taxdetective-Sandusky-Register

Ever wonder how some people in your community manage to live the lifestyle they do?

Here's one story...and they did get caught by their lifestyle and their banking habits!

Here's where I saw the story about the story
http://www.knowledgebureau.com/index.php/news/article/no-hding-behind-inadequate-records

And the link to the actual story released on January 18, 2013, so this really is new, and it's found on www.canlii.org which is a great source of Tax Court reading for amusement and instruction on cold winter nights!

http://canlii.org/en/ca/tcc/doc/2013/2013tcc19/2013tcc19.html

Expense reimbursements are different for either self-employed or corporate business owners asking clients to reimburse them, than they are for employees asking the business owner to reimburse for expenses.

Let's look at the employees first. Employee submits receipts, business owner pays employee back for purchases for the business. The employee provides the original receipt to the owner, possibly summarized on an expense report form, but maybe just hands in the receipt with a memo or letter asking for reimbursement.

The employee doesn't care if they keep the original receipt. They aren't a GST/HST registrant who has to keep their original receipts to prove their entitlement to the Input Tax Credit claim on their GST/HST return. The employee doesn't keep a set of books and isn't required to report the refund as income. It's just a return of money spent for someone else.

Of course, if that reimbursement was for something personal, it's going to get added to your T4, and may end up having CPP, EI and tax deducted from your pay if it's required:
http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/bnfts/menu-eng.html

Here's the list of personal benefits that might attract attention:
http://www.cra-arc.gc.ca/E/pub/tg/t4130/t4130-e.html#P1334_178946

Now let's look at the business owner. This owner could be a self-employed person working on contract, or a business purchasing something for another business. This business is required to register for the GST/HST when it's taxable supplies in any previous four quarters reach $30,000. Those taxable supplies include the reimbursement of expenses. It's required that the business owner record any reimbursements of expenses charged as revenue and that they charge GST/HST on top of the amount.
http://www.cra-arc.gc.ca/E/pub/gp/rc4022/rc4022-e.html#P303_20114

Now of course, what's obvious to everyone is that the tax was already paid. But remember, this is a value-added tax where the tax is added again at every point in the system. So when the business owner pays for the purchase, they paid tax. When they charge it out again, they charge tax. You'd think no one would care, and that this would be just a 'wash' but that isn't the case.  It doesn't matter if it is or isn't marked up, or whether an administration fee for processing the purchase and reimbursement is added, the tax is collectable again on the total charged out to the customer.

Now when this gets to be fun is where the business owner pays for expenses in Canada, and gets reimbursed by a foreign client. In that circumstance, they get the tax back and don't have to charge it to the foreign client. Someone may have told them that they don't have to register because they have foreign clients, but they can't get back the tax they paid unless they are registered.

Where it's going to be even more fun is when once again, we have the PST. Because the PST isn't a value-added tax. It doesn't flow through. It's an end-user tax. That means when you get charged the PST, you don't get it back, and you don't charge it out again unless you have to. So, when you pay the PST, you will expense it, and of course, you want to get full reimbursement of all costs, so you'll of course, add it to the amount you want back.  The clincher is that you then have to charge GST/HST on top of the entire amount invoiced, which includes the PST. For some reason, people really hate this.

And it's about to start all over again. The confusion about billing out because the PST is back April 1.

One of my videos is about Time & Billing in QuickBooks, and there's another one about Adjusting Time & Billing.  They are included in the bundle of products available for sale on my website.

If you're confused about this whole area of who keeps the original receipts, here's the rule of thumb. Employees do, but business's don't, businesses give you their invoice and should provide a copy of the original receipts paid to third parties. Their invoice is your invoice.


Please don't demand your contract workers provide you with their originals as it's so embarrassing when they have to get their accountant to call you to tell you no, they have to keep those to document their ITC claim...

and if you don't believe me, the CRA website has a Guide for Small Business just about GST/HST and receipting, not only that the business has to keep the original, but that they have to have certain information if the invoice is over $30 and over $100 even more information is required.

http://www.cra-arc.gc.ca/E/pub/gp/rc4022/rc4022-e.html#P490_40780

If you haven't been keeping your invoices, I sure hope you've got copies that will prove you can claim an expense, and the ITC claim, may be allowed if you meet the criteria for keeping electronic records.
Yes, there's rules about what records can be kept electronically and how they must be stored for access for audit.

http://www.cra-arc.gc.ca/E/pub/tp/ic05-1r1/README.html

And if you don't believe me, here's someone from CRA in video format explaining record keeping:

http://www.cra-arc.gc.ca/vdgllry/bsnss/srs-kpngrcrds-eng.html?vclp=bsnss/srs-kpngrcrds1-eng

Here's an article on the topic that may provide you with some guidance, but as always, check that your fact pattern fits with the Income Tax Act's wording.

http://www.jonesoconnell.ca/2011/07/14/when-talk-isn’t-cheap—cell-phones-and-employee-taxable-benefits-july-2011/

Many Canadians have set aside $5,000 a year for 20 years, since 1991, let's say, only to find they don't have $100,000 today.

They will tell you the intention was that this money was supposed to grow all by itself. But has it? Can they even tell? Have they kept tabs? Have they done the math? Over the past several years, they do the same thing all over again with their TFSA accounts.

