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Tax Year 2019 – Preparing & filing your Individual Income…

Deadline

The deadline for most individuals to file their 2019 tax return and for all individuals to pay any amounts due is April 30, 2020.

Self-employed

For those who are self-employed, or who have a spouse or common-law partner who is self-employed, the deadline to file your tax return is June 15, 2020.
To avoid interest or penalties, make sure you pay any amount you owe by April 30, 2020. After this date, the CRA will charge interest on any amount you owe until your balance is paid.

Deceased persons

When filing a tax return for someone who has passed away, the due date for their return will depend on the date of death, and if the person owned a business in 2019.
The due date for filing the return of a surviving spouse, or common-law partner who was living with the deceased, is the same as the due date for filing the deceased person’s final return. However, any balance owing to the surviving spouse or common-law partner still has to be paid on or before April 30 of the following year to avoid interest charges.

Gather your tax information

Get everything you need to calculate your income and support any credits, deductions, and expenses you’ll claim.
If you were employed or had an investment income in 2019, your employer or financial institution will send you statements commonly referred to as ”slips”. Here are some common examples:
• T3 Statement of Trust Income Allocation and Designations
• T4 Statement of Remuneration Paid
• T5 Statement of Investment Income
If you have not received a tax slip for the current year, or you misplaced it, you can ask the issuer of the slip for a copy. You can also get copies of your slips by logging into the Canada Revenue Agency’s My Account service.

Methods for completing your tax return

Choose one of the following secure options for filing your tax return.

Electronically by software:

You will find a list of certified desktop, online, and mobile software products at canada.ca/netfile-software. Some of these products are free of charge.

On paper

You can print the 2018 income tax and benefit package online or you can order a copy from the CRA. If you filed your taxes on paper last year, the CRA will automatically mail the T1 Income Tax package to your home before the deadline.

By phone

Those who are eligible will receive an invitation letter in the mail in mid-February, to use our automated phone service called File my Return, you may be able to complete and file your return for free by phone. The personalized invitation is sent to eligible Canadians who have low or fixed incomes, and whose situation doesn’t change from year-to-year.

The Community Volunteer Income Tax Program

If you have a modest income and a simple tax situation, volunteers at a free tax clinic may be able to complete your tax return for you. Free tax clinics are generally offered between February and April across Canada, while some are open year-round. To learn more, or to find a tax clinic near you, go to Canada.ca/taxes-help.
Program volunteers will complete your income tax and benefit return for you.

Fill out your tax return

If you decide to complete your tax return using certified software, you may be able to use a feature called Auto-fill my return. This service makes it easier to do your taxes by automatically filling in parts of your tax return with information the CRA has on file. All you need to do to use this service is to register for My Account.

Step 1: Provide and update your personal information

Keeping your personal information up-to-date with the CRA can save you time when doing your taxes. Tell the CRA if any of the following has changed:
• your marital status
• the number of children in your care
• your banking information
• your home address
It is important to let the CRA know about these changes as soon as possible, to make sure you get the right benefit and credits you are entitled to.

Step 2: Report your income

Income is money you earn through employment, self-employment, and investments you have or the benefits you receive. On your return, you must report income from all sources, both inside and outside Canada. This is true even if you were paid in cash, which includes money you earn as a side job or tips you have received.

Step 3: Claim your deductions, tax credits, and expenses

Reduce the amount of tax you pay by claiming your deductions, expenses and tax credits. You’ll have to use the receipts and records you kept during the year to support your claims.

Send in (file) your tax return

There are several ways to send your tax return to the CRA. Ultimately, this may be dependent on how you decided to complete your return.
• By software (electronically): If you selected a NETFILE certified software, it will communicate directly with the NETFILE application servers and transmit all required information on your behalf directly to the CRA via the web service.
• By paper: Mail your completed income tax package to your tax centre.
• By phone: Follow the instructions in the invitation letter for File my Return that you received from the CRA.

IMPORTANT: Remember to keep all your receipts

Regardless of how you submit your tax return, you must keep all your tax documents for at least six years. If you claimed expenses, deductions or tax credits, make sure you keep all your receipts and any related documents in case the CRA asks to see them.

What to do after filing your taxes?
If you file online and are registered for online mail, you could get your notice of assessment (NOA) shortly after you file your tax return using the Express NOA service.

When to expect your refund

If you file your tax return online and choose direct deposit, you could receive your refund in as little as eight business days. If you send CRA a paper tax return, it generally takes eight weeks before the CRA issue your notice of assessment and any refund.

