Category: Canadian Tax

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How is Canadian inheritance taxed in Canada?

In Canada, when a person dies, the deceased person is deemed to dispose of all of his/her assets to an estate at their fair market value immediately before the deceased person’s passing.  The deceased person’s legal representative will have to file his/her final and optional returns to report all income, including the gains and losses from the deemed dispositions, for the period from January 1 of the year of death to the date of death.  There are exceptions to these general rules for properties left to a spouse or common-law partner or a qualifying spouse trust.

An estate is a trust and is formed automatically upon the death of the deceased person to own all of his/her assets.  If the deceased person owned a life insurance policy, the life insurance proceeds would be distributed to the name beneficiaries directly.  Income earned on the estate assets should generally be reported in the estate’s return.  Over time, the estate assets are to be distributed in accordance with the will of the deceased person and received by the beneficiaries of the estate free of Canadian taxes.

How is overseas inheritance taxed in Canada?

As noted above, inheritances whether from non-resident relatives overseas or Canadians are not taxable income to the Canadian resident beneficiaries.  However, as Canadian residents are subject to Canadian taxation on their worldwide income, any future income to be generated from such overseas inheritance will be subject to taxation in Canada.  This is the case even if the overseas inheritance or the related income is not remitted to Canada.

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Recessions can be daunting for small businesses with reduced sales, disappearing customers, and increased nervousness. However, proper preparation can help you endure and emerge stronger.

What is a Recession? Recession is defined as two consecutive quarters of negative economic growth, meaning the economy is shrinking and businesses are losing revenue. During a recession, people may lose their jobs and have less money to spend, leading to lower sales for businesses.

Impacts of a Recession on Small Businesses Small businesses may experience some common impacts during a recession, including:

1. Decreased Sales: Keep a close watch on your budget and find ways to cut costs. Consider diversifying your products and services to attract a wider range of customers.
2. Increased Competition: New businesses may arise as others struggle and fail, making it harder to stand out. Focus on your unique selling points and market your business effectively. You may also consider lowering your prices or running promotions.
3. Credit Issues: Getting credit from lenders may be challenging as they are worried about repayment. Look for alternative financing options, negotiate with vendors, or seek grants or loans from friends and family.

Preparation for a Recession Here are steps to protect your business during a recession:

1. Emergency Fund: Have an emergency fund for your business to cover expenses for three to six months.
2. Build Credit: Improve your credit score by taking out a small loan and paying it on time, or using a business credit card for everyday expenses. Pay off existing debt.
3. Diversify Income Streams: Have multiple sources of revenue to weather any setback. For example, a retailer may sell products online and in-store, or a freelance writer may work with multiple clients in different industries.
4. Plan for the Worst: Have a plan in place for reducing expenses, renegotiating loans and leases, finding alternative financing, or laying off staff.

Conclusion A recession can be tough for small businesses, but preparation is key to surviving and emerging stronger. By understanding its impacts and taking measures to protect your business, you can weather the storm.

If you need any assistance we are only a call away. Please contact our trusted advisor to review your situation.

The Federal budget of 2018 introduced draft legislation for new trust reporting rules, which were to apply to trusts with year-ends on or after December 31, 2021. The draft was later revised, postponing the effective date to December 15, 2022 and receiving Royal Assent for application to trusts with year-ends on or after December 31, 2023. The new legislation changes the tax return filing requirements for trusts and introduces additional trust information disclosure rules.

Before the introduction of the new legislation, trusts were only required to file a tax return if they had to pay tax, disposed of a capital property or allocated income/capital to beneficiaries. However, the new legislation requires all resident Canadian trusts to file a T3 tax return unless they meet certain exemptions, such as trusts in existence for less than three months, trusts with assets worth $50,000 or less, and certain types of trusts, such as lawyers\’ general trust accounts, non-profit organizations, or registered charities.

The new trust reporting rules also require additional information disclosure in the tax return, including the name, address, and taxpayer identification number of each trustee, beneficiary, settlor, or protector of the trust. The penalties for non-compliance include daily fines ranging from $100 to $2,500, and a 5% penalty of the maximum property value held by the trust for knowingly failing to file or gross negligence. Trusts should make a reasonable effort to gather the required information to avoid penalties.

