People who earn income from more than one country often find their taxes complicated by layers of red tape from both countries. Even though the United States and Canada have very friendly economic terms and a historically porous business border, each country still expects earners to fully adhere to their tax expectations. 

Multi-country taxation paperwork can be quite daunting, and most people and businesses may benefit from hiring professionals to cut through the red tape for them. This is especially true if one of those countries is the United States, whose tax system is the most complex in the world.

Determine your country of residence: Canada’s rules

If you are a Canadian citizen, but earned income in the United States, your initial return may likely show that you have to pay taxes for your earnings in both countries. Luckily, the Canada-United State Income Tax Convention Fifth Protocol (2008) might excuse you from paying some or all of the taxes to the United States, but does not exempt you from filing a tax return in a timely manner under US law.

In this case, the details of your taxes may likely hinge on residency. If you resided in Canada for more than half of the year (183 days or more) you may qualify for relief. This generally means that in any place where similar taxes apply to your earnings, you may have to pay the Canadian tax and be exempt from the corresponding United States tax.

A Canadian citizen earning income while employed in the United States by a US company might be eligible for relief from Canadian taxes. In that case, the individual may likely be eligible to deduct the full amount of the taxes actually paid to the US whether through deductions or payments. Similarly, deductions for pension plans are also available, if they substantively match similar plans available under Canadian law.

Determine your country of residence: United States’ rules

The United States applies a more complicated residency rule. A person who was in the United States for less than 183 days in one year might still qualify as a resident, because of the residency formula that counts days from surrounding years proportionally as follows:

            Days of residency in the current year are counted as full days

            Days of residency in the preceding year are counted as ⅓ days

            Days of residency in the second precedent year are counted as ⅙ days.

If the total after this calculation is 183 or higher, you are considered to have residency in the United States.

So if you were in the United States 60 days for each of the past three years, your calculation would be:

            Current year: 60

            Preceding year: 60/3 = 20

            Second preceding year: 60/6 = 10

            Total days = 90 (not a resident)

But if you were in the United States 126 days for each of the previous three years, your calculation would be:

Current year: 126

            Preceding year: 126/3 = 42

            Second preceding year: 126/6 = 21

            Total days = 191 (resident)

Of course, it is unlikely that each person’s annual total is the same, and these examples are meant only to serve to explain how the formula works.

Either way …

Whichever country you determine to be your country of residence, you are still obligated to fill out the United States tax forms for income earned there and submit it by April 15th.

However, your residency and citizenship, and the application of the Canada-United State Income Tax Convention Fifth Protocol (2008) may determine if you qualify for tax relief from those taxes that overlap. In those cases, you owe the country of residence, and may be exempt from the same taxes in the other country (even if you are a citizen of that country.)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Most for-profit businesses in British Columbia qualify for the PST rebate for select machinery and equipment.

This PST rebate applies to most machinery, equipment, and durable goods purchased between September 17, 2020 and September 30, 2021.

Who can apply for the PST rebate on select machinery?

Almost any and every incorporated business that made qualifying purchases and during the indicated period is eligible to apply.

Government entities, hospitals, schools or other non-profit organizations do not qualify for this rebate.

Some examples explaining eligibility are provided in this Ministry of Finance Tax Notice.

What purchases qualify for this equipment rebate?

An amazingly large list of purchases qualify for the equipment rebate. These include almost all durable goods and non-consumables.

One important qualifier is that they have to have been purchased in B.C. or brought into B.C. for the purpose of growing or continuing the work of attempting to earn a profit during the indicated period.

An amazing array of purchases qualify, including harnesses for livestock and spacecraft used for telecommunications.

Some qualifying purchases include:

• Furniture
• Appliances
• Logging equipment (that doesn’t apply for other rebates)
• Medical or dental equipment
• Tools
• Uniforms
• Power equipment
• Computers and software
• Zero-emissions vehicles

A more comprehensive list of qualifying purchases, divided by tax class, is available at this B.C. PST rebate explanation page.

