for all of you. As usual, please do not hesitate to contact me should you wish to discuss some personal tax strategies.

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The Concept

Income splitting is one of the pillars of tax planning. It involves moving income from the hands of one family member who will pay tax at a higher rate to the hands of someone else in the family who will pay tax at a lower rate. By taking advantage of the lower tax brackets of family members, the overall tax burden for the family can be reduced.

How much tax can be saved? It varies by province, but the average across Canada is $17,000 in potential tax savings annually per family member. Your actual savings will depend on your level of income, your family member’s level of income, and your province of residence. The provinces where the greatest annual tax savings are possible are Nova Scotia ($21,000), Ontario ($19,565) and B.C. ($18,908). Alberta offers the smallest opportunity for annual savings at $13,196.

The Challenge

Here’s the problem: The attribution rules in our tax law are designed to prevent you from simply moving income to someone else’s hands. If you’re caught under these rules, the income earned by your family member will be attributed back to you to be taxed in your hands. The most common situations where these nasty rules will apply are where you give or lend money (at no or low interest) to your spouse or minor children.

The good news? There are quite a few strategies that can be implemented to split income that will sidestep the attribution rules.

The Strategies

Set yourself up for tax savings next year with one of these ideas:

1. Lend money to your spouse or child. You can simply lend money to your spouse or a child for them to invest. In the case of your spouse, all income and capital gains will be attributed back to you, and in the case of minor children, all income (but not capital gains) will face tax in your hands. But second generation income (that is, income on the income) will not be attributed back to you. It makes sense to move the income annually into a separate account so that its growth can be tracked separately from the original loan amount.

2. Lend money to family at interest. This idea is much the same as the one above, except that you can charge interest on the loan to avoid the attribution rules. By charging the prescribed rate of interest (currently just 1 per cent) your family member, not you, will face tax on any income earned. Your family member will have to pay you the interest every year by Jan. 30 for the prior year’s interest charge (if this is overlooked even once, the attribution rules will apply every year going forward). And get this: The current prescribed rate can be locked in indefinitely. So, if you set this loan up before Dec. 31 of this year, the 1-per-cent rate can apply forever. To the extent your family member earns more than 1 per cent on the funds, you’ll effectively split income.

3. Lend or give money to acquire a principal residence. If you help a family member to purchase a home, this will free up the income of that family member for other purposes – such as investing – effectively moving investable assets from your hands to theirs. In addition, if the property appreciates in value, the capital gain could be sheltered using the principal residence exemption of your family member if they are older than 18 or married.

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Business owners: Lets talk about Family Trusts

In the past 3 years, I spent a considerable amount of time blogging about the use of Family Trust for business owners. Family Trusts are a great and effective way to save taxes. Today, I would like to have a closer look at the fine print on Family Trusts.

1. Establishing the trust. There will be a problem under our tax law if the settlor of the trust (the person who creates the trust by transferring assets to it) has the ability to take back the assets placed in the trust, has the right to name additional beneficiaries of the trust after its creation, or has the ability to control dispositions of the trust assets. If any of these conditions apply, the income, gains or losses of the trust will be reported on the settlor’s tax return. To avoid this outcome, it’s important to make sure that the settlor is not also the sole trustee (or a trustee with veto power over what is done with the trust assets) or sole beneficiary. The best approach is to have another family member – perhaps a parent or grandparent – be the settlor of the trust. This family member can “settle” the trust with a small asset such as a silver coin or $20 bill. The trust can then acquire other assets by, for example, borrowing money from you or others to acquire investments, shares in a private company, a vacation home, or other assets.

2. Transfers to the trust. If you transfer assets other than cash to a trust you’ll be deemed to have sold those assets at fair market value, so if they’ve appreciated in value, you could trigger a taxable capital gain. Be sure to count this cost first. You may be able to shelter from tax a capital gain on transferring assets to a trust if you have, for example, capital losses to use up, or some other tax deductions or credits available. And if you transfer a principal residence to a trust, you might be able to use your principal residence exemption on the transfer to avoid a tax hit.

