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Alberta Child and Family Benefit

December 3, 2024

The Alberta Child and Family Benefit (ACFB) is a tax-free financial program that supports low- and middle-income families with children under 18 years old.

How It Works:

The ACFB combines a base component and a working component to offer families additional financial assistance.

  • Base Component: Available to all eligible families with children under 18 whether or not they earn employment income.
  • Working Component: Additional support for families with employment income that exceeds $2,760/year.  This amount grows by 15% for every additional dollar of income earned over this threshold until the maximum benefit is reached

 Eligibility:

  • be a parent of one or more children under 18
  • be a resident of Alberta
  • file your annual tax return
  • meet the income criteria:
    • household income under $27,024 for a full benefit
    • household income under $45,285 for a partial benefit

 How Much Can You Get:

For July 2024 to June 2025, the payments include:

  • Base Component (per year):
    • $1,469 ($122.41 per month) for the first child
    • $735 ($61.25 per month) for the second, third, and fourth child each
  • Working Component (per year):
    • $752 for the first child
    • $685 for the second child
    • $410 for the third child
    • $135 for the fourth child

Payment Schedule:

Payments are issued quarterly in August, November, February, and May.

How to Apply:

To apply for the Alberta Child and Family Benefit (ACFB), simply file your tax return annually.  The benefit is automatically calculated by the Canada Revenue Agency (CRA) based on your income and family details. Ensure your marital status, address, and banking information are up-to-date to avoid delays. No separate application is required; eligibility is determined when you meet the income thresholds as an Alberta resident.

Conclusion

The Alberta Child and Family Benefit (ACFB) offers targeted financial support to help reduce child poverty and promote stability. By providing tax-free payments tailored to income and family size, the ACFB empowers Alberta families to better manage expenses and invest in their children’s futures.

Whether you’re navigating rising costs or planning for the next stage of family growth, the ACFB can make a meaningful difference in creating a more secure and balanced life. Filing your tax return on time ensures you can access this valuable support.

 References:

  1. Alberta Child and Family Benefit

https://www.alberta.ca/alberta-child-and-family-benefit#jumplinks-5

  1. CRA-administered Alberta programs

https://www.canada.ca/en/revenue-agency/services/child-family-benefits/provincial-territorial-programs/province-alberta.html

Xero Webinars to Help you Make the Most of Xero

October 11, 2024

 

Set up your small business in Xero
October 17 at 10 am PT / 1 pm ET
Complete your setup correctly to use Xero effectively. Enter your organization and financial settings, manage users, customize invoices, and connect your bank account to your organization.
Register here →

 

Get the most out of Xero for your business
October 24 at 10 am PT / 1 pm ET
Maximize the value you get out of Xero. Learn how to manage contacts, inventory, repeating transactions, and use additional features to automate your workflows and support your business.
Register here →

 

The basics of using Xero for business
November 5 at 10 am PT / 1 pm ET
Use Xero to automate invoices and bills, reconcile your bank transactions, and get up-to-date reporting on financial performance. Get insight on the business plans and add-ons Xero offers.
Register here →

Understanding Federal and Provincial Child Care Subsidies in Alberta

October 10, 2024

Child care is a crucial aspect of family life and significantly impacts parents’ ability to work, study, and engage in their communities. In Alberta, both federal and provincial governments provide childcare subsidies to alleviate financial burdens and support families. This blog post aims to clarify the details of these subsidies, their eligibility criteria, and how they benefit families across the province.

The Federal Child Care Subsidy

The Government of Canada has enhanced support for families through the introduction of the Affordability Grant in 2022. The aim for this grant is to reduce fees by an average of 50%, up to $500 per month for full time care, significantly offsetting the costs of licensed child care.

Key Features of the Federal Child Care Subsidy:

  1. Monthly Payments: Eligible families can benefit from a reduction of up to $500 per month (deducted from their childcare fees).
  2. Universal Accessibility: The program is designed to be accessible for nearly all families with children under six, making it an essential resource for many.
    • The child care facility receives this grant from the federal government and passes it on to parents by reducing their childcare fees. There is no need for parents to apply for this and it is not income dependent.
    • The subsidy continues through parental leaves, such as maternity leave.

Provincial Child Care Subsidies in Alberta

In addition to federal support, Alberta has its own childcare subsidy program aimed at making licensed childcare more affordable for families. The Alberta Child Care Subsidy (ACCS) is designed to assist families with the costs associated with child care, particularly for those who require care for children aged 0 to 12.