Of course, this means that a broad range of consumable purchases do not apply for this rebate. Among non-qualifying purchases are boats, vehicles that are not zero-emissions, any consumable such as office supplies, or goods purchased for resale.

When can I apply for this equipment rebate?

 The PST must have been paid on time, or in a timely manner if the purchase has not yet been made, in order to qualify for the rebate.

If the PST is not paid on time, then you are ineligible to apply for the rebate.

A more detailed list of the PST payment timeline and rules is available in this PST Chapter 35 part 2 document.

How do I apply for the PST rebate on select machinery and equipment?

First, gather the appropriate materials that confirm the purchase was made within the indicated period of September 17, 2020 to September 30, 2021. This includes verification that the tax was paid during this same time.

Provide the following documentation:

• Invoice
• Receipt
• Incorporation information
• Direct deposit information (for payment of the refund)
• Official documentation tying the bank account to the business that could include a canceled check or a letter from the banking institution

Apply during one of the available payment periods:

April 1, 2021 – September 30, 2021 First application period (recommended for purchases that have already occurred)

October 1, 2021 – March 31, 2022 Second application period (Can be used for all purchases or for ones occurring between now and September 30, 2021.)

You can submit a maximum of two applications. Either submit one during each period, or submit two during the second period. If you submit one during the first application period you can only submit one during the second.

If you have further or more detailed questions about the PST B.C. rebate for machinery or equipment, you can refer to the B.C. PST Rebate website here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

You have probably heard that TFSAs are great tools for saving money and you would not be wrong.  But what happens when you are affected by both sides of the border?  Does the United States treat TFSAs the same way Canada does?  What happens if you are a Canadian living in the US or are a Canadian-US dual citizen?  This article will explore TFSAs, their advantages, and their tax consequences in Canada and the United States.

TFSA Treatment in Canada

Back in 2009 the Government of Canada started the TFSA program so that individuals 18 years of older with a valid social insurance number could start saving money tax-free.  Contributions to a TFSA are not deductible for income tax purposes, however, whether the TFSA be a savings or investment account, income earned in the account would generally be tax-free, even when withdrawn.

There is a limit to how much you can contribute to your TFSA, however your contribution room grows each year.

Canada Revenue Agency has a publication which describes the finer details on their website: https://bit.ly/3hxTRKG  

TFSA Treatment in the United States

While the Government of Canada considers the growth in your TFSA to generally be tax-free, the Internal Revenue Service does not.

If you are a Canadian-US dual citizen who lives in Canada, you are required to report the investment income from your TFSA on your US tax return.  The same applies if you are a Canadian living in the US who is a US resident for tax purposes.

Furthermore, if you are a non-resident of Canada who owns a TFSA, any contributions made while a non-resident is subject to a 1% tax for each month the contribution stays in the account.

To add another layer, should you invest in Canadian mutual funds or ETFs within your TFSA this could trigger a Form 8621 PFIC filing requirement in the US.

To Save or Not to Save?

There is nothing wrong with having a TFSA however it is important to be informed so that you are not hit with any unexpected surprises when it comes time to file your Canadian and US tax returns.  If you are affected by both sides of the border, it is important to speak to a tax professional so you can move forward knowing what to expect.  You can reach out to a tax specialist at argentocpa.ca and request your free initial consultation today.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Hiring staff should be a simple process that is automated and easy.  Here are suggestions on how you can handle payroll compliance.

Payroll Software and Why

As a business owner, you need as much free time as possible to focus on growth.  Manually calculating payroll can be time-consuming and prone to error.  At Argento CPA, we are big fans of Wagepoint – one of the leading online payroll software providers in Canada. 