Pay a balance owed

There are many ways to make a payment to the CRA. To avoid interest or penalties, make sure you pay any amount you owe by April 30, 2020. After this date, the CRA will charge interest on any amount you owe until your balance is paid. Interest applies after April 30, even if you are self-employed.

If you cannot pay the balance you owe in full

You can make a payment arrangement with the CRA. The CRA can grant relief from penalty or interest, in certain circumstances.

Need to make a change to your return?

If you forgot to include information or made a mistake on your tax return, wait until you get your notice of assessment from the CRA. Then, you can change your return.

In this age of Cloud Computing, Secure and Fast Processing, Clearwater Professional Corporation strongly recommends its client to generate monthly financial statements and monitor their personal and business growth and plan their future monthly, rather than waiting for the end of the year, as by then it is too late to take advantage of many opportunities, such as
1. Investing in the best financial and non financial products
2. Keeping your Bank reconciliations up to date
3. Keeping your renewals and data up to date
4. Planning your tax strategy in advance in order to save tax
5. Generally being aware of your financial situation and be able to navigate and fix it, if it needs fixing
6. Improve your Credit Score

You would not incur any additional costs, on the contrary, save a lot more by planning ahead, saving wisely and generally being on top of things.
In this day of Cloud Accounting systems, accountants are better equipped to provide far better security, processing speed, lower fees and with the Clearwater Advantage monthly on one CFO Advisory session.

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Business Tax Accountant Oakville & Burlington

The dividend series – Dividends, Investment Income & Taxation –…

What does the future hold?

For taxation years beginning after December 31, 2018, all Canadian controlled private corporations (CCPCs) earning investment income must consider a new set of complex rules relating to their refundable dividend tax on hand (RDTOH) balances. These rules could increase the tax costs to individuals when distributing corporate funds from their private corporations. Before January 1, 2019, taxpayers will need to review their companies’ RDTOH balances to determine whether planning is required.

The new RDTOH regime

The 2018 federal budget announced new measures that restrict the ability to recover RDTOH through the payment of eligible dividends, with limited exceptions. This means that the cost of extracting profits from a CCPC may go up for the typical owner-manager.
Effective for taxation years beginning after December 31, 2018, the existing RDTOH account will be segregated into two new accounts:

  •  a non-eligible RDTOH (NRDTOH) account will track the refundable (Part I) taxes incurred on investment income earned (including taxable capital gains), and any refundable (Part IV) taxes on dividends received (net of Part IV taxes tracked in the eligible RDTOH [ERDTOH] pool)
    A refund of the NRDTOH will only be available upon the payment of non-eligible dividends. In all provinces these dividends are taxed at a higher rate than eligible dividends.
  • an ERDTOH account will track refundable (Part IV) taxes paid on eligible dividends received from corporations that are not connected,1 as well as eligible dividends received from connected corporations to the extent that these dividends triggered a dividend refund to the payor corporation
    A refund of the ERDTOH account will only be available upon the payment of eligible dividends.
    The existing RDTOH balance will be added to the NRDTOH account except for the transitional amount.

2019 transitional RDTOH amount

A CCPC’s opening ERDTOH account will have a one-time addition equal to the lesser of:

  • its existing RDTOH balance
  • 38.33% of the CCPC’s GRIP balance
    As a result:
  • the corporation’s GRIP balance must be at least 2.6 times the existing RDTOH pool in order for the entire RDTOH balance to qualify as ERDTOH, and
  • if the company has an RDTOH balance, but has no GRIP balance, all of the RDTOH will be added to the NRDTOH account

How can your accountant help with the planning strategy?

These new rules will impact taxation years commencing in 2019. To prepare for the change, you should discuss with your adviser whether:

  • it is possible to move the GRIP and RDTOH balances into the same company to maximize the addition to the ERDTOH account (for example, if a company has RDTOH but no GRIP, determine if the GRIP in a lower-tiered company can be moved to the higher-tiered company)
  • there is a plan to distribute corporate funds to individual shareholders in the next few years because there may be an advantage to speeding up the distribution before 2019 to realize a lower effective tax rate
  • for companies with GRIP, but limited RDTOH, it may make sense to trigger investment gains to create an ERDTOH account that can be used for future distributions

The 2018 Federal Budget confirmed the Canadian government’s intent to address Canadian controlled private corporations (CCPC) that earned significant investment income by targeting the Refundable Dividend Tax On Hand (RDTOH) regime. RDTOH is created from passive income earned by a CCPC and as implied in the name, is refunded to the corporation upon payment of taxable dividends. Investment income subject to the RDTOH regime is typically not added to a CCPC’s General Rate Income Pool (GRIP) from which eligible dividends are paid.