They don't seem to pay any attention to what it's invested in. And I'll bet they have no idea if it's growing or not. They don't do the math because banks and brokers don't give them the tools.

There is no such thing as a guarantee that if you invest for the 'long haul' that you'll end up with more money. That's a myth. If investments aren't growing, you need to act. Now, not in 20 years.

For years I observed clients socked away money in RRSP's and they didn't care about what it was invested in, they didn't know if made money.

I had to say something because it was just so ridiculous, I couldn't stand it, so I would say something, and most of the time, once they looked at the numbers, they would make a change in what they were doing.

Most of the time, they'd forgotten how much they put in, they had no clue how much they invested or how that compared to what they now hold. They had no idea it was not insured and 100% of their capital was at risk. It was often a shock to them to find out that mutual funds invest in the stock market weren't insured. Did you know that investing in mutual funds is exactly like gambling? You just aren't doing it yourself, you've assigned someone else to do it for you. Can you afford to lose 100% of what you've invested? Because you could, it's not insured.

Your broker or bank investment counsellor, they aren't going to tell you how you're doing, they don't want you to know they've not done very well with your money. It's not in their best interest to have this conversation with you, so they'll steer you off course very quickly.

You don't have to believe me, the part about how much was invested and what it's now worth, you can check the numbers and do the math yourself.

Your investment counsellor won't help you with this. I can tell you they are probably very afraid of the truth. I once had a banker take me out for lunch to tell me how many top bank executives don't sleep because they know this and if Canadian's ever figured it out, they worry about how angry we'd be.

Here's how to check:

Sign up for My Account on the www.cra-arc.gc.ca website. That will take a week to get organized as they have to send you a letter by snail mail so you can sign in securely.

Sign in securely when the letter arrives,

Find out how much you've invested in your RRSP's and TFSA's, for RRSP's back as far as 1991 as CRA has kept track of all your investments and withdrawals. Add it up, and then add up your RRSP accounts. Is it more or less?

Here's the link to the CRA website on Help with My Account:

http://www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/myccnt/hlp-eng.html#mao.a1-1

I'm curious, let me know how that works out for you. Just tell me if I'm right or wrong.

Hmmm... CRA knows how much everyone has put into their RRSP's and TFSA's. Who says big brother isn't watching?

Inspired by this email... and I quote...

"i wish you all the Best Eileen, please go ahead...
your webinars really change my life, before your webinar i was very streesful despite the fact that i am well educated in accounting ( have master degree in accounting, Certifed Quickbooks advisor, Certified Simply accounting, Certifed MYOB) .. i was having hard time putting things together but after i watched yours it becomes  apiece of cake...you draw the line for us:))))
Regards"

For the past several weeks I've been using a new free service offered by my Credit Union. They have allowed me to email or send money via a message to a mobile device for free. It's under the Transfers Menu and it's called  Interac e-Transfer.

All you have to do is Add a Receipient, Transfer Funds, and Receive confirmation.

Add a New Recipient by entering their name, email or mobile phone #, choose a language, make up a security question and answer.

Then to Transfer Funds, choose that Recipient from the list, choose method to Send By (email or phone), enter an Amount, and add a Message. The recipient receives a message, answers the security question and adds the money to their bank by accessing their own online banking to deposit the funds.

After they receive the money, the system generates an email back to you advising of the successful completion of the transfer.

I've used it to send money to a customer who overpaid me, to pay my gardener, pay a supplier bill and to pay for a massage.

I'm thinking that if you didn't want to use PayPal or pay by Credit Card and would rather pay from your bank account, when you purchase something from my website, you could use the shopping cart to add up how much, and calculate the tax, then send me the money by Interac e-Transfer. You wouldn't get instant product delivery, but if using PayPal was problematic, this is definitely a free way around that challenge.

Of course, you would need to be prepared to use the secure online banking services offered by your own bank or credit union.

If you are interested in how this works, my banker gave me this reference
http://www.interac.ca/index.php/en/interac-etransfer/etransfer-detail

See who is participating - it's a very long list...
http://www.interac.ca/index.php/en/interac-etransfer/etransfer-participating-fis

or if you just wanted to browse my eCommerce site knowing you could pay with your banking online features... www.taxdetective.ca/eCommerce.html

Well, what do you know? Promises of no red tape on claiming this credit. They'll calculate it for you!

The email has a link to the information about how the... (click here) Hiring Credit for Small Business has been extended.  The email, courtesy of my subscription to the Mediaroom arrived in my InBox just now.

Ah-Ha, on closer examination of what my snail mail delivered today, CRA has co-ordinated the release of this information by email on the day I get the Statement of Account Source Deductions.

Nice. That's what you'd call "just in time"...

Included with the snail mail are two Direct Deposit Request forms, both RC366, one in English and the other in French (you'd think they could have checked my language and done two mailings, but hey, it's only one page x ??? million taxpayers) so let's not overthink this.

If I complete the RC366 I should receive my hiring credit directly into my bank. It has to be sent back manually, and there's no return envelop enclosed. Fortunately I keep a stack of envelopes and stamps for just such auspicious occasions. 

But just a second, is this worth doing? Will I actually get this credit? Only if my EI premiums are under $10,000 and they are more than they were last year. Good thing I have my EI premiums separated out in my Chart of Accounts in QuickBooks so I can compare. Sigh. No point charging off to the post box right away if the premiums paid are less than those paid for last year. But the envelope's already made out so I may as well take the dog out again. At least someone will be happy.

