Category Archives: Tax Information

Watch out for tax schemes and scams

Tax Information

beware-of-scamsIf a tax-related promotion sounds too good to be true, it probably is. Before you’re tempted to click on a link or make a call, check first with your tax professional or the Canada Revenue Agency (CRA).

Through this web site and our email newsletter, Nevcon Accounting will highlight new variations of tax scams that are making the rounds. For example, the Canada Revenue Agency (CRA) is warning Canadians about getting involved in tax schemes where promoters, including some tax representatives and tax preparers, are claiming that individuals can get a significant tax write-off by investing in real estate through a limited partnership.

What are tax schemes?

Tax schemes are plans and arrangements that attempt to deceive taxpayers by promising to reduce the taxes they owe, for example through large deductions or promises of tax-free income. Schemes can also include other creative ways to convince people they could pay less taxes.

Here’s how this scheme works:

This scheme is advertised as an investment opportunity in real estate through a limited partnership. It is usually heavily promoted as a product with a significant tax advantage and limited liability for the investor. The promoter of the scheme promises a tax write-off for more than double of what was invested.

Potential investors are advised that they can claim a significant tax write-off because of costs being expensed in the initial year of the project. For example, the investor has invested $5,500 and is advised that they can write it off on their taxes for $12,500 due to financial services, lease enhancement and tenant improvement costs expensed in the first year. This is not the case.

Limited partnerships are unique arrangements that provide investors with certain benefits similar to partnerships and corporate entities. However, different than general partnerships, the investor’s liability is restricted to the amount they invested. Therefore, they cannot claim a higher tax write-off than invested.

Your actions may have serious consequences.

Through increased audits of promoters, improved information gathering and informing taxpayers on how to recognize tax schemes, the CRA continues to identify and shut down tax schemes.

Those who choose to participate in these schemes, as well as those who promote these schemes, face serious consequences, including penalties, court fines and even jail time.

What can you do to protect yourself and other taxpayers from tax schemes?

  • Get professional, independent advice before investing, especially if a deal seems too good to be true.
  • If you have participated in a scheme, come to CRA to correct your tax affairs through their Voluntary Disclosures Program … before they come to you.

Tax changes coming into effect in 2019

News, Small Business, Tax Information

We’ve barely taken down the holiday decorations … and it’s time to start thinking about tax changes that kick in as the new year gets under way. But if you stay on top of them now (and hey, you know who to call if you need assistance!), there will be more reasons to celebrate as the new year unfolds.

This overview from CBC News is very helpful:

obj-tax-image-iStock-480459733
(Image courtesy of Ottawa Business Journal)

Your tax bill could change in 2019. Here’s what to expect.

From low-income subsidies to passive cash taxation to the carbon tax, the rules are set to shift

A whole host of federal tax changes come into effect in the new year. Some will hit your paycheque, others your bills — and if you’re a small business owner, there are a couple of changes coming for which you’ve likely been preparing for months.

Read the entire article here.

Links to key 2017 Ontario Budget coverage

News, Tax Information

Nevcon Accounting is pleased to provide the following links to articles, analyses and more, to help you learn more about the 2017 Ontario Budget, delivered April 27, 2017.

How to best claim your auto expenses

Small Business, Tax Information

The following article from the Nevcon Accounting resources archives is still rather handy and relevant today:

Canadians love their automobiles and are ecstatic when they can figure out a way of claiming them as a deduction on their income tax returns. The authors of the Canadian Income Tax Act and the auditors employed by the Canada Customs and Revenue Agency (now Canada Revenue Agency) who enforce its provisions are not quite so enthusiastic. The rules relating to what a car owner can claim or how an employee or shareholder is taxed in terms of a vehicle that is provided to him have become so complex over the years that at times it seems that cars and income taxes do not mix.