It is highly recommended you investigate payroll software before you hire, not after!  Payroll deductions such as CPP, EI, and tax, must be deducted off each cheque and remitted to CRA.  You must be certain that payroll is accurate and paid on time to CRA.  Mistakes are very costly for payroll, with high interest and late payment penalties imposed by CRA.  If the CRA discovers discrepancies between what you remit and what you report on a T4, the chances are your payroll account will be audited/reviewed to determine why a variance exists.  This means time wasted or extra fees paid to your accountant or bookkeeper to sort it out.

There is much more to it then simply writing a cheque.

When you pay employees, there are important things to track.

• Salaries and wages
• Overtime hours
• Vacation accruals
• Holiday pay
• Tips
• Bonuses
• Commissions
• Income tax
• CPP
• EI
• Benefits
• And many other types of deductions depending on your employment contract!

Benefits of using Wagepoint

The biggest benefit is automation of course!  Why would you possibly want the responsibility of tracking all these amounts separately.  It is a disaster just waiting to happen.  With Wagepoint, you can do the following.

• Direct deposit
• Online access to paystubs (no more paper!)
• Automate payroll tax payments to CRA
• Automatically generate ROEs
• Automatically generate T4s at year-end

For assistance setting up your automated payroll system, contact Argento CPA today and we will get you up and running.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Cryptocurrency prices have been making a comeback!  This means many hodler’s who weathered the last crypto winter may be considering cashing out and are left wondering how their profits will be taxed.  Is it business income or capital gain?

Tax Treatment of Cryptocurrency for Income Tax Purposes

The proceeds you receive from disposing of cryptocurrency may be considered business income or a capital gain.  There is no clear-cut rule than defines one or the other.  Whether this is business or capital income must be determined on a case-by-case basis.

Here are some signals that indicate business income:

• You are a day trader (check out our recent article on what factors are in play to determine day trader status).
• You mine cryptocurrency and intend to earn a profit, even if you are unlikely to do so in the short term.
• You operate a cryptocurrency business (including mining, trading, exchanges, and ATM’s).

What Triggers a Taxable Event?

• Exchanging one cryptocurrency for another (example: BTC to ETH)
• Selling cryptocurrency for fiat currency (example: BTC to CAD)
• Trading cryptocurrency to stablecoins (example: BTC to TUSD)
• Trading cryptocurrency for goods or services (example: purchasing a Tesla vehicle with bitcoin)
• Mining cryptocurrency (example: you operate a mining business and receive cryptocurrency, the value of the cryptocurrency on that date you earned it will be considered business income.  If you mine as a hobby, your cost base is zero and when you sell the coin you will trigger a capital gain.  You cannot claim any deductions under a hobby scenario.)
• Chain splits or forks (example: when BTC forked to bitcoin cash, if you operate as a hobbyist or investor, then you cost base for the new coin is zero and you will pay capital gains when disposing.  If you operate as a business, it is considered business income when you receive the split.)
• Tax on ICOs (example: you receive a new token as an Initial Exchange Offering and purchased it with BTC or ETH.  The value of the new coin will be the value in CAD of the BTC or ETH you used to purchase it.  The taxable event is triggered on the day of the ICO transaction, when you get the tokens.)

Keeping Books and Records

Every cryptocurrency trader should be making keeping accurate books and records a priority.  This means you should maintain records for the following:

• The date of the transactions.
• The receipts of purchase or transfer of cryptocurrency.
• The value of the cryptocurrency in Canadian dollars at the time of the transaction.
• The digital wallet records and cryptocurrency addresses.
• A description of the transaction and the other party (even if it is just their cryptocurrency address).
• The exchange records.
• Accounting and legal costs.
• The software costs related to managing your tax affairs.

If you are a miner, also keep the following records:

• receipts for the purchase of cryptocurrency mining hardware.
• receipts to support your expenses and other records associated with the mining operation (such as power costs, mining pool fees, hardware specifications, maintenance costs, and hardware operation time).
• the mining pool details and records.