Not sure how to get your Payroll Items to report separately on your Income Statement so you can easily compare individual items? I can help. In the Master QuickBooks Software videos for the bookkeepers at IPBC is 2 hours on the Payroll Module. The whole bundle of training is only $290.00 and payroll is only one of ten two hour topics in the first series. Then there's the second series of 5 hours on working papers using reports.
Details: http://www.taxdetective.ca/master_quickbooks_.html
(Look for the link to the bundle at the top of the page)

Hassan requested help with figuring out how to use QuickBooks software to record the GST/HST using the QuickMethod.

CRA has a special simplified method for small business's that is supposed to cut red tape. Well, we spent the better part of an hour, and came up with an even better way to use the Sales Tax Module that I had thought of prior to going online with Hassan to discuss how the Quick Method works.

We looked at how it works first, going to the CRA website to look at the rules.  Then we opened a QuickBooks data file and made entries and set up the tax codes, Items and Chart of Accounts so we could enter invoices. I had started out using one method and during the conversation, found a better way to do it using the Sales Tax Adjustment form.

Then we moved on to purchases. You can claim an ITC on business use of vehicles, and if under 90% business use, it's possible to claim an ITC on CCA. So we delved into how you would record this transaction for a purchase of a vehicle using 60% business use as our figure. We opened Profile T1 and started a sample tax return to figure out how the transaction would work on the T1 Auto schedule too. And we used my ITC on CCA spreadsheet which is for sale for $3.95 on my website to help us with the proof of the calculations.

The video sells for $9.98 if you want to see what we did, and we think it's a pretty cool solution, don't we? Hassan? are you there?

He did pretty well at his first acting job, I must say. He's sure to be famous by tomorrow.

http://www.taxdetective.ca/master_quickbooks_/QuickMethod.html

WOW, it's over. Today's session flew by way too fast. I'll get the video converted and posted up for sale along with the other 3 parts that are already there, later this afternoon.

There wasn't time to get into detail about flow thru's but the participants will receive a Quicken sample file for a flow thru that they can work through on their own. They can always contact me if they need to.

Q: If there is no capital gains in the corporation, the loss would be useless.
A: Yes, it could be, but that wouldn't be determined until the shares were disposed of by the shareholders as the loss can't be reported until the shareholders sell their shares. By that time there might be a gain that could be used.

I want to thank the participant who left this final comment and I hope that everyone felt the same:

"You are amazing. You have a treasure trove of knowledge and are so generous to share this with us. Great session."

Thanks for all the compliments and thanks for attending!

Please visit my blog posts on the history of investments and the 27 reasons to account for ACB

Search for the posts by typing history and 27 reasons in to the blog search engine.

and.. www.taxdetective.ca/quickenstories.html is where you'll find the samples of the four stories.

As for the back stories, those you'll have to wait for in the next ProAdvisor Newsletter!

Group term life policies - employer paid premiums
http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/bnfts/hlth/grp-eng.html

NEW!!
Group sickness or accident insurance - employer paid premiums - change in 2012 budget
http://www.cra-arc.gc.ca/gncy/bdgt/2012/qa06-eng.html

Extended health and dental premiums are reported on Box 85 (not mandatory reporting)
Those premiums you pay yourself, for example, travel medical and those premiums deducted from your paycheque, are a claim on your medical expenses on the T1. Keep in mind that the part of the expenses that aren't reimbursed is also claimable. So if the plan pays 80% of drugs and 50% of dental, the other portion you paid is also a claim on top of the premiums. That often is a surprise to taxpayers, and they haven't been claiming those premiums or the part of the cost they paid themselves. You can go back 10 years under the taxpayer fairness provisions to claim for missed credits. Just be careful about opening those years to audit again, so as not to expose yourself to audit for a further three years if you haven't been reporting all of your income either.

See other posts on this blog for Box 85 on the T4. (type Box 85 in the Search box)

And T4130 Employer's guide - Taxable Benefits and Allowances has an excellent Appendix with a chart about which benefits are CPP/EI'able and which require GST/HST to be remitted.

http://www.cra-arc.gc.ca/E/pub/tg/t4130/

Just pondering the email from CGA expounding on how Excel is such a great financial analysis tool.

I beg to differ. It's not reliable at all. It's necessary to check your work and run proofs to see that the formulas are still working. Sure there are fancy work-arounds to lock things down, but still, every time you use an Excel spreadsheet, it's necessary to get out an old fashioned calculator to test that it's still functioning as it should. What a pain.

I don't know how many times I've caught errors in Excel spreadsheets. The formulas someone thought they could rely on just didn't stand up to scrutiny. That's why I rarely use Excel for financial analysis. It's way too easy to make mistakes. That's just plain embarrassing.

I use QuickBooks and Quicken instead. I'd rather know that every time I run an Investment Income report in Quicken that I have to back out the Return of Capital but know that the rest of the report will add. I'd rather reconcile something I know adds up than check a spreadsheet does what it was supposed to do every time I use it. Then there's the added features where with the click of a mouse I can drill in to see the detail behind the numbers.