If you are unsure if the new trust reporting legislation affects you, consult a trusted advisor to review your situation.

You will be able to file your income tax and benefit return for 2022 starting on February 20, 2023. The deadline for most Canadians to file their income tax and benefit return for 2022 is April 30, 2023. Filing your return before the deadline will allow you to avoid interruptions to any refund, benefit or credit payments you may be eligible for.

Since April 30, 2023, falls on a Sunday, your return will be considered filed on time if the Canada Revenue Agency (CRA) receives it, or it is postmarked, on or before May 1, 2023. If you owe money to the CRA, your payment will also be considered on time if the CRA receives it, or a Canadian financial institution processes it, on or before May 1, 2023.

You have until June 15, 2023, to file your return if you or your spouse or common-law partner are self-employed. However, if you owe money, your payment is due on April 30, 2023. Your payment will be considered on time if the CRA receives it, or a Canadian financial institution processes it, on or before May 1, 2023.

We are ready to help you with all the deadline. Please contact us toady.

When it comes to taxes, there\’s no one-size-fits-all solution. The Canadian Revenue Agency (CRA) outlines over 400 deductions and credits to help you get the most out of your taxes and maximize your refund. Here are the top 18 most popular items:

Tax Deductions vs. Tax Credits: Deductions are amounts subtracted from your total income to reduce taxable income, while credits directly lower the tax owed on taxable income. Some credits are non-refundable (i.e. charitable donation credit) and only lower your tax payable, while others (i.e. GST/HST credit) are refundable and can result in a tax refund if the credit amount exceeds the tax owed.

1. GST/HST Credit: A refundable sales tax credit available to families with children to help offset tax paid on consumer goods and services. To receive the credit, simply file your taxes on time.
2. Charitable Tax Credit: A credit available for donations to qualifying donees (registered charities).
3. Self-Employment Expenses: Deductible business expenses for self-employed individuals, such as advertising, vehicle expenses, office supplies, inventory, and business-use-of-home expenses.
4. Work from Home Expenses: A credit for employees who worked from home during the pandemic, allowing up to $500 in employment expenses as a flat rate. More can be claimed with a signed T2200 form from the employer.
5. Canada Workers Benefit: A refundable tax credit for low-income individuals in the workforce, with the amount based on income and family size.
6. RRSP Deduction: Contributions to a Registered Retirement Savings Plan (RRSP) are deductible from taxable income.
7. Medical Expenses: Eligible medical expenses not covered by insurance can be deducted.
8. Tuition and Education Amounts: Credits and deductions available for tuition, education, and textbook expenses.
9. Child Care Expenses: Deductible expenses for child care while earning income or attending school.
10. Moving Expenses: Deductible expenses for moving to start a new job or business.
11. Caregiver Amount: A credit for those who care for dependants with physical or mental impairments.
12. Adoption Expenses: Credits and deductions available for adoption expenses.
13. Public Transit Amount: A credit for public transit expenses.
14. Disability Amount: A credit for individuals with disabilities.
15. Home Accessibility Expenses: Credits and deductions available for home renovations to accommodate disabilities.
16. Caregiver Tax Credit: A credit for caregivers of dependants under 18 years of age.
17. Home Buyers’ Amount: A credit for first-time homebuyers.
18. Business Investment Loss: A deduction for losses from investing in small businesses.

These are some of the most popular tax deductions and credits available in Canada. Be sure to consult with our tax professionals to determine which deductions and credits you\’re eligible for and to maximize your tax refund.

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Combined Federal and Personal Tax Rates for 2022 (British Columbia)