Amending Tax Reports for Previous Years

Other countries have taken a head start at cracking down on cryptocurrency taxes.  It is only a matter of time before Canada starts to do this too.  If you have not filed your taxes correctly in the past, be proactive and amend your prior year returns to reflect cryptocurrency transactions.  You may have significant gains where you have tax to pay, or you may have experienced pain and can claim losses.  Either way, reporting your taxes accurately is most important.

Contact Argento CPA today and we will relieve your accounting pains from reporting your gains on your cryptocurrency tax situation!

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Another year has gone whizzing by.  As of February 22, 2021 CRA, has opened their servers to accepting e-filing of personal tax returns.  It is important for everyone to file their income tax and benefit return on time, since it is necessary to receive benefits and credits you are entitled to.   Here is what you need to know about filing your personal tax returns for 2020.

Interest relief if you received COVID-19 benefits:

Interest relief will be provided to individuals who meet all the following:

• Your 2020 taxable income was $75,000 or less
• You received at least one COVID-19 benefit in 2020l:
  • Canada Emergency Response Benefit (CERB)
  • Canada Emergency Student Benefit (CESB)
  • Canada Recovery Benefit (CRB)
  • Canada Recovery Caregiving Benefit (CRCB)
  • Canada Recovery Sickness Benefit (CRSB)
  • Employment Insurance (EI) benefits
  • Provincial or territorial emergency benefits
• You filed your 2020 income tax and benefit return
• You have a balance owing for your 2020 taxes

Taxpayers who satisfy the above conditions will be granted interest relief on 2020 tax owing.  This means no interest on amounts owing until April 30, 2022!  Careful!  Late filing penalties will still apply (5% of the tax balance owing) so make sure you file on time to avoid unnecessary penalties and interest.

T4A Issued to Report COVID-19 amounts:

You may have already received a T4A and are wondering what to do with it.  The T4A slip indicates the type of COVID-19 benefit you received and should be reported on your personal tax return.  Please make sure the amount on the T4A is correct.  If you find an error with your T4A, call CRA immediately to resolve it at 1-800-959-8281. 

If you cannot pay your taxes in full:

To avoid additional penalties, always file your return on time.  If you can make a partial payment, this will reduce the amount of interest you will pay.  The CRA has also expanded payment arrangement options to give taxpayers more flexibility.

Tax filing deadline:

As far as we now, the deadline to submit your 2020 personal tax return is April 30, 2021. 

If you need assistance with filing your tax returns, contact Argento CPA and we will help you with your tax situation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

The following article is a case study on a non-resident of Canada taxpayer, named Cameron, and how he should deal with his Canadian rental property for tax purposes.

Facts about Cameron’s tax situation:

• Receives $3,000 monthly rental income from his beautiful home in Vancouver.
• Loves warm weather and is retired, so decided to move to Columbia and sever ties with Canada. This is the 1^st time he has had to file a tax return, since leaving Canada.
• Permanently resides in Columbia and no longer has residential ties with Canada.
• Argento CPA was Cameron’s accountant when he lived in Vancouver, so we advised him on how to handle his Vancouver rental property for tax purposes.

Our conversation with Cameron went something like this.

“Cameron, since you are a non-resident of Canada, you are permitted to elect under section 216 to report your Vancouver rental property to CRA.”

“What is section 216?”

“It’s a simplified tax return where you can simply report your rental income and expenses to CRA.”

“Great!  What information do you need from me?”

“We need you to fill out our rental income and expense template, and to know what your gross rental income is and itemize all your expenses, such as mortgage interest, property tax, utilities, etc.”

“Awesome, no problem.”

“You should also remit 25% of the gross rental income to CRA, 15 days after the receipt of each rental payment.”

“What!  25% That is crazy.  Why do I have to remit 25% of gross rental income when I have expenses that make me incur little to no net income by the end of the year?  To me that sounds unfair.”