The report writer features right in the programs are so incredibly flexible that I almost never export to Excel, in spite of the beefed up features now available to Export and Update with the click of a mouse. I'd love to show you how. Wait a minute, last year I did exactly that for the bookkeepers at IPBC. There's a 5 part series, five hours in total complete with a OneNote file documenting how to create a working paper file using QuickBooks software and OneNote to create the working paper file available for sale on my website.

It's part of a bundle of training products on how to use QuickBooks with tons of tips and tricks on using it for internal controls so you don't get ripped off.

How could you get ripped off? Bookkeepers who add a 1 to the front of every pay cheque and no one checks their work. How could that happen? Lack of segregation of duties (a basic control step) where someone else besides the bookkeeper reconciles the bank account. Lack of reporting consistent and comparable figures probably didn't help either. The Abbotsford Legion bookkeeper is an example, she stole almost $200,000 before she got caught. That's just one example, I could tell you more, but then I'd just be aiding and abetting someone looking for ways to funnel some or all of your hard earned profits into their pockets.

Call or email me if you want to know more.
604-943-7414
eileen@taxdetective.ca

This student of the Canadian Payroll Association's story is worth repeating...

http://taxdetective.blogspot.ca/2012/06/box-85-on-t4-should-be-mandatory-and.html

http://www.cra-arc.gc.ca/E/pub/tg/t4036/README.html

http://www.cra-arc.gc.ca/tx/bsnss/tpcs/rntl/bt/rprt/ln9949-eng.html

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/rprtng-ncm/lns101-170/127/rsdnc/chngs/chngngprt-eng.html

http://www.cra-arc.gc.ca/tx/bsnss/tpcs/rntl/bt/rprt/xpns/menu-eng.html

http://www.cra-arc.gc.ca/tx/bsnss/tpcs/rntl/crcp-eng.html

http://www.cra-arc.gc.ca/tx/bsnss/glssry/c-gn-eng.html#Cptl_xpns

http://www.cra-arc.gc.ca/tx/bsnss/tpcs/rntl/cptl-eng.html

http://www.cra-arc.gc.ca/E/pub/tg/t4037/README.html

http://www.cra-arc.gc.ca/E/pub/tp/it120r6/README.html

Employee: Can I ask you to sign this GST 370 and a T2200?

Employer: But I paid you that km reimbursement tax free and I claimed the notional ITC (Input Tax Credit on my last GST/HST return because I'm allowed to.

Employee: The km reimbursement is too low, it's only 40 cents. I've done the math, and I want to claim my expenses on my tax return.

Employer: Then I have a choice to make. I can either include the allowance on your T4, in which case you can claim the full amount of expenses, but that income is subject to CPP, EI and Tax withholdings,

...or we include how much I paid you tax free on your T2200, and it will be necessary to reduce your expense claim by how much I've reimbursed you for.

Either way, including the amount in your income, or reducing your employment expense claim won't affect your net income, as either you'll report more income, or net employment expenses on T777. The change in your net income will be exactly the same.

Later conversation between Accountant and Employer:

Employer: CRA says I don't have to include the amount on the T4

Accountant: It does say that you may not have to include the amount on the employee's T4 in this post on the CRA website:
http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/bnfts/tmbl/llwnc/klmtr-eng.html

If you add the allowance as income on the T4, you could trigger a PIER report. There is supposed to be CPP, EI and tax taken on allowances that are not paid tax free.

You could choose to disclose how much was paid tax free on the T2200 instead, and the employee will be required to deduct that amount from how much expense they can claim.

Look at Row 15 on the Calculation of allowable motor vehicle expenses calculation box on the T777 where you will find:
"Enter the total of all rebates, motor vehicle allowances, and repayments for motor vehicle expenses you received that are not included in income. Do not include any repayments you used to caluclate your leasing costs on line Line 11"

Either way, as the employer you won't be able to claim the ITC on that tax free allowance, as it's no longer tax free. There is something else you need to be aware of.

If you've added the allowance to the T4 or completed a T2200 and signed a GST370 Area C declaration swearing you didn't claim the ITC yourself, then you must re-pay any ITC's claimed for those tax free payments you've just agreed aren't reasonable by completing these forms for the employee.

It does all balance out from the gov't perspective, although you, as the employer likely won't agree. Only one person gets to claim the ITC.

If it's tax free, and it's reasonable, the employer claims the GST/HST.

If it is not reasonable, it's also not tax free. If it's not reasonable, the employee can claim the GST/HST rebate and the employee gets to claim it when they claim their expenses, net of their allowance received of course.

That's reasonable right?

First of all, let me provide the CRA link to learning about capital gains and losses. It is absolutely essential to understand how gains and losses work if you are going to account for investments using Quicken.

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/rprtng-ncm/lns101-170/127/menu-eng.html?=slnk

Q: What ProAdvisor Newsletter/
A: Watch for the next newsletter in early February

Q: What about losses in securities or mutual funds?
A: Refer to above link for details and yes, absolutely if those losses are not in registered accounts, they would qualify

Q: I do not understand the exchange traded fund
A: Exchange traded funds provide income that is reported to the taxpayer, but there's no increase in money or units. Instead of an increase in Units or Money, there's an increase in ACB

Q: How would you account for a CCPC dividend as segregated from a large cap dividend?
A: You'd set up a separate _Income from CCPC dividend Category

Q: Next week can you describe how to handle Insurance Seg Funds with insurance and capital gains mix?
A: Seg Funds are a whole different kettle of fish as we don't account for Seg Funds, those are accounted for by the Insurance Company and the income reported has no bearing on the investment balance. I'll attempt an explanation of how Seg Funds work and how to account for them next week. I won't get into what happens when someone dies though as that is totally weird and the Insurance companies I've worked with have refused to explain how it works.
 Sometimes you can get an income amount allocated from a Seg Fund long after you thought everything was settled, so be very careful about closing off an estate early if there are Seg Funds.