3. Income of the trust. The income of the trust can be taxed in the hands of the trust, or one or more of the beneficiaries. Where the beneficiaries are minors, or your spouse, the attribution rules in our tax law could apply to cause the income to be taxed in your hands – that is, the hands of the settlor or someone who may have transferred assets to the trust. You can avoid this problem by lending money to the trust instead and charging the prescribed rate of interest (currently 1 per cent). You should also know that where a trust receives certain types of income, such as dividends from private companies, or rent or business income earned from a property or business carried on by a person related to minor beneficiaries, and an attempt is made to have that trust income taxed in the hands of minor beneficiaries, the “kiddie tax” rules can apply to cause the child to pay tax at the highest marginal tax rate. The kiddie tax won’t apply to second-generation income (that is, income on income), so it’s still possible for the trust to receive income subject to this tax, and use the cash to build up investments over time, and avoid the kiddie tax on any second-generation income.

4. Distributions from the trust. The assets, or capital of the trust, can generally be distributed from the trust on a tax-free basis to the beneficiaries of the trust who have a right to the capital. In this case, the beneficiaries inherit the adjusted cost base of the trust and may pay tax later on any income or gains on those assets they receive.

5. Twenty-one years later. Be aware that on every 21st anniversary of the trust there will be a deemed disposition of the assets of the trust, which could trigger taxable capital gains. There are various ways to plan for this tax hit (a topic for another day).

6. Asset protection benefits. Finally, assets can often be protected from potential creditors when placed in a trust where the trustee has discretion to distribute the assets to beneficiaries as the trustee sees fit. However, there are laws in place to protect the rights of creditors, so speak to a lawyer about these.

And be sure to speak to a tax lawyer before setting up a trust.

Tax Matters: In estate planning, know the hazards of joint ownership

Today, I would like to share an interesting article written by Tim Cesnick published in The Globe and Mail.

Tax Matters: In estate planning, know the hazards of joint ownership

I recall a number of years ago that the New Haven (Conn.) Register newspaper reported a story about a local woman, Joanne Kamerling, who had decided to change the ownership on two acres of land that she owned in Weber County, Utah. She placed the property into the joint names of a group of people that included a physical therapist, a prominent local attorney, the former Louisiana Ku Klux Klan leader David Duke, and O.J. Simpson. She didn’t know these people personally, none of them knew each other, and they weren’t looking to become owners. Ms. Kamerling continued to pay the property taxes. Weird.

Yet when it comes to tax planning, Canadians often do something similar: They regularly place assets into joint names with right of survivorship. Okay, so there aren’t many of us adding O.J. Simpson to the title on our homes, but the end result is often about as effective. You see, while joint ownership can reduce probate fees and make for an efficient transfer of assets at the time of death, there can be drawbacks. Consider these 10:

1. A tax liability might be triggered. When you add another individual as a joint owner, you will often be creating a change in beneficial ownership. The result? When adding anyone other than your spouse as a joint owner, you may be deemed to have disposed of that ownership interest at fair market value, which could trigger a tax hit.

2. Your estate distribution might be inappropriate. If you’re hoping to leave an asset to, say, all of your children equally when you die, but have perhaps named just one as a joint owner to avoid probate fees, there is no requirement for your joint-owner child to share the asset with the others. This may not be your intention.

3. Family or legal disputes could result. Continuing with the scenario in number 2 above, those children who are effectively disinherited may dispute the unequal distribution of your estate, and there is no shortage of court cases dealing with these types of battles. Make your intentions clear, in writing, if you do choose to put assets in joint names.

4. You may not save tax. If you think you’ll save tax by placing assets into joint names, perhaps with your spouse, think again. Any income earned by your spouse on his or her half of the assets will generally be attributed back to you unless you charge interest at the prescribed rate. Further, owning assets jointly with a child will not allow you to escape tax on your share of the asset when you die.