“I agree with you!  There is a solution for someone in your situation.  You can file a Form called NR6 on or before January 1^st each year or before your 1^st rental payment for the calendar year is due.”

“Another form?  Great…  What does this one do?

“I know you hate filing forms Cameron, but this is a really good one.  If you file a NR6 on time, you don’t need to remit the 25% withholding tax in your situation because your net rental income is expected to be nil!”

“Wow, that is an amazing form.  I don’t want to be late with that one, and I am glad we had this discussion before I received my 1^st rental payment.  What would have happened if we did not file that form!  I would have over paid taxes, wouldn’t I?

“Not necessarily Cameron, if you didn’t file a timely NR6, you should file another form, called NR4, which isn’t as great as the NR6, since all you do with this form is report the total 25% withholdings you paid to CRA during the year.  But you don’t need to do that, because we are filing your NR6 on time and you will have no withholding taxes to pay!”

“Phew, I am so thankful to have an awesome accountant who can share these little tips and tricks with me.  I could have significantly overpaid tax!  25% to report on that NR4, that’s just crazy.”

“Well, it’s not all lost if you had filed a NR4 Cameron.  When we prepare the tax return electing under section 216, we still report your income and expenses, and you only pay tax on the net income.  So, at the end of the day, you would have received a refund of most of your withholding tax, if you had little to no net income.”

“Oh, well that’s not the end of the world then.  It would have hurt a little bit for my cash flow, but I think I would have still managed.”

“Yea, not the end of the world at all Cameron.  But its important people know about this.  If you do not file a NR6, or withhold 25% and remit to CRA, then you can have a penalty equal to 10% of the withholding amount!  That penalty adds up quick and gets compounded!  Make sure to tell your friends about this, I hate seeing people waste money on penalties and interest.”

“Will do!  Thank you so much for being such an informative accountant!”

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

CRA has provided two new options for claiming employment expenses related to working from home in 2020.

• New – Temporary Flat Rate Method – where employees can claim a flat rate amount of $2/day to a maximum of $400.  Under this method, no employer certification is required.
• Simplified Detailed Method – for employees who claim actual expenses related to working from which must be supported by receipts.  Employer certification is required.

Overview of working from home expenses

	Temporary Flat Rate Method	Simplified Detailed Method – Only working from home expenses	Historical Detailed Method – Any Employment Expenses
Employer certification required?	No	Yes – New T2200S	Yes – T2200
Receipts required?	No	Yes	Yes
Eligible employees	Working from home due to COVID-19	Working from home due to COVID-19	Working from home due to employer requirement
Computation	$2/day worked from home, max $400	Claim actual amounts paid as per receipts	Claim actual amounts paid as per receipts
T1 Form to Complete	New T777S	New T777S	T777
Can you claim other employment expenses if eligible?	No	No	Yes
Can the work space also be used for personal purposes?	Yes – no change to the claim	Yes, expenses are prorated based on space and hours used for employment purposes.	Yes, expenses are prorated based on space and hours used for employment purposes.
Impact of employer reimbursement	No claim if all expenses are reimbursed	Reimbursements will reduce your eligible deduction	Reimbursements will reduce your eligible deduction

New – Temporary Flat Rate (TFR) Method

If employees that worked from home more than 50% of the time for a period of at least 4 consecutive weeks in 2020 due to COVID-19, they can claim $2/day up to a maximum of $400.  Full-time or part-time days will count, while vacation days, sick days, or other leaves of absences do not count.  If you choose to use this new method, you cannot claim other employment expenses.

To claim the TFR, you must meet all the following conditions below:

• You worked from home in 2020 due to COVID-19;
• The employee worked more than 50% of the time from home for more than 4 consecutive weeks in 2020;
• You are not claiming other employment expenses; and
• You did not receive any reimbursement from your employer for home office expenses.  If your employer reimbursed some of the home office expenses, the employee can still make a claim.