BTW, Seg Funds don't always have Seg Funds in the naming - and I consider this very confusing. But, when you get an income slip, you'll find that it comes from an Insurance Company, not an investment broker.

In the CGA Canada Magazine Jan/Feb 2013, Don Goodison writes about business expenses while vacationing and discusses the Tax Court of Canada case between Laird Stevens, and Her Majesty the Queen 2012 TCC 312.

It used to be that unless you employed a tax service to provide you with cases, you'd read these articles and unless you paid for access, you couldn't read the actual case. But that's no longer the case (NO PUN intended)...

A search for TCC 312 on www.canlii.org and not only could I read the story myself, but when I clicked on the Reflex Record to search for related decisions cited there were other cases from 1985 to 2009 that might yield perspective on a difficult subject for most taxpayers.  Decisions cited included these taxpayer cases that will also make interesting reading for anyone planning to document the business element to their vacation trip

• Daniels v. Canada (Attorney General), 2004 FCA 125 (CanLII)
• Henrie v. The Queen, 2009 TCC 356 (CanLII)
• Johns-Manville Canada v. The Queen, 1985 CanLII 43 (SCC)
• Stewart v. Canada, 2002 SCC 46 (CanLII)
• Symes v. Canada, 1993 CanLII 55 (SCC)                   

Everyone believes they should be able to write off their holiday because they heard someone else did...!

BTW, Editor Anya Levykh of CGA Canada magazine announced in this edition they are producing in an electronic format this year with two new websites in the works that you'll want to watch for in the next several months:
www.cga-magazine.ca
www.cgamagazine-digital.ca web-only content

On the CRA website, the search box can lead to all the right information, or you can completely miss the object of your search.

Two examples...

P 113 or P113 you'll find P113 - Gifts and Income Tax

P 113r you'll find is P-113R Whether an individual can claim an employee and partner GST/HST rebate for automobile expenses where the individual has received an allowance

Same with GST 370 -

Leave a space, GST 370 will get you CRA Quarterly Financial reports

GST370 (no space) brings up T4044 Employment Expenses guide, including GST370 Employee and Partner GST/HST Rebate Application

Adding a space or leaving one a space out can lead to completely different search results.

Try it for yourself...

Most other search engines these days will ask you... did you mean... but not CRA.

Someone told me recently that sometimes it's better to use Google Search Engine to find things on the CRA website and sure enough GST 370 brings up the form I want as well as a GST/HSt guide RC4091, which didn't come up when I searched GST370 on the CRA site.

www.cra-arc.gc.ca

A few weeks ago someone called me about unreasonable km reimbursements.

The story was that employer was paying 40 cents per km and felt that this was reasonable. Therefore, if it's reasonable, the employee's wouldn't be able to claim expenses, it wouldn't be a taxable amount.

If the employees felt it was unreasonable, they could claim the expenses, against their actual costs pro-rata, but the question was what about GST/HST - if the employer has claimed the deemed ITC, can the employee claim the GST/HST Rebate on GST 370 on their T1.

Here's some useful information:

CRA's reasonable km reimbursements are currently set by the Finance Minister on December 28, 2012 at 54 cents for the first 5,000 km's and 48 cents after that,

and for those in the Yukon, NWT and Nunavut, 4 cents higher, 58 cents for the first 5,000 km's and 52 cents after that...

ITA 18(1)(r) certain automobile expenses

Reg 7306 the amount in respect of use of one or more automobiles for km's driven for the purpose of earning income

ITA 6(1)(b) Personal or living expenses, include all allowances in income except...note that vehicle reimbursements fall under several sections, as employees who sell or contract are treated differently, and again, that this has nothing to do with self-employment - those are completely different rules. Self-employed people can't claim km's tax free, they must claim expenses.

Excise Tax Act S. 174 Deemed ITC claim by employer - note four conditions - the last one is reasonability - so if the amount isn't reasonable, as in what if it's too low, can that be unreasonable, well, here's what the Memo says...

GST/HST Memoranda Series 9-3 Allowances

1. Paragraph 33 says that reasonability is on a case by case basis, based only on km's reimbursed, never on a payment that is either a combination or a flat amount
2. Paragraph 42 if allowance unreasonably high or low, provisions of S. 174 don't apply - employer can't claim the ITC
3. Paragraph 54: Taxable benefits

P-113R Whether an individaul can claim an employee/partner GST/HST rebate for auto expenses when individual received an allowance (claimed on GST 370)

Line 457 - explains GST 370 claims by employees

GST370 Area C - note the reference to reasonability - so if it's not reasonable, the employer has to sign, as in, if it's not reasonable, it must be included on your T4.

The question becomes, what if the employer thinks it's reasonable, but the employee doesn't?

Can the employer claim the deemed ITC, and the employee, can they claim the GST 370 if they say it's unreasonable? Well, they have to get the employer to sign off on the GST 370 and if the employer claimed the ITC, they aren't going to want to sign the GST 370 because they already claimed the ITC.

