Category: Insights

Many people are still being impacted by the COVID-19 pandemic and require support.  The Government of Canada has introduced three new benefit programs, The Canada Recovery Benefit (CRB), The Canada Recovery Sickness Benefit (CRSB), and the Canada Recovery Caregiving Benefit (CRCB).  In this article, I will discuss the features of the Canada Recovery Benefit.

Before we begin, it is encouraged that everyone is signed up for the CRA’s My Account and ensure your info with CRA is up-to-date and register for direct deposit.  CRA recommends people should also file their 2019 tax return, as this will reduce the chance you will be contacted by CRA to request additional information pertaining to your application. 

The CRB will run from September 27, 2020 to September 25, 2021 and you can apply for a maximum of 13 periods during that time.  You must reapply for each period.  CRB will not be renewed automatically. 

The CRB is a payment of $1,000, before taxes withheld, for each 2-week period you apply for.  CRA holds 10% tax at source, so your actual payment will be $900.

Eligibility criteria

• You were not working due to reasons related to COVID-19

Or

• You did not apply for or receive any of the following:
  • Canada Recovery Sickness Benefit (CRSB)
  • Canada Recovery Caregiving Benefit (CRCB)
  • short-term disability benefits
  • workers’ compensation benefits
  • Employment Insurance (EI) benefits
  • Québec Parental Insurance Plan (QPIP) benefits
• You were not eligible for EI benefits
• You reside in Canada
• You were present in Canada
• You are at least 15 years old
• You have a valid Social Insurance Number (SIN)
• You earned at least $5,000 (before deductions) in 2019, 2020, or in the 12 months before the date you apply from any of the following sources:
  • employment income
  • self-employment income
  • maternity and parental benefits from EI or similar QPIP benefits
• You have not quit your job or reduced your hours voluntarily on or after September 27, 2020
• You were seeking work during the period, either as an employee or in self-employment
• You have not turned down reasonable work during the 2-week period you are applying for

If your application requires additional information, the processing time can be delayed up to 4 weeks from the time you submit the application.  Direct deposit with CRA usually takes 3-5 business days or 10 to 12 business days if mailed.

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.

Apprenticeship Tax Credits are available for salaries paid to eligible apprentices working under various trades programs. 

Employers who hire apprentices registered in Red Seal programs are eligible to claim:

Tax credit for each apprentice who is in their first 24 months of apprenticeship for 10% of wages up a maximum of $2,000 per year.

Employers who hire apprentices registered in non-Red Seal programs are eligible to claim:

20% of wages up to a maximum of $4,000 per year for each apprentice, for the first 12 months of registration.

20% of wages up to a maximum of $4,000 per year for each apprentice, for the second 12 months of registration.

Completion Tax Credit Amounts for Red Seal and Non-Red Seal Programs are eligible to claim:

Level 3 Completion Tax Credits – Tax credit for 15% of wages paid during the last 12 months prior to completion of the level up to a maximum of $2,500.

Level 4 Completion Tax Credits – Tax credit for 15% of wages paid during the last 12 months prior to completion of the level up to a maximum of $3,000.

Provincial training tax credits provide refundable income tax credits for apprentices registered in Industry Training Authority (ITA) Red Seal and Non-Red Seal apprenticeship programs.

Do not miss out on the opportunity to claim these tax credits!  Many clients who come to Argento CPA were unaware of these tax credits and in some cases, we have reduced a company’s corporate tax bill to zero!

Contact Argento CPA today and we will help claim these credits to minimize your corporate taxes.

For many years, the IRS offered an Offshore Voluntary Disclosure Program (OVDP) for taxpayers with delinquent returns or FBAR to apply for penalty relief by filing three years of Form 1040 “Individual Income Tax Returns” and six years of FBAR. This program came to an end on September 28, 2018 due to a slow down in submissions to the program. However, new programs have replaced the OVDP; IRS Criminal Investigation Voluntary Disclosure Practice (VDP) for personal tax returns and Delinquent FBAR submission Procedures.

IRS Criminal Investigation Voluntary Disclosure Practice (VDP)

The new VDP provides compliance options for an individual that has committed tax or tax-related crimes and have criminal exposure due to their willful violation of the law. This program is intended for individuals who seek protection from potential criminal prosecution and will generally, cover a six-year disclosure period.

Significant differences with the old OVDP are the new program does not provide penalty relief, instead it applies a civil fraud penalty, of 75% of the underpayment of tax, to the one tax year with the highest tax liability. In addition, the taxpayer’s cooperation takes on greater significance during the examination and a lack of cooperation can have a direct bearing on the magnitude of penalties to be imposed.