If multiple people work from the same home and each meet the above criteria, each person is still eligible to claim a full TFR amount.

Simplified Detailed Method – Only Working from Home Expenses

This method requires the same calculation as done in the past for home office expenses but allows for a simplified T2200S and T777S.

To be eligible, you must meet the following conditions below:

• Worked from home in 2020 due to COVID-19;                          
• Employee was required to pay for expenses related to work space in home;
• Worked more than 50% of the time from home for a period of at least 4 consecutive weeks;
• Signed T2200S from employer; and
• Expenses were used directly in the work during the period.

If multiple employees are working from the same home and share the work space, you should each calculate your respective employment use of the space.

New T2200S Form

Employers must certify that employees are eligible to claim working from home expenses using a new form called T2200S.  The form asks three questions:

1. Did this employee work from home due to COVID-19?
2. Did you or will you reimburse this employee for any home office expenses?
3. Was the amount included on the employees T4 slip?

What are eligible work space in home expenses?

• Electricity, heat, water, maintenance and repair costs related to the use of their work space in home.  Commissioned employees may also claim home insurance and property taxes.
• Internet fees
• Office supplies
• Cell phone or land line

Please note, capital expenditures, such as mortgage interest/principal payments, furniture and equipment, computers and their accessories, and other electronics are not deductible against employment income.

Contact Argento CPA if you have any questions about whether you are earning investment income or business income.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Introduction

Stock option plans are a popular method to attract, motivate, and create loyalty among employees in both Canada and the US. The tax treatment of stock options is complex, and rules vary between different countries.

This article is part-one of a three-part series.  First, we will discuss US tax implications of stock options.  Part-two will explain Canadian stock options and lastly, part-three explores tax treatment of cross border stock options when a resident of Canada is granted stock options from a US company.

US Taxation of Stock Options – Part 1

The US has two types of stock option plans, qualified stock options, also called Incentive Stock options (ISO’s) and non-qualified stock options (NSO’s). Alternatively, US companies can also issue Restricted Stock Units (RSO’s). All three stock incentives will be discussed below.

Incentive Stock Options (ISO)

There are several conditions that need to be met for a stock option plan to be qualified.  If any of the following conditions are not met the options become NSOs:

1. This type of option can only be granted to an employee
2. The employee must be granted the option at fair market value (FMV) as of the date of the grant
3. If the employee is a greater than 10% shareholder of the company, the following additional conditions must be met:
   • The grant date must be 110% of FMV as of the grant date
   • The option term cannot exceed 5 years from the grant date
   • The exercise price cannot be less than the FMV of the stock at the grant date
   • The total value of the stock options cannot exceed $100,000 to each employee as of the grant date and the option must be exercised within 10 years of the grant
4. The holding period between being granted the options and being allowed to exercise must be at least one year
5. Once exercised, the stock cannot be sold for at least a year
6. The options must not be transferable to any other party, and must be granted to, exercised by, and sold by the employee
7. The stock option plan must be approved by the employer’s shareholder within 12 months before or after the date the plan is adopted

The granting of an ISO and the subsequent exercising of the option after one year does not result in tax consequences to the employee. When the options are sold, they receive long term capital gains treatment, resulting in nil tax for the lower tax brackets, 15% for income up to $450,000 (married filing jointly) or $400,000 (single) and 20% for income in the highest tax bracket. The capital gain is calculated as the difference between the proceeds on the sale and the grant price.

Because ISOs have a preferential tax treatment, Alternative Minimum Tax (AMT) might arise as a result of ISO stock options being exercised. AMT is a parallel tax system separate from regular tax law that can be complex and is out of the scope of this article.

There is no income tax deduction for the employer when ISO’s are issued.