Note that the employer has to certify they didn't claim the ITC per S. 174 or the employee can't claim it. (in the box just below Area C on the GST370 form.

Do you know about the personal tax credits and how to claim the DTC?  THat's not the same as claiming CPP Disability or Persons with a Disability (PWD) from the province for social assistance. It's also not the same as claiming the 25% ICBC rate reduction for disability.

The first thing you need to know is that each gov't program has it's own definition for what is a disability. Start by assuming that none of them are the same and you'll be on solid ground.

Over the past 8 years I've been researching, writing, collecting useful information and speaking / presenting, doing webinars on personal tax credits.  The useful links you'll find below are what I compiled today when someone called me from up north in BC to ask how to claim for the incremental cost of building a house to accommodate someone with a disability.  Did you know that if you're a landlord, or an employer, that there are also special, advantageous rules about claiming expenses for renovating for accommodation in the workplace or accommodations?

I'm available to consult on this topic, and to make presentations, or host a webinar for your group online. You could be anywhere in Canada.  I've done teleconferences and webinars for groups from here in Tsawwassen for groups all the way over in St. John Nfld. I understand that today they are under 48" of snow so they may not be digging out for a few days, but you know what, if you're stuck inside anyway, connect with me and we can connect a bunch of you via online meeting and learn about tax while the snow is up over the door and windows and you can't get out.  (My mom used to talk about how that happened where she grew up south of Swift Current)

And if you just want to do some winter reading, have at it, here's the list of links and believe me, under each link, there's more links... and under those, more links. You could be at this for weeks until it's warm enough to get out to garden again.

http://www.taxdetective.ca/links.html

If you do, you might find this report "Tax Appeals Evaluation" interesting

http://www.cra-arc.gc.ca/gncy/ntrnl/2012/txpplsvltn-eng.html

The Auditor General of Canada also includes commentary about how CRA is doing in their reports in November each year. This past year the AG chose to evaluate something related to tax and corporations - professional service contractors -

I've written about personal service business's and how the rules have tightened up this past year to exclude the CCPC General Rate Reduction
http://taxdetective.blogspot.ca/2012/06/when-is-your-incorporated-employee.html

And I see that there's lots more commentary on the Blunt Bean Counter blog...
http://www.thebluntbeancounter.com/2012/01/is-your-corporation-personal-service.html

Oh dear, Canada's online security centre doesn't operate 24/7?

http://www.thestar.com/news/canada/politics/article/1275773--auditor-general-report-canada-s-online-security-centre-not-operating-around-the-clock

And what really makes my blood boil?

The men and women who serve overseas and are ill or injured, and how we don't care for them, and how we don't even tell them about the Disability Tax Credit program and other benefit programs they are entitled to...

http://www.thestar.com/news/canada/politics/article/1275768--ill-and-injured-soldiers-face-roadblocks-moving-to-civilian-life-ag-says

This lack of reporting requirement for deemed dispositions is one excellent reason why it's necessary to account for your investments.

http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slps/fnncl/t5008/dmd-eng.html

Notice in the link above that one of the exemptions is when you transfer assets (shares or units) to a trust?

This means that when your broker suggests you move shares or mutual fund units from your regular brokerage account to a trust and TFSA, RRSP, RRIF,  RDSP accounts, those are trusts but they aren't the only types of trusts

Here's a list of the types of trusts you might run into (figuratively of course...)

http://www.cra-arc.gc.ca/tx/trsts/typs-eng.html

If you transfer assets to any trust, there's a deemed disposition, but it isn't recorded on your T5008 report.  Here's a complete listing of content relating to T5008 for further study:

http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slps/fnncl/t5008/menu-eng.html

If deemed dispositions aren't reported, that means it is necessary for you to account for and report on that deemed disposition, even though the bank or broker hasn't told you about the transaction.

If, for example, you were to take money out of your RRSP, and put in some stocks from your broker account to replace that money, and there was a gain on that date because the deemed proceeds were higher than the ACB (Adjusted Cost Basis) you'd have to report a capital gain, and if there aren't losses to use up, either accumulated in prior years, or from the current year, there will be some tax to pay on your current year return.

Now if there was a loss on that transaction, that loss would be permanently barred from a claim, so you can't set up a capital loss on your records for those types of transfers.

It's very confusing to most people, which is why, if you have a portfolio including registered and non registered accounts, you really need an accountant to help you with your accounting for your assets.

There are times when losses do accumulate, and it's necessary to report losses even though you may not think you'll ever have capital gains.  Why? When you die, those losses come to life and can be used to offset other types of income on your final return. Interesting huh?

This month I'm recording a series of 4 hour long talks on how and why we can use Quicken to account for your investment portfolio. For more information about how you could own these recordings, click here:

www.taxdetective.ca/quicken.html

Q: Would you keep your brokerage accounts in a separate Quicken file for CRA audit purposes? Or would you consolidate all your accounts into one file? Pros and cons to keeping personal banking separate from investments.