5. Exclusive control over assets will be lost. If you add another person as a joint owner on an asset, you’ll no longer have sole control over the asset.

6. Assets could be attacked by creditors. If the individual who jointly owns an asset with you faces the attack of creditors, the full value of the asset you jointly own could be subject to the claim of those creditors.

7. Testamentary trusts will be impossible. It is possible, when you die, to leave income-producing assets to a trust established in your will for your heirs. This trust can pay the tax on the income earned annually after you’re gone. This can save your heirs tax. Any assets held jointly, with right of survivorship, will pass directly to the surviving owner or owners and there will be no opportunity for those assets to be place in a trust upon your death.

8. Portfolio risk profile may not be appropriate. If two or more people jointly own an investment account or portfolio it may be difficult to invest the capital in a manner that meets the risk profile of all owners on the account, particularly when there are large age differences between the owners.

9. A principal residence could become taxable. If you decide to place your principal residence into joint names with, say, a child, it may be necessary for both you and your child to designate that property as your respective principal residences in order to avoid tax on a disposition of the property later. This could be a problem if your child has, or will have, another property that he or she owns; it may expose your child’s other home to tax.

10. Joint tenancy may be permanent. Forget about undoing the joint ownership unless the other owner or owners agree to change things.

Be sure to ask yourself whether you should be concerned about each one of these potential drawbacks. This will help you to evaluate whether joint ownership is right for you.

Entrepreneurs: 25 conseils pour réduire vos impôts

Cet article, signé Dominique Froment, est paru sur www.lesaffaires.com » le 18 mars 2011.

Pour vous aider à vous retrouver dans les dédales de l'impôt, nous avons passé au crible les recueils des grands cabinets d'experts-comptables Raymond Chabot Grant Thornton, Deloitte et RSM Richter Chamberland, en plus de consulter des fiscalistes. S'il y a peu de nouveautés pour l'année fiscale 2010, de vieux oublis peuvent encore vous coûter cher. Suivis à la lettre, ces 25 conseils pourraient vous procurer des économies de quelques milliers de dollars... et des cheveux blancs en moins !

1) Bureau à domicile : vous pouvez déduire de nombreuses dépenses

Fatigué d'être pris dans la circulation deux heures par jour ? Songez à travailler à votre domicile. Ce choix est d'autant plus attrayant que vous pourrez déduire certaines dépenses comme l'électricité, le chauffage, l'entretien, les impôts fonciers, l'assurance et les intérêts hypothécaires. La répartition des dépenses doit être établie en fonction du nombre de pieds carrés utilisés aux fins du travail. " Si vous habitez une maison de cinq pièces comprenant trois chambres et que l'une d'elles vous sert de bureau, vous pourrez ainsi déduire 20 % des dépenses admissibles ", explique Luc Lacombe, associé fiscaliste chez Raymond Chabot Grant Thornton. Cette mesure est valable au Québec et au fédéral.

2) Déduisez vos dépenses de démarchage

Les dépenses engagées pour recruter ou conserver vos clients, comme les dépenses de nourriture et de boisson, de même que les dépenses de divertissement comme des billets pour un événement sportif, peuvent être déduites. Au fédéral et au Québec, 50 % des dépenses peuvent être déduites; cependant, le Québec ajoute une seconde limite qui se situe entre 1,25 % et 2 % de votre chiffre d'affaires.

3) Ne déclarez pas l'allocation pour votre voiture

Si votre employeur vous verse une allocation pour l'utilisation de votre voiture, celle-ci n'est pas imposable à condition qu'elle soit " raisonnable " et calculée seulement en fonction du nombre de kilomètres parcourus pour le travail. Par " raisonnable ", les autorités fiscales entendent généralement une allocation n'excédant pas 0,52 $ du kilomètre pour les premiers 5 000 kilomètres et 0,46 $ pour les autres kilomètres. Il est essentiel de tenir un registre des déplacements réels.

