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Remitting GST/HST on Taxable Benefits

January 9, 2012 By Leave a Comment

Did you know that GST/HST must be remitted on a taxable benefit unless the benefit is tax exempt or zero-rated, for example the benefit on low-interest loans? An example of a tax benefit that is not exempt includes the automobile standby charge and operating expense benefit. GST/HST must be remitted on shareholder benefits if they fall into Subsection 15(1) and are not tax zero-rated or tax exempt.

Automobile operating expense benefit

If your employee ordinarily worked in, or the location to which he or she ordinarily reported to, is located in a p a r t i c i p a t i n g province (British C o l u m b i a , New Brunswick, Newfoundland and Labrador, Nova Scotia, or Ontario), you are considered to have collected an amount equal to a percentage of the value of the benefit for GST/HST purposes, based on one of the following rates:

  • 5% for British Columbia;
  • 11% for Nova Scotia;
  • 9% for New Brunswick, Newfoundland and Labrador;
  • 9% for Ontario, or 6% if the registrant is a large business for the purpose of the recapture of input tax credits for the provincial part of the HST.

If your employee ordinarily worked in, or he or she ordinarily reported to, a location in a non-participating province or territory (the rest of Canada), you are considered to have collected 3% of the value of the benefit for GST/HST purposes as calculated above.

Other Than Automobile Operating Expense Benefits

If the last establishment where your employee ordinarily worked, or to which he or she ordinarily reported in the year, is located in a participating province (British Columbia, New Brunswick, Newfoundland and Labrador, Nova Scotia, or Ontario), you are considered to have collected the GST/HST as a percentage of the value of the benefit as follows:

  • 11/111 for British Columbia;
  • 14/114 for Nova Scotia;
  • 12/112 for Ontario, or 4/104 for benefits relating to a motor vehicle that is subject to the recapture of the input tax credits for the provincial part of the HST, if the registrant is a large business;
  • 12/112 for all other participating provinces.

If the last establishment where your employee ordinarily worked or to which he or she ordinarily reported in the year is located in a non-participating province or territory (the rest of Canada), you are considered to have collected 4/104 of the value of the benefit for GST/HST purposes as calculated above.

Estate Planning

January 9, 2012 By Leave a Comment

There are several areas that are included in estate planning. Here is a brief list of some of them:

  • You should have a will that includes your desires and tax considerations.
  • You should consider steps to minimize probate fees (or Estate Administration Tax) on your death, if applicable.
  • You should have enough insurance to meet the needs of your family on your death.
  • If you have any assets in other countries or you are a U.S. citizen, you must consider the effects of foreign estate taxes.
  • If you plan to leave assets to your children who may be or are married, you can plan around the provincial family laws that apply on marriage breakdown.

To discuss any of these tax aspects of estate planning, talk to your Padgett Business Services representative.

2012 Sales Tax Rates in Canadian Provinces and Territories

December 22, 2011 By Leave a Comment

The following table shows the general rates of provincial sales taxes or HST for most purchases, and provides links to the provincial (or federal) web sites regarding provincial retail sales taxes.

Prov/TerrHST/GSTPSTProvincial Websites
Prov/TerrHST/GSTPSTProvincial Websites
BC12% HSTn/a (3)BC Consumer Taxes
PST in BC and BC HST
BC Harmonized Sales Tax
AB5% GSTn/a
SK5% GST5%Saskatchewan Provincial Sales Tax
MB5% GST7%Manitoba Retail Sales Tax
ON13% HSTn/a(4)Ontario Retail Sales Tax
Ontario HST
Ontario What is the HST?
QC5% GST9.5% (1)Québec QST and GST – for businesses
Québec QST and GST – for individuals
NL13% HSTn/a
NS15% HSTn/a
NB13% HSTn/a
PE5% GST10% (2)Prince Edward Island Revenue Tax
NT5% GSTn/a
NU5% GSTn/a
YT5% GSTn/a

(1) The sales tax is applied to the total of the selling price plus the GST.  The 9.5% QST rate is effective January 1, 2012.
(2) The sales tax in PE is applied to the total of the selling price plus the GST.
(3) BC still has some sales taxes, such as the tax on designated property (vehicles, boats and aircraft).  See the link above to BC Consumer Taxes for more information.  The HST in BC was overturned by a referendum, so BC will return to a PST plus GST system some time in 2013.
(4) Ontario still has retail sales tax on insurance and on private sales of used motor vehicles.  See the link to Ontario Retail Sales Tax for more information.

Businesses which sell taxable goods and/or services in each province are required to register as a vendor to collect the provincial retail sales tax where applicable.