A: I would keep all accounts for a taxpayer or a taxpayer and spouse in one data file. I can't imagine why you'd want to hide that information, in fact it's likely to be helpful in resolving an audit much more quickly if there's a really clear trail with reasons for all deposits to all accounts. CRA is interested that all of the deposits are matched to revenue or income from all sources. If there are deposits which aren't income, they need to be explained. And what better way than right in the file so they can be vetted? I've seen lots of tax cases where the reason for the re-assessment is that CRA claims there is undisclosed income because there are deposits over and above the income/revenue in the case of property or business, that weren't reported as income and now, years later, no one can remember why they got that money. You are guilty until you can prove your innocence when it comes to tax. More info is better.

Q: Would you have a top level account and then have sub-accounts for separate investment accounts?

A: No, Quicken doesn't have a hierarchy like QuickBooks. But there is a built in hierarchy for types of investment accounts, for example, retirement, TFSA, brokerage, those are together as sets on the Account listing.

Q: Would you enter a single adjusting amount for the DRIP change to ACB?

A: No, I would record transactions by the correct date, in order to track the ACB at various dates.

Q: Some brokers don't show total ACB on the statement as this figure would not be correct if security held in multiple brokerage accounts.

A: Absolutely correct. If you are trading 'identical property' in multiple accounts, it's necessary to record and track the average cost of those properties across the accounts. One way to do this is with a separate data file where you record all of the units or shares of the identical properties all together in one account to track the ACB / average cost for all the units.

We'll be dealing with how stop losses and superficial losses work in the next two sessions.

Q: We talked about T5008's and how deemed dispositions aren't required to be reported.

A: See my next post in this blog for more information about T5008's and this link
http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slps/fnncl/t5008/menu-eng.html

Q: I have many clients who never claimed capital losses. They thought that their CA had told them not to report the capital loss.

A: It's possible to request under fairness to go back and report but I'm not sure how far you could go back. They were told they report the loss in the year they incur the gain.

Report losses in the year you incur the loss.  If there are other capital gains in that same year, they can offset those capital losses and you should note that in that year, they offset the gains above the Net Income line (as they are recorded on Schedule 3 of the T1), which means that if they have benefits that are calculated using Net Income as the basis, those benefits may be affected. 

When the losses aren't applied in the year, then they can be claimed for 3 years back, and forward forever, and on death, claim those losses against regular income on their final date of death tax return. Those losses are reported below Net Income and before Taxable Income on the T1.

If you visit the My Account records, you'll find that there is a report there of the capital gains and losses and their disposition back as far as 1988. Capital gains and losses go back to 1971 when they were first introduced to the Income Tax Act.

If you have losses, you should be checking those reports to see that the losses were recorded and amending if they weren't.

Q: Can you get T5 and T5008 from Quicken?

A: No, but you can compare the income reported and the acquisitions and proceeds on sale against these reports from the investment company.

Q: Can you import downloads into Quicken?

A: Yes, you can download into Quicken from banks and investment companies that allow for such a download of transactions. I've not downloaded investments, preferring to go slowly through, reconciling each period. I think it would be overwhelming to download investments. Bank transactions, Credit card transactions, not a problem.

Q: You did mention using QuickBooks and Quicken together for a corporation... maybe next week?

A: Remind me, but yes, I have a spreadsheet to show you how to think through the transactions between the two sets of books.  It's like having a sub-ledger for your Investment, where you record the cash out of QuickBooks, and the cash into Quicken.  Then you work in Quicken, and record transactions.  At year end you run a report, prepare working papers, and record the income and losses and changes in investment.  It's also possible to record comprehensive income because Quicken prepares unrealized gain/loss reporting whenever you change the prices and we showed you how to do that today.

I encourage all of you to download the sample file found in my shopping cart.
http://www.taxdetective.ca/Quicken.html

For anyone who hasn't been attending the video recording of the second session in this 4 part series will be available for sale tomorrow morning.

I mentioned the articles from Canadian MoneySaver which can be found here:
http://www.taxdetective.ca/growyournetworth.html

And if investment accounting isn't something you've tackled before, read the Capital Gains Guide found on the CRA website (hopefully before next week's session, at least visit this page)
http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/rprtng-ncm/lns101-170/127/menu-eng.html

In 2013 I'm going back to my roots.

My favourite area of expertise in my corporate life was FOFI.

FOFI is Future Oriented Financial Information. It's the 'what-if's', what if we do this, what if we do that...how would it look. Where would the financing be required, how much financing, when would it turn around, what's the best and worse case...

I wrote that section of the public practice manual for CGA Canada back in the early 90's./ late 80's Including a decision tree on whether it's a projection or a forecast and what to do... and all of the example financial reporting including the CGA Guest Ranch storyline

and the checklists of what you need to know to do a FOFI...Basically to do a FOFI really well, you need to know the organization inside and out, you need to know their procedures, their policies, their internal controls.

And you need to know what they want to become.  Their plans, their hopes, their dreams

FOFI ... a.k.a. Budgets Planning What If's combined with my tax expertise...

I'm really good at producing FOFI.  What's a FOFI for you ask? FOFI is used to convince financial backers and banks to fund your dreams, hopes and schemes.

If you're looking for someone to understand your business and to project your 'what if's' give me a call.

604-943-7414

Today, while visiting the Envision online banking services, I noticed there's a new service.

Thanks Envision!

It used to be that you could only pay CRA if you had an account with the four major banks.

To activate your online payments from Envision's online banking to CRA for your BN#..

Select Payments from the menu on the left side of the screen

Select Pay Business Taxes

Enter your BN# and your Payroll BN # for GST/HST, Corporate and Payroll tax remittances.