Example: Cindy is US citizen who signed an employment contract on Nov 1, 2018 with Dot.com (an American start up company that offered her stock options as part of her employment contract). The contract granted her 1,000 options for $1 each, which was the estimated fair market value of the company’s shares on the grant date. The company had $1 million outstanding shares at that time, and she did not own any shares of the company at the time of the grant. The contract stipulated that she was required to hold the options for one year before she could exercise them and once exercised, she was unable to sell the share for one year. The contract also stipulated that the options were non-transferable, and the option plan was approved by all shareholder on Nov 30, 2018.

On Nov 2, 2019 Cindy exercises all 1,000 options when the fair market value of Dot.com’s shares were $3 per share. On Nov 2, 2020 Cindy sold all 1,000 shares when the stock was worth $10 per share.

Cindy’s stock options are considered ISO because they met all the conditions listed above. Cindy has no tax consequences on the grant date Nov 1, 2018 or one year later, Nov 2, 2019, when she exercised the options. Her only tax consequences are on Nov 2, 2020 when she sold all 1,000 shares. When she files her 2020 US personal tax return, she will report a long-term capital gain of $9,000 (10,000-1,000).

Non-Qualified stock options (NSO)

A stock option that does not meet all the ISO conditions or is issued to a contractor, supplier or director is a non-qualified stock option (NSO). An NSO can be issued at any price and there is no waiting period between grant and exercise.

There are no tax consequences when a NSO is granted. However, ordinary income is triggered at the time of exercise, which is calculated as the difference between the fair market value at exercise date and the grant price. When the shares are eventually sold, a capital gain will be incurred.   The capital gain is calculated as the difference between the proceeds on sale and the exercise price.

The advantage to the employer for issuing NSO’s is they are permitted a tax deduction equal to the ordinary income earned by the recipient when the options are exercised.

Example: Cindy is a contractor for Dot.com that is issued 1,000 stock options at a price of $2 per share on Nov 1, 2018. The company’s stocks are worth $1 per share on the grant date. On Nov 2, 2019 she exercised the options and sells the shares when the share value is $10 per share.

Cindy’s stock options are considered NSO because the options did not meet a number of the conditions for it to be an ISO, including the fact that she is a contractor and ISO’s can only be issued to employees.

There are no tax consequences when the options are granted on Nov 1, 2018. On Nov 2, 2019 she will incur ordinary income of $8,000 ($10,000 – $2,000) that will be reported on her 2019 US personal tax return. Since the options were exercised and subsequently sold at the same price, she will not incur a capital gain on the sale.

Restricted Stock or Restricted Stock Units (RSUs)

When shares are issued to an employee which include a stipulation that a future event occurs, this type of share is called an RSU. These shares are issued to the employee; however, they must be returned if the stipulated future event does not occur. Because there is substantial risk of forfeiture there is no tax effect when the employee is issued the shares. Once the future event occurs and the substantial risk of forfeiture is eliminated the tax consequences are triggered.

At the time that the substantial risk of forfeiture has been eliminated the employee will be considered to have earned ordinary income calculated as the difference between the fair market value of the shares at that time and the amount they were required to pay for them, which is generally nil.

When the shares are eventually sold, they will incur a capital gain, which is the difference between the proceeds on the sale and the fair market value at the time the substantial risk of forfeiture was eliminated. This gain will be subject to long term capital gains treatment if the holding period is longer than one year.

Similar to NSO’s the employer is allowed a tax deduction equal to the ordinary income earned by the recipient when the recipient incurs ordinary income at the time the substantial risk of forfeiture occurs.

Example: Cindy is an employee of Dot.com that was issued 1,000 shares of the company on Nov 1, 2018. At the time of issuance, the stock price was $1 per share. The shares had a stipulation that they must be returned if the stock price was not worth $5 per share in two years. On Nov 2, 2020, the stock price was $6 per share, therefore the substantial risk of forfeiture had been eliminated. On Nov 3, 2021 Cindy sells all 1,000 shares when the stock price is $10 per share.