4) Faites-vous rembourser la TPS et la TVQ

Si, comme employé, vous déduisez des dépenses de votre revenu d'emploi, vous pouvez réclamer le remboursement de la TPS et de la TVQ que vous avez payées sur ces dépenses. On parle notamment des taxes sur les cotisations obligatoires à des ordres professionnels comme le Barreau du Québec, sur l'entretien du véhicule utilisé pour le travail, sur l'essence et l'amortissement (qui représente une partie du prix d'achat du véhicule).

5) Vente de votre entreprise : réduisez votre gain en capital

Vous avez réalisé un gain en capital à la vente d'actions d'une petite entreprise, de biens agricoles ou de biens de pêche ? Réclamez la déduction, qui peut atteindre 750 000 $ (limite à vie), soit 375 000 $ de gain en capital imposable. En fin de compte, ça fera 90 000 $ de plus dans vos poches.

6) Déduisez les dépenses de votre immeuble locatif

Un immeuble locatif peut constituer une bonne source de revenus pour vos vieux jours. D'autant plus que vous pouvez déduire toutes les dépenses raisonnables engagées pour gagner un revenu de location, comme les impôts fonciers, l'électricité, les assurances, les commissions payées pour trouver de nouveaux locataires, l'aménagement paysager, l'entretien et les services publics, les frais comptables, d'emprunt, d'intérêt et de publicité, etc.

7) Minimisez vos revenus de location aux États-Unis

Vous possédez en Floride un condo que vous louez de temps à autre ? Sachez que le revenu versé à un résident canadien pour la location d'un bien immobilier situé aux États-Unis est assujetti aux fins fiscales américaines à un impôt de 30 % retenu à la source. Vous pouvez cependant choisir d'être imposé sur votre revenu net, c'est-à-dire le revenu de location moins les dépenses de location, si cette méthode est plus avantageuse pour vous.

Par ailleurs, lorsqu'un Canadien vend un immeuble aux États-Unis, une retenue de 10 % du prix de vente est effectuée, sauf si le prix de vente est inférieur à 300 000 $ US et que l'acheteur fera du bien sa résidence principale. " Cette dernière exigence semble bizarre étant donné que la maison n'appartient plus au vendeur, mais la loi américaine est ainsi faite ", dit M. Lacombe.

8) Profitez du boum minier !

Les actions accréditives, c'est-à-dire d'une société exploitant une entreprise de ressources (pétrole, gaz, produits miniers), procurent une déduction (de 100 % au fédéral et jusqu'à 150 % au Québec) de leur coût, à condition que les montants recueillis auprès des investisseurs servent à financer des dépenses à risque comme les frais d'exploration et d'aménagement. Et avec le boum minier, certaines de ces actions se sont révélées très rentables. Mais attention, il s'agit de placements hautement spéculatifs.

9) Donnez-en un peu à votre conjoint !

Le fractionnement du revenu peut faire économiser beaucoup d'argent à certains couples. Supposons que vous receviez une rente de retraite de 20 000 $ de votre employeur et que votre conjointe ait un revenu inférieur à 10 000 $. Vous pourriez lui transférer jusqu'à 10 000 $. Votre conjointe paierait environ 3 000 $ d'impôt de plus (10 000 $ au taux d'imposition de 30 %), alors que vous en économiseriez 4 800 $ (10 000 $ au taux de 48 %), soit une économie totale de 1 800 $ pour le couple.

De plus, étant donné le très bas niveau des taux d'intérêt actuels, vous pourriez envisager d'avancer des fonds à votre époux ou conjoint de fait qui gagne moins que vous. Votre compagnon pourrait investir les sommes qui lui ont été prêtées et ajouter les revenus ou les gains en capital réalisés à ses revenus. L'emprunt doit toutefois porter intérêt au taux prescrit en vigueur à la date où il a été consenti, c'est-à-dire 1 % au premier trimestre de 2011. Ce taux reste en vigueur tant que le prêt est en cours.