Income	Salary/Interest	Capital Gains	Eligible Dividends	Regular Dividends
Up to $11,302	0.00%	0.00%	0.00%	0.00%
$11,302 – $14,398	15.00%	7.50%	0.00%	0.00%
$14,398 – $43,070	20.06%	10.03%	-9.60%	10.43%
$43,070 – $50,197	22.70%	11.35%	-5.96%	13.47%
$50,197 – $86,141	28.20%	14.10%	1.63%	19.80%
$86,141 – $98,901	31.00%	15.50%	5.49%	23.02%
$98,901 – $100,392	32.79%	16.40%	7.96%	25.07%
$100,392 – $120,094	38.29%	19.15%	15.55%	31.40%
$120,094 – $155,625	40.70%	20.35%	18.88%	34.17%
$155,625 – $162,832 *	44.08%	22.04%	23.54%	38.06%
$162,832 – $221,708 *	46.18%	23.06%	26.44%	40.48%
$221,708 – $227,091	49.80%	24.90%	31.44%	44.64%
$227,091+	53.50%	26.75%	36.54%	48.89%

 

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1. AUTOMOBILE RATES

On December 16, 2022, the Department of Finance announced the automobile expense deduction limits and prescribed rates on automobile operating expense benefits for the 2023 calendar year. These limits and rates will be in effect from January 1, 2023 to December 31, 2023.

a. Max. capital cost of passenger vehicles for CCA purposes (before GST/HST/PST):

– $61,000 for eligible zero-emission passenger vehicles (2022: $59,000)

– $36,000 for all other passenger vehicles (2022: $34,000)

b. Max. allowable interest deduction for amounts borrowed to purchase autos: $300 per month (2022: same)

c. Limit on deductible leasing costs (before HST): $950 per month (2022: $900 per month)

d. Limit on deduction of tax-exempt allowances paid by employers to employees using personal vehicle for business purposes in the provinces:

– 68 cents per km on the first 5,000 km driven (2022: 61 cents per km)

– 62 cents per km on each additional km driven (2022: 55 cents per km)

e. Standby operating expense income inclusion:

– 33 cents per km for persons subject to general rate (2022: 29 cents per km)

– 30 cents per km for persons principally employed in selling autos (2022: 26 cents per km)

2. REIMBURSING PERSONAL OPERATING COSTS

If a corporate client provides an employee with a company car, a taxable benefit is generally included on the employee’s T4. There are two components to this benefit:

• Standby charge benefit: Based on a percentage of original cost or monthly lease payments.

• Operating cost benefit: Applies if the client pays for automobile’s operating expenses, unless the employee reimburses all amounts paid for personal expenses. For operating costs incurred in 2022, the reimbursement deadline is February 14, 2023.

3. PERSONAL VS. BUSINESS USE

“Personal driving” is any driving by an employee (or a person related to the employee) for purposes unrelated to employment. CRA considers the following as personal:

• Travel between the employee’s home and the regular place of work, and vice versa

• Vacation trips, as well as driving to conduct personal activities

CRA considers the following as business:

• At start of workday, travel that is first from employee’s home to a customer, and then to office

• At end of workday, travel that is first from office to a customer, and then to employee’s home.

4. DOCUMENTATION

Clients must properly document the business versus personal use of the vehicle.

CRA generally accepts the following forms of documentation:

• Full logbook: A full logbook is maintained for the entire year – showing the destinations, distances traveled and the purpose for each trip.

• Sample period logbook: A logbook for a continuous three-month period will be accepted if:

– Client already has a logbook covering a full 12-month period that was typical for the business;

– Client maintains a logbook for a sample period of at least one continuous three-month period in each subsequent year;

– The distances travelled and the business use of the vehicle during the three-month sample period is within 10% of the corresponding figures for the same three-month period in the base year; and

– The calculated annual business use of the vehicle in a subsequent year does not go up or down by more than 10% in comparison to a typical full 12-month period.

• Alternative records: Claims for a very low amount of business use do not require extensive records to demonstrate business travel. Acceptable evidence includes:

– General books and records of the corporation that indicate reasons for driving requirements;

– Appointment diaries indicating addresses visited and the reasons for those visits;

– Logs of service calls; or

– Purchase and sales invoices indicating deliveries.

Still not satisfied? You can always contact our advisors for tailored advise.

Should a sole proprietor incorporate?

As a sole proprietor, there is no separation between you and your business. You are your business, and you report your business income on your personal tax return.

As a corporation, you create a legal entity separate from you. A corporation makes its own money, owns its own assets, is responsible for its own liabilities and pays its own taxes. The corporation operates the business, earns the income and then pays you.