Filing under this program will not be available for individuals who:

1. Are currently the subject of a criminal investigation or civil examination
2. Have been contacted by the IRS to notify that they intend to commence an examination or investigation
3. Are under investigation by any law enforcement agency
4. Have earned income from illegal activity

The steps for the new program are as follows:

1. Complete and submit to the IRS Criminal Investigation department Part I of Form 14457, Voluntary Disclosure Practice Preclearance request and Application. This is an application to confirm eligibility into the program.
2. Complete and submit Part II of Form 14457, Voluntary Disclosure Practice Application within 45 days of receiving confirmation of eligibility. This is an application to determine approval into the program. This form requires details regarding the taxpayer noncompliance, including a narrative providing the facts and circumstances, assets, entities, related parties, and any professional advisors involved in the noncompliance.
3. Once approval is obtained an examiner will be assigned to the case and the most recent six years of delinquent tax returns will be request to be submitted for review, however, the examiner may expand the disclosure period beyond the normal six years if issues are noted in the submission or for a variety of reasons.

The new VDP has more steps and can be costlier than the old OVDP and it has increased the range of available penalties as compared to the old OVDP program. For these reasons, the new filing procedures may not be appropriate for all taxpayer situation’s, such as, when non-compliance was not willful.

Alternative to VDP

A taxpayer that did not willfully violate the law could consider alternative options for correcting past mistakes. This includes quiet disclosures, filing amended returns or filing past delinquent returns. This option is less time consuming and costly, however, it does not provide protection from potential criminal prosecution and does not guarantee that no penalties will be assessed. The penalties could be significant depending on the situation.  

Delinquent FBAR Submission Procedures and Delinquent International Return Submission Procedures

A U.S. taxpayer that is not delinquent with their personal tax filings that is, however, delinquent with their FBAR filings or other international forms have the option of filing under one of the Delinquent submission procedures. A taxpayer who has not filed one or more FBAR or international information returns, has reasonable cause for not timely filing the forms, is not under civil or criminal investigations and has not been contacted by the IRS regarding the delinquent forms will qualify for one of these two programs. A reasonable cause statement must be included with the delinquent forms, certifying that the delinquent returns were not because of tax evasion.

The IRS will not impose a penalty for the failure to file the forms if the taxpayer properly reported on their U.S. tax returns, and paid all tax on, the foreign income related to the forms.

Contact Argento CPA today if you have any questions about U.S. tax compliance.

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.

Facts about Ashlee’s tax situation

• Ashlee has some great ideas for products and wants to sell them online via Amazon and Shopify. 
• She has a full-time job where she earns a salary of $90,000 annually.
• Wants a tax-efficient business structure that allows her to pay minimal taxes and reinvest her profits.
• Her customers will be in Canada and the U.S.
• Ashlee does not like paperwork and wants a cloud-based recordkeeping system.

Here are a few things we suggest to Ashlee.

Bookkeeping

Ashlee is going to need some accounting software.  As a cloud-based accounting firm, we highly suggest using Quickbooks Online.  This allows Ashlee to work with her accountant and bookkeeper in real-time.  As Ashlee’s bookkeeper, we can assist on monthly bookkeeping and provide monthly reports.  We will make sure Ashlee’s books are organized from day one and Ashlee knows exactly how her company is doing and what taxes are owing.

Sales Tax

Sales tax can be tricky, especially with customers located in various provinces across Canada.  There are different tax rules/rates for each province.  You will need your accountant to review the tax filing rules for each province and make sure you are filing returns if required to do so.  Depending on where your customer is located, the sales tax in that region will apply.

Shopify and Amazon do a great job at tracking sales tax based on your customer’s location, so make sure you integrate these settings in your online stores so that it is easy enough for your accountant/bookkeeper to pull reports and prepare the returns and bookkeeping.

If you are considering fulfillment by Amazon and warehousing your products in the US, you may create a sales tax nexus which triggers the requirement to file US state tax returns.  These rules can be complex and vary state by state.  Contact Argento CPA if you have questions regarding sales tax nexus.

Corporate structure

Since Ashlee’s goal is to have minimal tax, reinvest corporate profits and is already earning $90,000 from her full-time job, it would be best for her to incorporate this business and keep profits in the company.  Corporate tax is much lower than personal tax rates, and if you choose to leave the cash in the company, to reinvest or save, you take advantage of these low rates.  Ashlee should use her cash earned by employment for personal living expenses (since she pays higher personal taxes on that employment income) and retain all her corporate profits in the company to minimize overall tax.  Any initial start-up cash Ashlee invests into her business is treated as a shareholder loan and can be repaid at anytime tax-free.  (for more information on understanding a shareholder loan, check out our recent article “understanding the shareholder loan: how to use it to your advantage and stay compliant with CRA”).