10) Transférez vos revenus de dividendes

Si vous avez touché des dividendes d'actions de sociétés ouvertes (inscrites en Bourse) en 2010 et que votre revenu est faible (moins de 10 000 $), vous pouvez transférer vos revenus de dividendes à votre conjoint. Si son revenu est plus élevé que le vôtre, il pourra profiter d'un crédit d'impôt pour dividendes (qui varie selon le taux d'imposition). Ce qui, en fin de compte, réduira votre revenu et augmentera les déductions de votre conjoint. " Ce choix ne peut porter que sur les dividendes imposables de sociétés canadiennes imposables ", précise M. Lacombe.

11) Regroupez vos dons avec ceux de votre conjoint

Lorsque les dons d'un couple excèdent 200 $, il est avantageux de les combiner sur une seule déclaration de revenu. Les premiers 200 $ de dons donnent droit à un crédit de 15 % au fédéral (sujet à l'abattement de 83,5 % du Québec) et de 20 % au provincial, alors que tout excédent donne droit à un crédit de 29 % au fédéral (sujet à l'abattement de 83,5 %) et de 24 % au provincial. Sachez aussi que le don d'actions de sociétés inscrites en Bourse représente une stratégie intéressante, puisqu'elle permet d'éviter l'impôt de 50 % (multiplié par votre taux d'imposition) sur le gain en capital de ces actions.

12) Réclamez le crédit pour votre première maison

Vous avez acheté une habitation après le 27 janvier 2009 et vous ne possédiez aucun bien immobilier au cours de l'année ni au cours des quatre années civiles précédentes. Vous avez alors droit à un crédit d'impôt non remboursable de 15 % (sujet à l'abattement du Québec de 83,5 %) sur un montant de 5 000 $. Ce qui peut vous faire économiser jusqu'à 626 $.

13) Profitez d'une éventuelle baisse de revenu

Vous devez rembourser une portion de votre Régime d'accession à la propriété (RAP) à même votre contribution REER sans quoi, la portion non remboursée sera ajoutée à votre revenu imposable. Cependant, si vous prévoyez des fluctuations de revenu, il peut être intéressant de ne pas rembourser la portion minimum du RAP dans l'année où ses revenus sont plus bas ; cela vous permettra de conserver votre contribution REER afin de l'utiliser au cours d'une année où vos revenus seront plus élevés.

14) Vous pouvez retirer des sommes du REER pour financer vos études

Comme avec le RAP (Régime d'accession à la propriété), vous pouvez effectuer des retraits de votre REER sans pénalité pour défrayer le coût de vos études à plein temps ou celles de votre conjoint. Le montant retiré ne peut excéder 10 000 $ par année et 20 000 $ sur une période de quatre ans. Ces retraits sont remboursables, sans intérêt, sur une période de 10 ans.

15) Récupérez les droits au REER de votre conjoint décédé

Lorsqu'une personne décède avec des droits de cotisation au REER inutilisés, il est possible de cotiser au REER de son conjoint au nom de la personne décédée et de déduire ces cotisations additionnelles dans la déclaration finale du défunt.

16) N'oubliez pas les nombreux frais médicaux déductibles !

Au Québec, si vous payez des primes d'assurance médicament à votre travail dans le cadre d'un régime privé, elles sont considérées comme des frais médicaux au même titre que les franchises ou les dépenses qui ne sont pas couvertes par votre plan.

Au fédéral, vous pouvez réclamer l'excédent des frais médicaux payés sur le moindre de 3 % de votre revenu net ou 2 024 $. Au Québec, ces frais sont déductibles en excédent de 3 % du revenu net familial. Le crédit d'impôt équivaut au fédéral à 15 % des dépenses admissibles, multiplié par 83,5 % (pour l'abattement du Québec) et à 20 % au Québec. " Par contre, souligne M. Lacombe, au fédéral, les dépenses engagées à des fins purement esthétiques après le 4 mars 2010 ne sont plus admissibles au crédit d'impôt pour frais médicaux (elles ne l'étaient plus au Québec depuis quelques années). " Parmi les dépenses qui ne sont plus admissibles, mentionnons l'augmentation des seins et des lèvres, l'injection de botox, le lifting, les soins épilatoires, la liposuccion, etc.