Included is a summary feature to obtain a report of what you've paid using this service.

Just by fluke, I found this page today!
This isn't searchable - as in if you type either Family Caregiver Amount or Infirm or Infirmity into the CRA search engine, this page isn't found!

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns300-350/fmlcrgvr-eng.html

I wonder, if I post this on my blog if CRA will notice and make the page searchable - one time this happened, CRA found that about half of their website wasn't coded to be searched by their search engine.

If you type infirm into my search engine on my blog, you'll find a series of blog posts on this topic. 

Remember:
Your doctor won't provide you with a letter unless you ask,

...and CRA won't accept a letter from your doctor unless it has the right words!

Happy New Year.

If you missed Part 1, it's possible to purchase the recording of the live event now
www.taxdetective.ca/quicken.html

and that may persuade you to register for the next three weeks of webinars on Wednesdays at 1 pm for an hour (Pacific Time) ... www.ipbc.ca

Today was a really good introduction to how to open a new file while interviewing your client, managing accounts, categories, what the registers look like, how the report specifications work, and why you'd use this nifty program that's been around since the early 1980's to account for your net worth, manage your finances, deal with estates orto help you act as a Power of Attorney.

There weren't very many questions as the feedback was that they were all too busy listening to question me.  One comment was that they were all just concentrating on me.

But the last question, emailed after the event ended was a dilly...

Q: Were do you set currency? How do you show the native currency and statement currency?

A: You set currency on the currency list, and you can update by downloading automatically. The currency is shown on the reports by customizing the reports.

Q: I had a client who incorrectly entered rental property income and expenses in different currencies. CRA couldn't follow. I couldn't help. Client was in big trouble. Properties were in Mexico, Arizona and Calgary. Pesos, USD and CDN

A: I would recommend re-entering in three separate data files and using those currencies to record in the registers, then converting separately. I find that Quicken is almost too complex to use for multi-currency. In fact, I'd recommend using QuickBooks as it handles multi-currency much more effectively than Quicken does.

Q: You mentioned attribution. What is that?

Please call me right away, because I may throw up*>*>*>!!!

A: Yes, attribution rules have caused some extreme emotional reactions over my 27 years of practicing tax. And I"m not alone, for example, the Lipson case is a very famous court case that made it's way all the way to the Supreme Court of Canada

Here's the Federal Court of Appeal decision http://canlii.ca/t/1qzrq
and the Supreme Court decision http://canlii.ca/t/221n0
and some other decisions cited http://www.canlii.org/en/ca/scc/doc/2009/2009scc1/2009scc1.html
Lipson, Canada Trustco, Ludco, Singleton, Thibaudeau, all names you'll hear in Tax Updates if you attend Ed Kroft's updates (he was the lawyer for the Lipson's at the Supreme Court)

Attribution of income is where one person attempts to split the income from their own assets with someone else who doesn't own that asset. I talked about attribution today because it's necessary to keep straight the ownership of accounts and assets earned or received as gifts in order to ensure that the right person is being attributed with the income from those accounts or assets. Same goes for attribution of interest expense that is attributable to interest or other asset income.

Attribution rules can be seen to be extreme. For example, if grandpa gifts his grandson a bike, and grandson earns money from that bike via a paper route, there could be a consideration required for whether the income was earned by the ownership of the bike. I once had a grandpa go totally berserk when he read the rules (I just gave him the stuff to read and this was how he interpreted it all on his own) He proceeded to write to the Prime Minister and the Finance Minister demanding that the attribution rules be re-written because he believed this was very wrong.

It's often why it's a bad idea to gift Canada Savings Bonds, as the same rational applies. The interest attributes back to the gift giver. The interest earned on that interest however, would not be attributed back. It can be used in reverse though, to gift someone something and have the income attribute back can be a good thing where the person didn't have other income and has credits they can't use or transfer.

There are tax rules about the income from an asset you own attributing back to you. It's complicated and that's putting it mildly...

A good place to start is with IT 511 Interspousal and certain other transfers and loans of property
http://www.cra-arc.gc.ca/E/pub/tp/it511r/README.html

Then there's IT 421 Benefits to individuals, corporations and shareholders from loans or debts
http://www.cra-arc.gc.ca/E/pub/tp/it421r2/README.html

from there you might want to review the rules on 'kiddie tax'
http://www.taxdetective.ca/kiddie_tax.html
(one of the many pages of links found in my TaxLinks Pro Portal subscription)

and I'm sure there's many more references, and court cases...search under Google or visit www.canlii.org

In February 2010 at a CGA/CRA liaison meeting in Surrey Tax Office, attribution was mentioned as a new initiative in the audit for trusts and other taxpayers
http://www.taxdetective.ca/newsletters/newsletter/1482040/70887.htm

In 2007, CGA Canada magazine, an article on attribution and trusts
http://www.cga-canada.org/en-ca/AboutCGACanada/CGAMagazine/2007/Sep-Oct/Pages/ca_2007_09-10_prof_taxstrategy.aspx

Keith Anderson, CA writes about attribution (it's also referred to as income splitting) because it can be a tax trap:
http://www.cabusinessadvisor.com/Tax/TaxTraps/TaxTraps.htm
and here's what he says about attribution:
http://www.cabusinessadvisor.com/Tax/TaxTraps/Attrib.htm