Recordkeeping

We suggest using Receipt Bank in combination with Quickbooks Online.  We will help you digitize your records and integrate this app with your Quickbooks Online account.  No more saving paper receipts in your closet for years and years.  You can simply upload/forward receipts from your phone or email and we will handle the rest.  If CRA ever reviews your expenses, it will be simple enough for us to go online and access all the invoices CRA requests.  This makes a review or audit procedure with CRA painless and time efficient. 

Call Argento CPA today for a free initial consultation

We understand that everyone’s needs are different, and we all have unique tax situations.  One size does not fit all and that is why we tailor our services to exceed your expectations.  Call us today for a free initial consultation so we can explain how we will make your bookkeeping and taxes as simple as possible.  We offer fixed monthly fees that are fair, and we always deliver quality work with clear communication.   

Are you considering purchasing or lease a vehicle for work?  If so, you must be wondering how to claim this expense on your tax return.  It is important for you to determine the cost and benefits as this may have an impact on your choice of vehicle and whether to purchase or lease.

Automobile Deduction

To qualify for vehicle expenses, you must use your vehicle to work in another location other than your regular place of business.  CRA does not consider travel to and from your office/regular place of work as an eligible business trip.  On the other hand, if you travel to the office, then you have sales meetings during the day where you use a vehicle to make various trips during the day, those are considered eligible tax-deductible mileage.  The mileage to and from the office would be considered personal use, then mileage during the day to visit various clients would be considered business use.  You need to track your personal and business mileage to calculate your eligible motor vehicle expenses.  At the end of the year, you take the % of business use and multiply that amount by your total eligible motor vehicle expenses.  We recommend keeping a mileage log and using a digital app such as MileIQ to track each business trip. 

Eligible Motor Vehicle Expenses

Remember to keep your receipts!  The vehicle expenses below are tax-deductible.

• Interest on loans to purchase the vehicle
• Fuel
• Insurance
• Leasing costs
• Repairs and maintenance
• Capital cost allowance

Capital Cost Allowance (CCA)

Capital cost allowance is the amount of depreciation you can claim each year as a eligible vehicle expense.  Generally, the maximum rate you can claim each year is 30%, with the half-year rule applying in the year of purchase.  CRA sets a limit to the maximum cost for passenger vehicles.  Passenger vehicles include coupes, sedans, crossovers, sport-utility vehicles, and if they cost over $30,000, they are considered a luxury vehicle.  For luxury vehicles, the maximum cost for the calculation of claimable CCA is $30,000 + GST/HST + PST.  If you purchase a motor vehicle used primarily for business that does not fall into CRA’s definition of a passenger vehicle, you are able to claim the full amount of the vehicle for the CCA calculation.

 Automobile expenses can be claimed for Self Employed purposes only if:

1. The business requires the individual to work away from its normal place of business; and,
2. Automobile expenses are supported by a detailed travel log, invoices and receipts.

Automobile expenses can be claimed by an Employee only if:

1. The employee is required to work away from his/her employer’s place of business;
2. The employee is required by his/her employer to pay own traveling expenses;
3. A T2200 Declaration of Conditions of Employment is completed and certified by the employer; and,
4. Automobile expenses are supported by a detailed travel log, invoices and receipts.

Contact Argento CPA today if you have any questions on how to claim your vehicles expenses!

Are you an employee or a contractor?  This is a question consistently asked from our clients and business owners.  The CRA has laid out specific criteria for you to know the difference.  However, interpreting their rules can be tricky and getting this wrong can be a costly mistake.

In this blog, here is what we will cover:

• Criteria determined by CRA
• Is it better for you to hire and employee vs. a contractor?
• What is the difference from a tax perspective to the business owner and employee?

Criteria Determined By CRA

Unfortunately, when evaluating the criteria laid out by CRA there is no clear answer to whether you are an employee or contractor.  The answer is determined on a case-by-case basis using the criteria provided by CRA and precedent court cases.

The criteria determined by CRA include:

• Control – over the work that needs to be done and how it is done.
• Tools and equipment – who has ownership of the tools?
• Subcontracting work or hiring assistants – Can the contractor subcontract their work to others?
• Financial risk – Does the contractor make any personal investment to provide the service or do they risk losing money vs. earning a profit?
• Intention – what does the actual contract between the parties say?

Control

Control is the ability for the worker to exercise their say in how the work is done and when it is done.  A certain level of independence exists where the worker can dictate the workflow. 

Below are some common examples from each perspective.

Control – Employee

• The payer determines when the job must be completed.
• The payer determines the hours during the day that the work must be done.
• The worker is directed or trained by the payer on how to complete the job.

