Tax Tips – December 2017
Quick points to remember…
- An individual’s online CRA account (My Account) is now linked to their online Service Canada Account (EI, CPP, OAS, etc.) to provide both departments’ information in a single log-in session.
- Over the past two years, CRA has completed over 21,000 files related to real estate, assessing over $329 million in previously unreported income, and applying over $17 million in penalties.
CHARITY FILING AND COMPLIANCE OBLIGATIONS: The CRA Has Checklists to Help
The CRA Charity Directorate provides a number of fairly comprehensive and easy to read checklists relating to various responsibilities associated with operating a registered charity. These can be particularly helpful as a reminder for individuals who are involved (employee, volunteer, or even Board Member) with a charitable organization. For example, clear guidance is provided on what is required to be included on a donation receipt for both cash and non-cash donations.
Provided checklists include Basic guidelines, Activities, Books and records, Receipting, Spending requirement, T3010, Legal status, Changes, GST/HST, and Terrorism.
The Checklists can be found at https://www.canada.ca/en/revenue-agency/services/charities-giving/charities/checklists-charities.html.
Action Item: If participating as a Board Member with a charitable organization, it may be useful to encourage or require the use of these checklists by staff or volunteers.
NON-COMPLIANT GST/HST REGISTRANTS: Impact on Tax Refunds or Credits
In a recent release (Excise and GST/HST News No. 102), CRA reminded taxpayers that they may place a non-compliance hold on a taxpayer’s account if they are a non-compliant GST/HST registrant. That is, for example, if income tax or GST/HST returns are outstanding. This would prevent the provision of any refund or credit to the taxpayer. In other words, refunds or credits will be held if returns are outstanding.
This may be the case, for example, if a taxpayer that is a quarterly GST/HST filer, prepares their GST/HST returns with their year-end work. The first quarter of the next year is generally late by the time the year-end is filed, so GST/HST or income tax refunds may not get paid out.
Action Item: Ensure that you are up to date with GST/HST filings and remittances.
BUSINESS LOSS OR PERSONAL VENTURE: Can I Deduct Losses Against Other Income?
In order for an individual to apply their business loss (where reasonable expenses exceed revenues) to another source of income such as employment earnings (thereby reducing the overall tax liability), the taxpayer must be able to prove that they are truly running a business. That is, they have to show that the undertaking was in the pursuit of profit.
In April 28, 2017, Tax Court of Canada case considered whether a practicing lawyer had a source of business income in respect of her law practice for the 2011-2014 years.
The taxpayer incurred losses in all of the years in question ranging from $4,014 to $12,613 and reported annual revenues ranging from $0 to $3,850. The taxpayer reported that the time she spent on the proprietorship was diverse, however, on average she worked about 5 to 10 hours per week. The taxpayer testified that she did no pro bono or volunteer work, but rather, charged clients depending on their circumstances. In some cases, the clients did not end up paying for the services.
The Court found that while the lawyer’s work was very commendable, the practice did not have a view to profit. For example, the gross revenue per hour for the 2011-2014 years were $5, $1.70, $1.70 and $7.70 (assuming 50 weeks at 10 hours/week for the year). These amounts were not even minimum wage, much less amounts which could sustain a law practice operating with a view to profit.
Although the taxpayer’s work was not strictly volunteering, it was very close. As the venture was not carried out with a view to profit, there was no business, so the losses were not deductible against other sources of the taxpayer’s income.
Action Item: If your proprietorship is in a loss position, ensure to document evidence to support your efforts to be profitable.
DISCLAIMER: The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances, and exceptions in a newsletter such as this, a further review should be done by a qualified professional.
No individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents.
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