Business and Personal Tax Updates


Issue 24 – March 2013

While most people think we accountants just crunch numbers all day, our day-to-day activities actually involve finding the best financial and tax solutions for each client’s individual needs. Every client’s situation is different. A perfect solution for one client, may not even apply for two dozen other clients. We’re here to help you improve your financial situation as well as legally pay the minimum amount of tax possible. Got a burning financial or business management question, a tax issue that’s keeping you awake at night? I invite you to call personally call me at 506-657-4067 or 1-800-650-4067 to see how we can help you.

I look forward to hearing from you and I hope you enjoy the following summaries.

Donna Mazerolle
www.DonnaMazerolle.com

P.S. As a favour to a friend or business colleague, feel free to forward this email to those who you think could benefit from the information below.

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OWNER-MANAGER REMUNERATION


INSURABLE EMPLOYMENT

The Employment Insurance Act (EIA ) notes that insurable employment does not include the employment of a person that controls more than 40% of the voting shares of the corporation.

It also excludes employment if the employer and employee are not dealing with each other at arm’s length. However, if the employer is related to the employee, they are deemed to deal with each other at arm’s length if the Minister of National Revenue is satisfied that, having regard to all the circumstances of the employment, including the remuneration paid, the terms and conditions, the duration and the nature and importance of the work performed, it is reasonable to conclude that they would have entered into a substantially similar contract of employment if they had been dealing with each other at arm’s length.

Therefore, to avoid EI, the taxpayer must show that they do not have a substantially similar contract of employment as other arm’s length employees.

Caution

If EI has been incorrectly paid for a family member and a refund is to be requested from the CRA, or a Ruling is to be asked for, this could be a lengthy process.

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ESTATE PLANNING


CANADA PENSION PLAN – POST-RETIREMENT BENEFIT (PRB) CALCULATOR

Service Canada has a Post-Retirement Benefit calculator which notes that:

  1. The PRB is a new benefit for people who work and make CPP contributions while already receiving a CPP retirement pension. The Government of Canada has developed this calculator to help you better understand how contributions to the PRB will further contribute to your financial security after you retire.
  2. A PRB is available the year following the year you make contributions. You will receive a new PRB for each year you make contributions. Each new PRB will be added to any previous PRBs.

The calculator is available at http://srv111.services.gc.ca/PRB_01.aspx.

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INTERNATIONAL


CANADIAN SNOWBIRDS – TIME SPENT IN THE U.S.

If an individual spends 183 days or more in the U.S. they will be considered to be a U.S. resident (subject to some very minor exceptions). As such, he/she will be subject to U.S. taxation on worldwide income and may need to file several other forms although some relief may be available if the individual is considered a Canadian resident under the Canada-U.S. Treaty.

If an individual spends less than 183 days in the U.S. in the year, but the total of their time as determined by the following formula (substantial presence test) is 183 days or greater, they would be considered U.S. residents.

The total of:

  • All the days you were present in the current year, and
  • 1/3 of the days you were present in the first year before the current year, and
  • 1/6 of the days you were present in the second year before the current year.

If determined to be a resident under this scenario, the individual would be subject to the same considerations as discussed in the “presence of 183 days or more” scenario above.

If an individual is in the U.S. for less than 183 days but is considered a resident under the substantial presence test, they may complete Form 8840 Closer Connection Exception Statement for Aliens to except themselves from residency.

Editors’ Comment

Specific U.S. advice may be needed in these areas.

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DID YOU KNOW


CPP SHARING

Spouses or common-law partners who are both at least 60 years old and who are both receiving the CPP retirement pension can share their CPP retirement benefits. If only one of you is a CPP contributor, you may share that one pension. This may have tax advantages.

The portion of the retirement pension that can be shared is based on the number of months you and your spouse or common-law partner lived together during your joint contributor period. Your joint contributor period is the time during which either one of you could have contributed to the CPP if you had sufficient earnings.

See the HRSDC website for more details on CPP sharing.

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Donna Mazerolle & Associates provides:

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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.

Although every reasonable effort has been made to ensure the accuracy of the information contained in this newsletter, 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.

Do you have questions… give us a call at 506-657-4067 or 1-800-650-4067 (outside Saint John).