Under the historical RDTOH rules, an eligible dividend paid by CCPC could allow for a refund of RDTOH. This provided an opportunity to pay eligible dividends and still recover RDTOH created from investment income, which did not accrete to the CCPC’s GRIP from which the eligible dividend was paid. The eligible dividend would then be taxed at approximately 39 per cent personally rather than the approximate 46 per cent rate for non-eligible dividends (highest personal dividend tax rates in Ontario). Therefore, the individual is subject to a lower personal tax rate in comparison to receiving a non-eligible dividend that would otherwise be paid from passive investment income earnings, and the corporation continues to enjoy a RDTOH refund.

Under the new rules introduced in the 2018 Federal Budget, the existing RDTOH account will be split into eligible RDTOH and non-eligible RDTOH pools. RDTOH created from passive income will accrete to a CCPC’s non-eligible RDTOH account. This will be the case with most passive income apart from eligible dividend receipts. Only non-eligible dividends will result in a refund of non-eligible RDTOH balances. Further, ordering rules will also provide that amounts cannot generally be refunded from a CCPC’s eligible RDTOH account until the non-eligible RDTOH balance has been fully refunded. The character of RDTOH paid on dividends received from a connected corporation would match their payer’s eligible/ non-eligible RDTOH accounts.

The above rules will apply to taxation years beginning on or after January 1, 2019 and transitional measures have been included to compute the opening eligible RDTOH and non-eligible RDTOH balances of a CCPC. The eligible RDTOH balance will be calculated as the lesser of:

  • The existing RDTOH balance at the time of the transition; and
  • 38 1/3 per cent of the GRIP balance, at the time of the transition

Once the above allocation has been calculated, any remaining RDTOH would be allocated to the non-eligible RDTOH pool. Budget 2018 alludes to the fact that existing RDTOH should not be negatively affected on transition and should be in the eligible RDTOH pool. However, the transition rules included in the legislation create a problem.

How does this change play out?

For example, let us assume that Mr. A owns 100 per cent of his holding company (“HoldCo”) and the HoldCo owns 100 per cent of an operating company (“OpCo”). Furthermore, let us assume that OpCo has a GRIP balance of $10,000,000 and RDTOH of NIL while HoldCo has a RDTOH balance of $2,000,000 and no GRIP.
On transition, HoldCo will have its eligible RDTOH balance calculated as the lesser of:

  • The existing RDTOH balance at the time of the transition ($2,000,000); and
  • 38 1/3 per cent of the GRIP balance, at the time of the transition ($NIL)
    Therefore, HoldCo’s entire RDTOH balance will be included in the non-eligible RDTOH pool and block any refund of RDTOH when GRIP dividends are paid from OpCo through HoldCo to the individual shareholder. As a result, there is no transitional relief on HoldCo’s RDTOHearned before the new legislation became law.

How to plan for transition

A simple planning decision, that can be undertaken prior to the new regime coming into effect, is to pay an eligible safe income dividend to cause the GRIP balance in HoldCo to equate to the RDTOH balance in HoldCo. To continue our previous example, OpCo would pay an eligible safe income dividend of at least $5,217,392 prior to the transition. On transition, the eligible RDTOH balance of HoldCo will now be calculated as the lesser of:

  • The existing RDTOH balance at the time of the transition ($2,000,000); and
  • 38 1/3 per cent of the GRIP balance, at the time of the transition ($2,000,000)

The resulting eligible RDTOH balance of HoldCo will now equal at least $2,000,000 with no amounts added to HoldCo’s non-eligible RDTOHpool. Accordingly, eligible dividends can continue to be paid from OpCo through HoldCo to the individual shareholder and still provide for a refund of HoldCo’s RDTOH balances.

Taxpayers should examine their corporate structures prior to the rules coming into force on January 1, 2019 to determine potential planning opportunities.

Corporate RDTOH Planning Opportunities

Currently, through the operation of the refundable dividend tax on hand (RDTOH) rules, a portion of the tax paid on passive income earned by a private corporation is refunded when the corporation pays dividends. The refund is available regardless of whether the dividends paid are eligible dividends (generally from active business income taxed at the general income tax rate) or non-eligible dividends (generally from passive investment income and active business income taxed at the small business tax rate).
As of January 1, 2019, changes to the RDTOH rules will limit the dividend refund to
(1) noneligible dividends paid by the corporation and
(2) Part IV tax on eligible portfolio dividends received by the corporation. What Planning Should You Consider Undertaking in 2018? If a corporation is planning to sell corporate assets in the near future or it has a holding corporation/operating corporation (Holdco/Opco) structure, there are two options that should be considered in 2018 to plan for the RDTOH rule changes.