Control – Contractor

• Contractors complete the work on their own time under their own direction.
• The worker is free to take on other jobs from other clients.
• The contractor can end the working relationship whenever they like or refuse work.

Tools and Equipment

Was there a significant investment in tools and equipment by the worker to complete the job?  Whether the worker owns their own tools or not is a supporting indicator on the contractor vs. employee relationship. 

Tools and equipment – Employee

• The worker has no tools and is provided tools and equipment by the payer.
• The payer is responsible for maintaining the tools.
• The payer reimburses the worker for any tools purchased and has ownership of tools.

Tools and equipment – Contractor

• The worker provides their own tools and equipment.
• The worker is responsible for maintaining and servicing equipment.
• The worker has invested in their own tools.

Subcontracting Work

Is the worker able to subcontract the job to other workers?  An employee does not have the right to subcontract the job where a contractor can. 

Subcontracting work indicators – Employee

• The worker has no right to hire subcontractors.
• The worker is unable to have someone else perform the job in their place.

Subcontracting work indicators – Contractor

• The worker can hire others to assist on the job.
• The payer has no say in who the worker decides to subcontract the work.

Financial Risk

It is important to determine the degree of risk that the worker assumes.  Consider any financial costs the worker incurs on the job, or risk of potentially running a loss from performing the job.

Financial risk – Employee

• The worker is not responsible for operating costs.
• The worker is not liable if the job is not completed according to the contract.
• The relationship between the worker and payer is continuous.

Financial risk – Contractor

• The worker is hired for specific jobs only.
• The worker hires others to help on the job.
• The worker advertises their services and open to engage with other clients.
• The worker is liable if they do not meet the obligations of the contract.

Intention

One of the most important indicators and first question to ask yourself is “what is the intent of the relationship between payer and worker?” 

The intent is specifically laid out in the contract between payer and worker.  Intent is not the catch-all determining factor, but it is a great starting point.  The parties may have the intent for it to be a contractor relationship, but all factors above may point to an employee relationship.

Request a Ruling From CRA

If you review all the criteria and you are still uncertain as to whether you are an employee or a contractor, you can contact CRA and request a ruling on the matter.

This can be done through your CRA “My Business Account” or by mailing this CRA form to your tax center.

Alternatively, consult with your accountant!  Your CPA should have the expertise to analyze your unique tax situation and help you make the determination whether one is an employee or contractor. 

Employee vs. Contractor – Which is Better?

As a business owner you are wondering which is better for you?  Everyone has a different situation and below are key factors to consider.

Hiring a Contractor Benefits

• Less administrative work – if you hire a contractor, you do not need to enroll in a CRA payroll account and remit monthly payroll tax deductions to CRA.  Payroll complicates things by making the employer responsible for Records of Employment and T4s at the end of each year.
• Lower cost – if you pay a contractor, the payer does not need to match CPP and EI or worry about vacation pay.

Hiring an Employee Benefits

• Retention and loyalty – when you hire an employee, you have someone who is now part of your team.  They are essential to grow your business and in many cases are the most valuable asset to a business.  Their knowledge is your knowledge, and if you find a quality employee and treat them well, the return on that investment is immeasurable.

At the end of the day, if you are looking for someone to help grow your business and lead your company to success.  Hiring a long-term employee is the correct choice.  If you are still growing and can’t quite commit to a full time employee, but you want to engage on new contracts/jobs, then hiring a contractor can fill in that gap until you are ready to hire someone long-term.

What Is the Difference from A Tax Perspective?

Listed below are a few key regulatory differences you should be aware of.

• Payroll Remittances – Employers are required to withhold and remit payroll tax deductions to CRA.  If you hire a contractor, you are not obligated to do so.
• Employment Insurance – Employers need to pay into EI for their employees.  This adds an additional cost to hiring an employee.
• Canada Pension Plan – Employers need to pay into CPP for their employees.  This adds an additional cost to hiring an employee.
• Vacation and Overtime Pay – There are statutory requirements for vacation and overtime pay based on hours worked by your employee. 
• Workers Compensation – Employers will be required to remit WCB on wages paid to employees.
• Severance Pay – There are statutory guidelines to follow when it comes to terminating an employee.

Overall, it is more expensive to hire an employee.  Although, if you find the right employee who is fit for the job, adding them to your team is an essential component to growing your business.  If you are looking for a long-term worker who has the required expertise to do the job and add value to your business, an employment-work relationship is best.  On the other hand, whether someone is an employee or contractor also comes down to facts determined on a case-by-case basis. 

Contact Argento CPA today if you need any assistance determining the difference between contractor vs. employee!