Cindy will have to report ordinary income of $6,000 on her 2020 US personal tax return, this is because the substantial risk of forfeiture was eliminated when her 1,000 shares were worth $6,000 and she did not pay anything out of pocket for these shares. She will also incur a $4,000 ($10,000-$6,000) long term capital gain that will be reported on her 2021 US personal tax return.

Stay tuned for part-two where we will discuss Canadian stock options!

Contact Argento CPA today if you have any questions or looking for expert advice.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

The Government of Canada rolled out a new rent subsidy retroactively covering September 27, 2020 until June 2021. This new rent subsidy is similar to the previous rent subsidy originally announced at the beginning of the pandemic, however, this version does not require the participation of landlords.

Eligibility criteria

To be eligible for the CERS you must meet all four of the following criteria:

1. You had a CRA business number on September 27, 2020, a payroll account on March 15, 2020 or you purchased the business assets from another person that had a business number or payroll account on the required dates listed above
2. You are a corporation that is not exempt from tax, an individual or a charity
3. You experienced a drop in revenue compared to the same month in the previous year or compared to the average revenue earned in January and February 2020. There is no minimum revenue drop required to qualify. The rate your revenue dropped is only used to calculate the subsidy you will receive
4. You own or rent a qualifying property that incurs eligible expenses
   
   
   1. Qualifying property
      1. A qualifying property includes Canadian buildings or land that you own or rent and use in the course of your ordinary activities. Your home, cottage, other residence, or rental property used by a non-arm’s length (related) party do not qualify.
   2. Eligible expenses that can be claimed
      1. Eligible expenses include amounts paid or payable to arm’s length parties during the claim period that were under written agreement in place before October 9, 2020 (or a renewal with substantially similar terms)
      2. The maximum eligible expenses that can be claimed is $75,000 per business location and $300,000 in total for all locations
      3. To claim unpaid eligible expenses, these amounts must be paid within 60 days of receiving the CERS payment

Eligible expenses for qualifying rental properties

If you have a rental property, eligible expenses include base rent, property insurance, utilities, common area maintenance, property taxes and customary ancillary services. You cannot claim tenant insurance, leasehold improvements, sales taxes, damages, interest or penalties on unpaid amount or other special amounts.

Eligible expenses if you own a qualifying property

If you own a qualifying property, eligible expenses include, property taxes, property insurance, and mortgage interest. You cannot claim mortgage interest on mortgages that exceed the cost of the property, paid or payment amounts that fall outside the claim period or payments between non-arm’s length parties. 

Lockdown support

The new rent subsidy includes an additional lockdown support of 25% for business that were required to shut down or significantly limit their activities due to health orders issued under Canada, the province or reginal law.

Claim periods

The CERS applications must be filed within 180 days after the claim period. The current claim periods are as follows:

Claim 1: September 27 to October 24, 2020
Claim 2: October 25, 2020 to November 21, 2020
Claim 3: November 22, 2020 to December 19, 2020 (upcoming)

Calculating the subsidy

The subsidy calculation takes into account your eligible expenses up to the maximum claim amounts listed above, your base rent subsidy rate that is based on your revenue drop (see the tables below) and your lockdown support (if you qualify for this top up rate).

Revenue Decline	Base Subsidy Rate
70% and over	65%
50% to 69%	40% + (revenue drop – 50%) x 1.25 (e.g., 40% + (60% revenue drop – 50%) x 1.25 = 52.5% subsidy rate)
1% to 49%	Revenue drop x 0.8 (e.g., 25% revenue drop x 0.8 = 20% subsidy rate)

How to apply

You can apply for the CERS using your CRA online account. The following Government of Canada link provides additional details about the subsidy and online calculators to assist with determining your allowable claim amount. https://www.canada.ca/en/revenue-agency/services/subsidy/emergency-rent-subsidy/cers-how-apply.html

If you have any questions or would like assistance with the application process, we at Argento CPA would be happy to be of service.