17) Déduisez vos frais de garde à 7 $ au fédéral

Tous les frais de garde, y compris les garderies à 7 $, sont déductibles du revenu au fédéral. Au Québec, les frais de garderie à 7 $ ne sont pas admissibles, mais les frais en garderie privée ou à la maison sont admissibles à un crédit d'impôt remboursable variant de 75 % à 26 %, selon que le revenu familial se situe entre 31 670 $ et 141 125 $.

Au fédéral, tous les frais de garde sont des dépenses admissibles pour l'un ou l'autre des conjoints. Au fédéral comme au Québec, le maximum admissible est de 7 000 $ pour chaque enfant de 6 ans ou moins et de 4 000 $ pour chaque enfant de 7 à 16 ans.

" Depuis cette année, au fédéral, un chef de famille monoparentale peut désigner les montants reçus au titre de la prestation universelle pour la garde d'enfants (100 $ par mois) comme étant le revenu d'un enfant mineur ", nous apprend M. Lacombe. À condition de ne pas avoir d'époux ou de conjoint de fait à la fin de 2010.

18) Traitez votre enfant (fiscalement !) comme votre conjoint

Si vous avez un enfant et que vous n'êtes pas admissible au crédit de personne mariée ou vivant en union de fait, vous pouvez réclamer, à certaines conditions, un crédit d'impôt qui peut vous faire économiser jusqu'à 1 300 $ pour une personne entièrement à charge. Autrement dit, si vous vivez seul, votre enfant peut être considéré comme un conjoint et ainsi bénéficier de ce crédit. Par ailleurs, n'oubliez pas que si vos parents de plus de 65 ans, au fédéral, et de 70 ans, au Québec, vivent avec vous et ont un revenu relativement bas, vous pourriez aussi bénéficier d'un crédit pour aidant naturel.

19) Conseillez à vos enfants de produire leur déclaration fiscale

Si vous avez des enfants de moins de 18 ans travaillant à temps partiel ou à temps plein pendant les mois d'été, ils peuvent avoir droit à un remboursement d'impôt si leur revenu demeure sous le montant personnel de base (10 382 $ au fédéral et 10 505 $ au Québec). " Même si aucun impôt n'a été retenu, les parents devraient conseiller à leurs enfants de produire une déclaration fiscale pour augmenter leur limite de cotisation au REER pour les années futures ", précise M. Lacombe.

En outre, une personne de 19 ans ou plus qui gagne au moins 2 400 $ a droit à un crédit d'impôt non remboursable pouvant atteindre 1 552 $ au fédéral et 533 $ au Québec.

20) Faites bouger vos enfants !

Un crédit d'impôt fédéral non remboursable de 15 % est offert aux particuliers ayant engagé des dépenses admissibles (jusqu'à 500 $ par enfant) pour la condition physique de leurs enfants de moins de 16 ans. Au taux d'imposition maximum, cela représente 62 $ de plus dans vos poches. C'est mieux que rien !

21) Devenez parent à moindre coût

Vous avez toujours rêvé d'avoir un bambin, mais vous ou votre conjoint éprouvez des problèmes de fertilité ? Québec accorde un crédit d'impôt remboursable égal à 50 % des dépenses payées dans le but de devenir parent. Le plafond annuel des dépenses est de 20 000 $, pour un crédit maximum de 10 000 $. Parmi les dépenses admissibles, mentionnons les frais d'insémination ou de fécondation in vitro, des sommes payées à un médecin, à un centre hospitalier privé ou pour des médicaments. " Au fédéral, ces dépenses peuvent donner droit au crédit pour frais médicaux ", ajoute M. Lacombe.