Get Out of Debt Now!

December 22, 2011 By Leave a Comment

Most developed countries in the world are increasing their spending and debt.  Most governments will not stop their excessive spending until they are forced to do so.  This happens because they cannot sell their debt (e.g., Canada Savings Bonds, Government of Canada bonds, provincial government bonds, crown corporation bonds, t-bills) without paying substantially higher interest rates.  Once they are required to pay higher interest rates they can no longer afford the interest on the debt.  Therefore, they will have to slash spending, raise taxes, or both.

Western Europe, Japan, United States and Canada are in imminent danger of having to pay higher interest rates on their debt.  This will start a downward spiral of their economies, which will lead to a recession.  Some people think parts of these economies have been in a recession since 2008.  A recession is falling Gross Domestic Product (GDP) and higher unemployment.  Governments usually try to counteract this by increasing spending and lowering short term interest rates.  Unfortunately (or fortunately), the governments will not be able to increase spending because of the debt, and interest rates can’t really go much lower.  Canada and the rest of the developed countries are going down the same road as Greece, Ireland, and Portugal.  See our article on Debt in Selected Countries.

Recessions are a normal part of the business cycle, but if we go into a recession now because of sovereign debt, it may be long and nasty.  You can’t really tell when a recession begins or ends until probably five years after it’s over.  We entered a recession in 2008, but at this point we can’t really tell if the recession ended in 2010, or if it is a double-dip recession that we are still in.

 

What can you do?

The most important thing you can do is reduce your debt, especially debt on which the interest is not tax-deductible.  You can also lobby your governments (federal, provincial and local) to eliminate the deficit, reduce debt, and become better managers of your money.  You can do this by contacting your Member of Parliament (MP), provincial and local government representatives.  For a limited time, you can provide input to the Federal government through the online pre-budget consultations.  You could also sign petitions that are on the Canadian Taxpayers Federation website.

Rollover of RRSP, RRIF or RPP to RDSP

December 22, 2011 By Leave a Comment

Budget 2010 proposed to allow a tax-deferred rollover of a deceased individual’s RRSP/RRIF or RPP proceeds to the Registered Disability Savings Plan (RDSP) of a financially dependent infirm child or grandchild.  This is effective for deaths occurring on or after March 4, 2010.  The actual transfer to the RDSP, however, cannot be made until after June 2011.  Previously, the proceeds could only be received on a tax-deferred basis by a financially dependent infirm child or grandchild under 18 years of age by a transfer to the RRSP, RRIF or eligible annuity of the child or grandchild.

The Sustaining Canada’s Economic Recovery Act, Bill C-47, was introduced in the House of Commons on September 30, 2010, including the legislation for the rollover to RDSPs, and received Royal Assent (became law) on December 15, 2010.

Who is eligible?

An eligible individual:

  • is a child or grandchild of a
  • deceased RRSP or RRIF annuitant, or
  • deceased RPP member
  • was financially dependent on the deceased, at the time of the deceased’s death, by reason of infirmity of the dependent.

What proceeds are eligible?

Eligible proceeds means any of

  • a refund of premiums from an RRSP
  • an eligible amount paid from a RRIF, or
  • a lump sump payment (other than from actuarial surplus) from an RPP

that is received by an eligible individual as a result of the death, after March 3, 2010, of a parent or grandparent of the eligible individual.

Specified RDSP payment

A specified RDSP payment:

  • is an amount paid after June 2011 to an RDSP under which an eligible individual is the beneficiary
  • must be designated as a specified RDSP payment by the eligible individual
  • will be included in the income of the recipient on withdrawal from the RDSP
  • complies with the following RDSP contribution conditions:
  • contributions may not be made to the RDSP in any year in which the beneficiary is not eligible for the disability amount tax credit, or after the death of the beneficiary
  • contributions may not be made if the beneficiary is not a resident of Canada
  • contributions may not be made after the end of the year in which the beneficiary turns 59
  • contributions must not exceed the lifetime maximum of $200,000
  • the holder of the plan must provide written consent for the contribution

Transitional eligible proceeds

Where the death of the RRSP or RRIF annuitant or RPP member occurred after 2007 and before 2011, transitional rules apply that recognize that individual estate plans may not have been amended to reflect the new rules.

Transitional eligible proceeds include an amount received as a result of the death after 2007 and before 2011 that is:

  • any of a refund of premiums from an RRSP, an eligible amount paid from a RRIF or a lump sum payment (other than an amount of actuarial surplus) from an RPP; or
  • any amount that had been rolled-over under s. 60(l) of the Income Tax Act to the taxpayer’s RRSP or RRIF (i.e., the taxpayer claimed a 60(l) deduction for the amount), and which is subsequently withdrawn from the RRSP or RRIF in order to make a “specified RDSP payment”.