Ask yourself these questions to figure out if you should incorporate your small business:

1. Do you need to borrow money? If yes, you may want to incorporate.
2. Does your business have inherent financial or legal risks? (Ask us for one of our recommended lawyers.)
3. Is business doing well or you plan to expand?
4. Is your business bringing in more profit than you currently need? If yes, significant tax savings can come your way by incorporating

If you answered “yes” to these questions, you may want to register as a corporation.

Advantages of being incorporated

Incorporation is recommended if you plan to grow your business (and your bank account). It also protects you if your business has some degree of financial or legal risk – shielding your personal assets, like a house or retirement savings, from lawsuits or creditors. Here are some reasons to register as a corporation:

You can limit your personal liability.
If someone tries to sue you or a lender calls for their loan, all of your business AND personal assets are at stake. Operating through a corporation protects your home and retirement savings from creditors and lawsuits as they can only come after the assets owned by the corporation. To make sure you’re set up properly, use a lawyer and consult with an accountant.

You can reduce taxes.

When you’re a sole proprietor, you are taxed on every dollar, and the excess cash is taxed at your highest rate. This makes it much harder to grow your bank account.

When you’re incorporated, you can take what you need for living expenses (through wages or dividends), then leave the extra cash in the corporation. Whatever you leave in the corporation is only taxed at 11%. You can leave this in the corporation as a rainy day fund, invest it or buy equipment (including vehicles) with it.

You have financing options.

A corporation can build equity, which is good for business credit and may give you more borrowing options from lenders, investors and partners. When it comes to government grants, incorporating will open up more options as well.

Incorporation is probably best for you if:

• You want to grow your business and make more money than you need.
• You will need to hire employees or raise money.
• There is some degree of danger or financial risk in your business.

.

If you are still unsure, consult a trusted advisor to review your situation.

As the end of the year and the holidays approach many employers are looking for ways to mark the occasion and thank their employees for another successful year. Gift cards are always a great choice; they’re devoid of possible allergens, they offer a world of possibilities, and they’re tax-exempt.

Or are they?

Effective January 1, 2022, CRA released new guidelines for gifts that employers may give, tax-free. These include:

• An unlimited number of non-cash gifts per year.
• Maximum combined total value for gifts of $500.00 before an amount becomes taxable.
• $500.00 is an exemption.

CRA’s updated policy was rereleased recently to offer more clarity on the subject matter. The policy now clearly states that if you give an employee a gift card the gift is considered non-cash and is eligible for the $500 exemption if all the following apply:

• The gift card is provided to recognize a special occasion.
• It comes with money already loaded onto it and can only be used to purchase goods or services from a single retailer or a group of retailers identified on the card. 
• The terms and conditions of the gift card clearly state that amounts loaded to the card cannot be converted into cash.
• A log is to be kept recording the gift card and all the following information including:
  • Name of the employee.
  • Date the gift card was provided to the employee.
  • Reason for providing the gift card (part of social event, gift or award).
  • Type of gift card.
  • Amount of the gift card.
  • Name of the retailer(s).

This includes gift certificates, chip cards and electronic gift cards. If the gift card meets all these conditions, it is considered non-cash for the purpose of the CRA’s administrative policy. If the card does not meet these conditions, it is considered a near-cash benefit and is therefore taxable.

This Policy does not apply to Long Service Awards or prepaid cards issued by financial institutions.

For more information on the admin policy on gift cards visit CRA’s website here.

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Active Business Income
Small Business Income	<500k	>500k	Investment Income
Income in Corp	1,000.00	1,000.00	1,000.00
Corporate Tax	(110.00)	(270.00)	(506.70)
Dividend Refund	—	—	306.70
Available for Dividend	890.00	730.00	800.00
Personal Taxes *	(435.12)	(266.74)	(391.12)
Net After-Tax Cash	454.88	463.26	408.88
Income Earned Directly	1,000.00	1,000.00	1,000.00
Personal Taxes	(535.00)	(535.00)	(535.00)
Net After-Tax Cash	465.00	465.00	465.00
Deferral of Taxes	425.00	265.00	28.30
Deferral of Tax as % of Income	42.50%	26.50%	2.83%
Savings (Cost)	(10.12)	(1.74)	(56.12)

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