22) Si vous avez 70 ans, réduisez le coût de certaines dépenses

Un contribuable de 70 ans et plus peut bénéficier d'un crédit sur ses dépenses engagées pour obtenir des services liés à son bien-être ou à son maintien à domicile, comme les services d'entretien. Le crédit peut atteindre 4 680 $ par année et 6 480 $ pour une personne non autonome. " Le domicile peut aussi être une résidence pour personnes âgées ", souligne M. Lacombe. Pour profiter au maximum de ce crédit, vos dépenses doivent atteindre au moins 15 600 $. N'oubliez pas de conserver vos factures.

23) Profitez de votre conscience environnementale

Si vous avez fait l'acquisition d'un véhicule écoénergétique admissible, Québec vous fait bénéficier d'un crédit d'impôt remboursable pouvant atteindre 8 000 $. Le taux du crédit est établi en fonction de la performance du véhicule sur le plan environnemental (au plus 5,27 litres au 100 km). Ce crédit est applicable aux véhicules neufs acquis ou loués à long terme entre le 1er janvier 2009 et le 31 décembre 2015.

24) Prenez les transports en commun et épargnez

Compte tenu de la hausse importante du carburant, il peut être encore plus avantageux d'emprunter les transports en commun pour vous rendre au bureau. N'oubliez pas que vous pouvez réclamer un crédit d'impôt fédéral non remboursable de 15 % sur le coût de laissez-passer de transport en commun mensuels ou d'au moins quatre laissez-passer hebdomadaires consécutifs. Ce crédit concerne les déplacements en métro, en autobus ou en train.

25 ) Vous pouvez déduire des frais de déménagement

Vous pouvez déduire de votre revenu des frais de déménagement si vous vous êtes rapproché d'au moins 40 km de votre nouveau lieu de travail ou d'études postsecondaires. Ces frais peuvent inclure le transport, l'entreposage, les frais liés à la vente de l'ancien domicile, les droits de mutation et les frais de notaire liés à l'achat de la nouvelle maison.

Business owners: What You Need to Know When Your CRA Tax Bill Is Wrong

The Canada Revenue Agency (CRA) doesn't always get it right. If you're a small business owner who has received a Notice of Reassessment stating that you owe a significant amount of tax, interest and penalties, that's the first thing to remember, says Peter V. Aprile.

Writing in The Globe and Mail, he offers eight pieces of advice for small business owners caught in this situation. Two that I found most interesting;

1) The CRA is not interested in making deals.
"...the CRA will not agree to settle a dispute unless persuaded that the taxpayer's position is correct in fact and/or law," writes Mr. Aprile. So trying to get a "knockdown" on the amount owed by whatever bargaining techniques have worked for you in business deals is a waste of time.

2) Save the begging for last and then only if you have to.
Mr. Aprile says that taxpayers with tax bills on their assessments often just ask the CRA to waive or cancel interest and penalties under the taxpayer relief provisions rather than challenging the merits of the assessment. This, he says, "is the tax equivalent to approaching the Minister of National Revenue on bended knee... In most cases, if a taxpayer has an arguable case the better route is to dispute the reassessment".

My main takeaway from this article, though is that dealing with the Canada Revenue Agency about a tax dispute is not a suitable do-it-yourself project. Sometimes you need to spend money to protect money. Connecting with a tax lawyer with tax dispute resolution experience would be the best first step.

For any questions, please contact me.

Business Owners: Don't forget the Tax-Free Car Allowance

As a business owner, you may receive a tax-free car allowance if you use your own car when performing your business duties. The Canada Revenue Agency (CRA) will consider the allowance non-taxable if it is based on a per kilometre rate that they consider reasonable. The CRA normally considers the allowance reasonable, if it does not exceed the rate set annually by the government. For 2011, the rate is 52 cents/km for the first 5,000 km of business travel and 46 cents/km for business travel over 5,000 km. For the Yukon, the Northwest Territories and Nunavut, the rate is 56 cents/km for the first 5,000 km of business travel and 50 cents for each additional kilometre. The allowance is beneficial because you only have to track the distance travelled on business, not all of the related car expenses.