These transitional rules apply where the deceased individual may have provided a bequest directly to the eligible individual, to the spouse or common-law partner of the deceased, or to another beneficiary.  These rules allow this beneficiary to contribute to the RDSP of an eligible individual.  If the bequest had been included in the income of a taxpayer, for instance the recipient or the deceased, then a deduction will be allowed for the contribution of the transitional eligible proceeds to the RDSP. Where the death occurred after 2007 and before 2011, the contribution to the RDSP must be made before 2012.

 

Letter Campaign Initiative

December 22, 2011 By Leave a Comment

The Canada Revenue Agency will be conducting its letter campaign for the third year in a row to give Canadians the information they need to understand their tax obligations. The Audit Division in each tax services office will begin the campaign in early 2012.

Two types of letters will be sent to Canadians across the country. Some taxpayers will receive a letter explaining the eligibility criteria for certain deductions they have claimed on their recent income tax returns. Others will receive a letter with the same information, but it will also inform them that their income tax returns may be selected for audit.

The goal of the campaign is to educate taxpayers about certain claims they have made in the past and to promote compliance with the Income Tax Act. The CRA is  asking individuals to review their income and expense claims related to rental and/or business activities and employment expenses, and to review the calculation of capital gains or losses arising from dispositions of publicly-traded shares or mutual fund units.

They also want to allow taxpayers to amend their income tax returns by completing an adjustment request in cases where they may have claimed deductions in error or provided inaccurate information.

Canada Revenue Agency will be conducting its letter campaign for the third year in a row to give Canadians the information they need to understand their tax obligations. The Audit Division in each tax services office will begin the campaign in early 2012.

Two types of letters will be sent to Canadians across the country. Some taxpayers will receive a letter explaining the eligibility criteria for certain deductions they have claimed on their recent income tax returns. Others will receive a letter with the same information, but it will also inform them that their income tax returns may be selected for audit.

The goal of the campaign is to educate taxpayers about certain claims they have made in the past and to promote compliance with the Income Tax Act. We are asking individuals to review their income and expense claims related to rental and/or business activities and employment expenses, and to review the calculation of capital gains or losses arising from dispositions of publicly-traded shares or mutual fund units.

We also want to allow taxpayers to amend their income tax returns by completing an adjustment request in cases where they may have claimed deductions in error or provided inaccurate information.

Alternative minimum tax on Canadian dividends

December 22, 2011 By Leave a Comment

Dividends eligible for the enhanced dividend tax credit

In the following table, the Federal column for eligible dividends shows the amount of actual dividends that can be earned before federal tax or federal AMT kicks in, if there is no income other than the dividends.  The provincial columns show the amount of actual dividends that can be earned in each province before any regular provincial income tax (net of any low income tax reduction) is payable.  However, if this amount exceeds the amount of dividends in the Federal column, AMT will be payable for all provinces except Québec, which does not base its AMT on the federal AMT.  The provincial columns also show the total amount of regular federal income tax, plus federal and provincial AMT payable at the indicated amount of dividends, for 2012 and 2011.

In 2012, because of the higher federal marginal tax rate for eligible dividends than 2011, regular federal taxes start to be payable when actual eligible dividends reach the amount of $47,892.  AMT starts when the dividends reach $56,097, and at this point there is $791 of federal tax payable.  The federal AMT is applicable for dividends above this amount, until the amount of the dividends reaches $101,970, when the regular federal tax exceeds the minimum amount.

In 2011, federal AMT starts at $50,530 of actual eligible dividends, and is phased out at $212,563, when the regular federal tax exceeds the minimum amount.

Both tables are based on income tax rates as known on December 16, 2011.