  • Where possible, corporate asset sales planned within the next year or two should be completed before the end of 2018 in order to maximize the corporation’s RDTOH balance at 2018 year end. Due to a transitional rule, a corporation’s existing RDTOH balance at 2018 year end will be allocated to its eligible and non-eligible RDTOH balances for the 2019 taxation year.
  • Where a Holdco/Opco structure is in place and Opco has a balance in its general rate income pool (GRIP) and Holdco has RDTOH but low or no GRIP, consideration should be given to whether eligible dividends should be paid by the Opco to the Holdco in 2018 in order to maximize Holdco’s 2019 eligible RDTOH balance.

Non-Eligible Dividend Tax Credit Rates and Amount of Dividends That May be Received Without Incurring Tax in 2018a Current to: April 30, 2018

Actual Dividend Taxable Dividend Actual Dividend
Federal 11.64% 10.03% $30,733
British Columbia 2.40 2.07 22,334
Alberta 2.41 2.07 20,562
Saskatchewand 3.87 3.33 20,290
Manitoba 0.91 0.78 10,292
Ontarioe 3.62 3.12 30,733
Québecf—Amounts received before March 28, 2018 8.18 7.05 24,417
Amounts received after
March 27, 2018
7.28 6.28 22,261
New Brunswickg 3.31 2.85 18,650
Nova Scotia 3.67 3.16 16,699
Prince Edward Island 3.36 2.90 14,841
Newfoundland & Labrador 4.06 3.50 19,678
Northwest Territories 6.96 6.00 30,733
Nunavut 3.20 2.76 30,733
Yukon 2.62 2.26 15,747

Notes:

*A table for 2019 will be added in Summer 2019.
This table assumes only “non-eligible dividend” income is earned and takes into account all federal and provincial taxes, surtaxes, and alternative minimum taxes, but does not include provincial premiums. The respective basic personal and dividend tax credits and provincial tax reductions, where applicable, are also included.“Non-eligible” dividends are those that are not subject to the dividend rules applying to “eligible” dividends (see table I-6). The gross-up rate for non-eligible dividends is 16%. The actual amount received is therefore multiplied by 1.16 to determine the taxable amount of the dividend.
A The federal and provincial dividend tax credit (DTC) rates in the table’s first column apply to the actual amount of the dividend received by an individual. The DTC rate can also be expressed as a percentage of the taxable dividend, as indicated in the table’s second column.
B The federal DTC rate that applies to non-eligible dividends decreased to 10.03% (from 10.52%) of taxable dividends beginning January 1, 2018. The dividend gross-up factor that applies to non-eligible dividends also decreased to 16% (from 17%) beginning January 1, 2018.
C Ontario decreased the province’s DTC rate that applies to non-eligibledividends to 3.12% (from 4.29%) of taxable dividends effective January 1, 2018.

Coming Next……..

The Federal Dividend Tax Credit in Canada…. Part C

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Small Business Accountant in Oakville, Burlington

Amazing success stories – a 90% success rate – cpc…

Starting a new business or decision to accelerate growth of existing business

CPC Accounting works with new & existing entrepreneurs all the time , and we find 90% success stories, share a discipline which unfolds as follows:

1. A 60 months detailed business plan , based on lead generation strategy, client acquisition potential and resulting in a  “Profit after tax” tracked every month against actuals leading to Vision of Profit after tax and Business Valuation after 5 years.

The 5 Year Business Plan builds a very realistic Profit after tax growth (assessing the Product Pricing, Volumes to sold, employee expenses, Cost of good sold, ROI for Advertising & marketing expenses , operational expenses) , a monthly Cash Flow analysis and a monthly Balance Sheet tracking the need for Credit Lines, goodwill etc).

The business plan is tested under various stress simulations and a decision to go ahead is based on a simulation that the owners and Clearwater Professional Corporation agrees upon.

2. Once step 1 is approved, we go forward and execute the following:

  •  Incorporate the company
  •  Open Bank accounts
  •  Register with CRA (I.tax, HST, Payroll , WSIB etc)
  •  Setup Cloud based accounting systems
  •  recruitments
  •  Open the door for Business

The above steps normally takes two weeks.

For existing owners, milestones , deliverables and resources are put into place based on the 5 year business plan (60 month) to achieve the Growth aspirations, measured in Profit after tax and Business Value for sale at the end of the 60th month.

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