If the allowance exceeds these amounts, or could otherwise be viewed as being unreasonably high, it may be wise to track actual expenses and kilometres driven, in order to substantiate this higher amount, should the CRA ever challenge it.

Also, note that any allowance not calculated wholly on a reasonable "per kilometre" basis, is in most cases automatically considered taxable by the CRA. This would be the case, for instance, if you received a flat dollar amount per month.

Change of career and back to school? Consider the Lifelong Learning Plan (LLP)

Lifelong Learning Plan (LLP)

The Lifelong Learning Plan allows you to withdraw up to $10,000 in a calendar year from your registered retirement savings plans (RRSPs) to finance full-time training or education for you, your spouse or common-law partner. You cannot participate in the LLP to finance your children’s training or education, or the training or education of your spouse’s or common-law partner’s children. As long as you meet the LLP conditions every year, you can withdraw amounts from your RRSPs until January of the fourth year after the year you make yourfirst LLP withdrawal. You cannot withdraw more than $20,000 in total.

Eligibility Information

Participants must meet the following criteria:

•complete and send an income tax return every year until they have repaid all of their LLP withdrawals or included them in their income

•enrol in a qualifying educational program at a designated educational institution

OR

•be a person with a disability enrolled in part-time training or education

Other criteria may apply.

Dates and Deadlines

•Participants must start to make repayments two years after their last eligible withdrawal, or five years after the first withdrawal, depending on which due date comes first.

•Amounts withdrawn must be repaid within 10 years.

Business Owners: Don't forget to file your Trust tax return on time...

To avoid paying penalties, trustees must ensure that they file a trust's tax return by the filing deadline. If you fail to file on time, a penalty of 5% of the unpaid tax is due. A further penalty of 1% of the unpaid tax times the number of months the return is not filed (to a maximum of 12 months) will also be due if the return remains unfiled. Even if the trust does not have a balance owing, the trust return is also an information return. That means that if the trust return is not filed on time or any of the information slips are not distributed on time, a penalty for each failure to comply with this requirement can be charged.

The filing deadline for trust returns with a December 31, 2011 year-end (which includes all inter-vivos trusts) will be March 31, 2012.

Tax Tip Management Fees and Salaries for Business Owners

Below is an excellent article written by Andrews & Co, Chartered Accountants, they are located in Ottawa, Canada:

Tax Tip Management Fees and Salaries

It is important to remember that management fees and salaries paid by taxpayers, usually corporations, must be reasonable to be deductible.

Companies will often “bonus down” profits to the limit of the Small Business Deduction, $500,000, to avoid paying higher rate tax on excess profits.

The Canada Revenue Agency can challenge such bonuses or management fees if in their opinion, the fees are not reasonable. It has been CRA’s assessing practice to allow bonuses or management fees where it is a corporations general practice to distribute profits in this manner AND the recipient of the income is active in the business and has special knowledge, skills etc that helped to earn the income.

In the Neilson Development Company case decision, the Court provided the criteria required to successfully bonus down and the fees to be considered reasonable. In this case, management fees of $300,000 per year were disallowed when paid to a corporation controlled by a spouse. The taxpayer successfully appealed but only because they could prove that the taxpayer met the criteria. The facts won the case, not legal arguments. The circumstances included:

- The management fees included services for budgeting, planning, marketing and being involved in the "hands on" operation
- Management was on site
- How the company operations compared to similar companies
- The effort to earn the fees
- The profitability of the company
- The presence or absence of a contract

It is important that when declaring material or substantial bonuses or management fees, that the facts be documented, there is a contract and the decision is recorded in the corporate Minutes.