2012 Federal AB BC(1) MB NB NL NS NT NU ON(2) PE QC(3) SK YT
Actual eligible dividends $47,892 n/a $111,982 $52,683 144,046 86,285 30,514 224,017 93,990 56,088 44,700 33,901 88,588 n/a
Total fed. taxes + prov. AMT 0 9,604 462 15,789 5,460 0 31,218 6,594 790 0 0 5,801
Provincial AMT as % of Federal AMT (4) 35% 33.7% 50% 57% 51.3% 57.5% 45% 45% 33.67% 57.5% n/a 50% 44%

2011 Federal AB BC(1) MB NB NL NS NT NU ON(2) PE QC(3) SK YT
Actual eligible dividends $50,530 n/a $120,448 $51,263 137,134 81,917 29,864 213,958 95,416 51,800 43,749 32,313 84,326 n/a
Total fed. taxes + prov. AMT 0 10,766 166 13,203 5,464 0 26,231 7,410 256 0 0 5,824
Provincial AMT as % of Federal AMT (4) 35% 33.7% 50% 57% 51.3% 57.5% 45% 45% 33.67% 57.5% n/a 50% 44%

(1) BC excludes Medical Services Plan Premiums
(2) ON excludes Ontario Health Premium
 (3) QC excludes contribution to the health services fund, health contribution, and prescription drug insurance plan premiums.
(4) The BC, NL and ON AMT rates are calculated as lowest provincial tax rate / lowest federal tax rate.

Employers: Expect Canada Pension Plan changes in January 2012

December 22, 2011 By Leave a Comment

Important facts for employers

Starting January 1, 2012, you must deduct CPP contributions for all employees aged 60 to 65-even if the employee is receiving a CPP or Quebec Pension Plan (QPP) retirement pension and did not contribute previously.

You must also deduct CPP contributions for all employees who are 65 to 70 years of age unless they elect not to contribute to the CPP by giving you a signed and completed copy of Form CPT30, Election to Stop Contributing to the Canada Pension Plan, or Revocation of a Prior Election. They must also send the original to the Canada Revenue Agency (CRA).

Your employees cannot contribute to the CPP after the month in which they turn 70 years of age.

Management of Canada’s Official International Reserves

December 12, 2011 By Leave a Comment

This annual report provides details on official international reserves operations, primarily related to the Exchange Fund Account (EFA), which is a portfolio of assets held under the Currency Act to provide foreign currency liquidity to the Government and to promote orderly conditions for the Canadian dollar in the foreign exchange markets, if required.

The report notes:

  • The market value of Canada’s official international reserves increased to US$60.6 billion as of March 31, 2011 from $56.7 billion as of March 31, 2010. This increase reflects the launch of the Government’s new liquidity plan, in which liquid foreign exchange reserves will increase by US$10 billion by the end of 2011–12.
  • The EFA continued to earn positive returns for the Government in 2010–11 as the foreign currency assets held in the account earned an average positive spread of 49 basis points over the foreign liabilities used to fund the assets, up from 42 basis points in the previous year.
  • The EFA’s investment exposure was managed prudently within acceptable limits specified in the Statement of Investment Policy.

Government Wraps-Up Year With Focus On Creating Jobs

December 12, 2011 By Leave a Comment

Ontario is moving forward to address the most important priority for Ontario families: jobs and the economy. The fall session of the Ontario Legislature wrapped up yesterday with a number of important initiatives and bills being introduced including:

  • The Healthy Homes Renovation Tax Credit that will, if passed, help seniors stay in their homes longer and help create jobs.
  • The  Accepting Schools Act that will, if passed, help make Ontario schools safer and more accepting places to learn by requiring all school boards to create policies for bullying prevention and intervention, progressive discipline, and equity and inclusive education.
  • The Attracting Investment and Creating Jobs Act that will, if passed, create new opportunities with a proposed development fund for southwestern Ontario and make the Eastern Ontario Development Fund permanent.
  • The Family Caregiver Leave Act that will, if passed, build on the existing Family Medical Leave to expand protected leave from work for caregivers so they can spend more time with family members who cannot care for themselves because of serious injury or illness.
  • An amendment to the Residential Tenancies Act that will, if passed, set Ontario’s annual Rent Increase Guideline between one and 2.5 per cent beginning in 2013 to ensure affordable rent increases for tenants and fair return for landlords.

The Speech from the Throne was passed earlier this week providing a road map to creating a stronger, more competitive economy that protects and creates jobs for families. Working together, Ontarians are moving the province forward in a number of areas including:

Education — Our students are ranked among the best in the world. Results from the 2010 Pan-Canadian Assessment Program Report show our Grade 8 students are among the highest achievers in the country. Ontario students scored significantly higher than the Canadian average in all three subjects — math, science and reading — and were number one in reading.

Tax Reform — Ontario’s Tax Plan for Jobs and Growth is lowering income taxes for families and businesses. Tax changes are making the province an attractive place for businesses to invest. Since the Tax Plan for Jobs and Growth was introduced in July 2010, investment in machinery and equipment has increased by 22 per cent or $9 billion.

Infrastructure — The province’s long-term infrastructure plan, Building Together, will create and preserve 300,000 jobs, strengthen the economy and help meet the needs of local families.

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