For the driver, we have “standby charges” based upon the number of days that a vehicle is made available for use, with different rules relating to whether the cars are owned or leased by the employer. As far as the company providing the vehicle is concerned, we have limitations relating to the deduction of capital cost allowance (depreciation) based on the cost of the car and restrictions as to the deductibility of interest on funds borrowed to acquire it. We have rules relating to operating cost and others relating to parking as well as still others that assure that GST is being collected correctly.

Finally, the self-employed are required to keep track of the total number of kilometres driven in a year and allocate that figure between business and personal usage.

The fact of the matter is that over the years the income tax rules have become such a burden that many are looking for ways to reduce the extensive record keeping that is now demanded.

The way to alleviate this problem and put some sanity back into the calculation of an appropriate automobile expense for all involved is provided below. It is possible that in your particular situation, the traditional methods of calculating automobile expenses may produce greater savings. However, in the long run, if you follow what is suggested here, the few dollars in income tax savings that you lose will be more than made up by the amount of aggravation you will have eliminated.

Option #1 – No more company cars

Employers should get out of the car ownership business and pay those employees who require a vehicle to perform their duties a flat rate allowance for automobile expenses. The payment is an allowable deduction for the employer, but is taxable to the employee. The allowance must be generous enough to cover actual costs incurred and the associated income tax liability that will result.

Option #2 – Reimbursement of cost

Employers pay their employees who require a vehicle to perform their duties a flat rate per kilometre of business travel. The payment is deductible to the payor and is not included as income to the recipient as the amount received is considered to be a reimbursement of costs incurred. The rate to be paid can be based upon that paid by the government in similar situations.

In both cases, driving to and from work will not be considered business driving. This is in conformity with CRA guidelines. However, if one drives from home to see a customer or client and then goes to the office, or alternatively, goes to see the customer or client on his way home from the office, the distance covered will count as business driving.

Article ©2001 The Quarterly Dividend
Reprinted with permission

Links to key 2017 Federal Budget coverage

News, Small Business, Tax Information

Nevcon Accounting is pleased to provide the following links to articles, analyses and more, to help you learn more about the 2017 Federal Budget, delivered March 22, 2017.

Surviving the tax audit process

Tax Information

The following is an excerpt from an article referenced in the Nevcon Accounting resources archives – and it is still timely and relevant today:

According to Canada Revenue Agency’s mission statement, their objective is to promote compliance with Canada’s tax, trade, and border legislation and regulations. Their main tool is the audit process. The majority of taxpayers file relatively simple tax returns with mostly T4 and T5 income. These tax returns do not represent a large compliance risk since tax is withheld at source on the T4 income and the amounts are easily verifiable. Accordingly, many taxpayers who report this type of income may never be audited by the tax department or have any dealings with a tax auditor.

167-tax-tipsThe complete article is found here, on the Globe and Mail web site:

The audit: How to survive a visit from the taxman
by Stephen Thompson
(from 2011/2012)

The book from which the article is excerpted is entitled 167 Tax Tips for Canadian Small Business. Here is an updated link to the book.

Do you need to take a look at the Employers’ Guide to Taxable Benefits and Allowances?

Tax Information

Canada Revenue Agency advises you to use this guide (download it here or click on the book graphic) if you are an employer and you provide benefits or allowances to your employees, including individuals who hold an office, for items such as:

tax-guide-cover

  • automobiles or other motor vehicles;
  • board and lodging;
  • gifts and awards;
  • group term life insurance policies;
  • interest-free or low-interest loans;
  • meals;
  • security options;
  • tool reimbursement or allowance;
  • transit passes; or
  • tuition fees.

If you or a person working for you is not sure of the worker’s employment status, either one of you can request a ruling to determine the status. If you are a business owner, you can use the “Request a CPP/EI ruling” service in My Business Account. For more information, go to cra.gc.ca/mybusinessaccount. You can also use Form CPT1, Request for a Ruling as to the Status of a Worker Under the Canada Pension Plan and/or the Employment Insurance Act, and send it to your tax services office.