Key Features of the Alberta Child Care Subsidy:

  1. Income-Based Assistance: Similar to the CCB, the ACCS is income-based. Families with lower incomes receive higher subsidy amounts, allowing for equitable access to child care.
  2. Coverage for Various Care Settings: The subsidy applies to various licensed care settings, including daycares, family day homes, and out-of-school care programs.
  3. Child Care Providers: Families can select from a range of licensed child care providers, ensuring they find suitable care that meets their needs.

Eligibility Criteria for the Alberta Child Care Subsidy:

To qualify for the ACCS, families must meet specific criteria, including:

  • Residency: Applicants must be residents of Alberta.
  • Income Thresholds: The subsidy is available to families whose combined annual income does not exceed $180,000 for children aged 0-kindergarten-age (in kindergarten and also attending child care during regular school hours) and $90,000 for those in kindergarten to grade 6 in a licensed program outside of regular school hours.
  • Licensing: The child care facility must be licensed under Alberta’s Child Care Licensing Act.
  • Work or school: Both parents must be working, looking for work, enrolled in an educational program, have special needs, or a child with special needs to be eligible. When a parent goes on parental leave, the subsidy ceases until the parent returns to work or school.

Application Process

Families interested in applying for the Alberta Child Care Subsidy can do so through the province’s website. The application process is straightforward, requiring families to provide details about their income, the number of children needing care, and the chosen child care provider.

The Impact of Subsidies on Alberta Families

The combined efforts of federal and provincial subsidies significantly reduce the financial burden of child care, allowing families to invest more in their children’s development and education. These programs not only support working parents but also contribute to the overall economy by enabling more individuals to participate in the workforce.

Conclusion

Federal and provincial child care subsidies in Alberta play a vital role in supporting families. By making child care more affordable and accessible, these programs foster an environment where children can thrive, and parents can pursue their professional and personal goals without undue financial stress.

For families navigating the complexities of child care costs, understanding and leveraging these subsidies is essential. As policies continue to evolve, staying informed about available resources will ensure that families can maximize their benefits and secure quality care for their children.

For more information, visit the Government of Alberta’s website or the Canada Revenue Agency’s site for details on how to apply for these vital programs.

References:

  1. Government of Canada. (2023). Child Care Subsidy Overview.
  2. Government of Alberta. (2023). Child Care Subsidy.

Note: The information and content provided to you may include contributions from ChatGPT, an AI language model. It has been reviewed to ensure accuracy and relevance.

Forensic Accounting

August 7, 2024

What is forensic accounting?

Forensic accounting uses accounting, auditing, and investigative skills to examine the finances of a business or individual. Forensic accountants analyze financial information that could be used as legal evidence and often testify in court as a key witness. They must also be able to identify fraud with minimal details, identify the scheme, and use procedures to prove if it exists. The most common industries forensic accountants work in are insurance, financial institutions, and law enforcement agencies.

Duties of a forensic accountant

Some of the responsibilities that fall under the forensic accountant include:

  • Insurance claim investigation: obtain records related to insurance claims and look into whether the payments made by insurance meet policy conditions.
  • Trial testimony: forensic accountants may be asked to appear and testify in court. They find evidence of any fraud, embezzlement, or tax evasion. They may also testify for a plaintiff or defendants.
  • Bookkeeping investigation: includes gathering and analyzing transactions to find any fraudulant or incorrect items. They are looking for any fraud, embezzlement or misappropriation.

How to become a forensic accountant

 The path to becoming a forensic accountant is similar to a traditional accountant. It is still required to complete a bachelor’s degree in accounting. Once that is complete, the candidate must also complete the Chartered Professional Accountant (CPA) program to become designated. Once designated, accountants can complete the Certified in Financial Forensics (CFF) credential. After the CFF credential is completed, they can pursue careers in this field.

Differences in forensic accounting vs traditional accounting

 Both careers require the same education and CPA designation but the duties performed vary.

Traditional accounting analyzes routine transactions, prepares financial information as well as ensures the correct accounting standards and follows regulations. Careers in accounting normally fall within organizations which normally include, audit, tax, financial planning and budgeting.

Forensic accounting takes the financial information to identify and uncover any potential fraud then uses procedures to prove whether or not fraud does exist. Skills that are required to perform these careers include attention to detail, strong investigative skills as well as integrity.

Conclusion

 While the underlying education is the same as becoming a CPA, the major difference between a forensic accountant and a traditional accountant is that they have to conduct investigations to uncover information, identify anything unusual, track and recover fraudulent activities and report their findings in a way that anyone can understand.

References

 https://www.accounting.com/careers/forensic-accountant/

https://www.investopedia.com/terms/f/forensicaccounting.asp

https://financialcrimeacademy.org/forensic-accountant-responsibilities/

https://integrityforensic.com/forensic-accounting-vs-traditional-accounting-whats-the-difference/

 

 

Changes to Capital Gains Inclusion Rates

June 18, 2024

Capital Gains Inclusion Rate Proposed Change

On April 16th, 2024, the 2024 federal budget proposed to increase the capital gains inclusion rate from 50% to 66.67% for corporations and trusts and from 50% to 66.67% on capital gains in excess of $250,000 for individuals beginning on June 25th, 2024. (Chapter 8: Tax Fairness for Every Generation | Budget 2024, 2024).

What is a capital gain, and how can it affect your taxes? 

A capital gain can occur through the disposition of capital property. The Government of Canada website defines capital property as “Depreciable property, and any property, which, if sold, would result in a capital gain or a capital loss. You usually buy it for investment purposes or to earn income. Capital property does not include the trading assets of a business, such as inventory” (Capital Gains – 2023, 2024). Some common examples of capital property are land, buildings, vehicles, equipment used for rental operations or business purposes, and second homes such as vacation properties or cottages.

A capital gain occurs when the proceeds received from the disposition of the disposed asset are greater than the adjusted cost base (cost of the asset plus any expenses incurred to acquire it). A capital gain is calculated by taking the proceeds of disposition less the assets adjusted cost base and any expenses that were incurred to sell the property.

At this time, the inclusion rate is 50%, meaning that only 50% of any capital gain is taxable to an individual, corporation or trust.

What this can mean for Corporations and Trusts:

Prior to June 25, 2024, only 50% of a capital gain is included when calculating the corporation or trust’s net income for tax purposes.  The 2024 budget proposes that as of June 25th, 2024, 66.67% of the capital gain will be included when calculating your net income effectively resulting in a higher taxable income and higher taxes on the sale of capital property. For example, if a corporation sold land that had originally cost the corporation $200,000 for $300,000, with the 50% inclusion rate, only $50,000 of this amount would be taxable (($300,000-$200,000)*50%). With the new proposed inclusion rate of 66.67%, $66,670 of the capital gain will be taxable.

What this can mean for Individuals: 

For individuals, as of June 25th, 2024, the current 50% inclusion rate will increase to 66.67% for any capital gain in the year that exceeds the limit of $250,000. This means that if your capital gains realized in the year are under the $250,000 limit, the 50% inclusion rate will still apply; but for any amount over $250,000, the 66.67% inclusion rate applies.  The legislation does not allow for the averaging of capital gains over multiple years to stay under the $250,000 threshold or any carry-over of any unused threshold.

It is important to note that, the principal residence exemption remains unchanged, meaning that capital gains that arise when selling your principal residence, such as your house, remain exempt from tax and are unchanged.

For individuals, common examples where capital gains could apply are the sale of a second house such as a cottage or rental property, vehicles, and investments.

 Summary and Other Considerations:

With the proposed change to the capital gains inclusion rate for all capital gains realized after June 24th, 2024, from 50% to 66.67% for corporations and for capital gains over $250,000 for individuals, we recommend reviewing your investments to determine if you have any unrealized gains. For most individuals, it will be important to manage these gains from year to year to ensure that you can keep them under $250,000 to avoid additional tax.  But for corporations and trusts with accrued unrealized capital gains, it may be prudent to speak with your investment broker and tax advisors to determine if triggering some of these gains before June 25, 2024, to minimize the impact on your taxes on the eventual sale makes sense for you.

Note that there is no provision at this time for a deemed disposition election to trigger gains before the new rate applies.  The actual disposition must occur.

Capital Gains Reserves

Capital gains reserves will enter into income on the first day of the taxation year, meaning those starting before June 25, 2024, will be subject to the 50% inclusion rate.  Later years will follow the prevailing rate of 66.67%.  If you have a capital gains reserve that you are bringing into income, it will be important for you to discuss with your tax advisor the implications of continuing it going forward or realizing the remaining amount in 2024.

Employee Stock Options

Under current rules, if you receive a stock option benefit, the full amount of that benefit is taxed as employment income in the year it is received; however, the employee may claim a deduction of 1/2 the stock option benefits if they meet certain conditions.  Under the proposed changes, the stock option deduction will change from 1/2 to only 1/3 of the stock option benefit for any options exercised after June 24, 2024, with the $250,000 limit applied to the combined total of stock option benefits and capital gains.

Allowable Business Investment Losses (ABILs)

When a taxpayer incurs a business investment loss from the disposition of shares or debts from a small business corporation or the deemed disposition of bad debts or shares of a bankrupt small business corporation, they have been able, under the current rule, to deduct 50% of that loss against other income (such as employment, business and property income) and carry it back 3 years or forward 10 years.  Beginning June 25, 2024, ABILs will be deductible at 66.67% even if the amount is carried back to a period prior to June 25, 2024.

Transitionary Rules for the New Inclusion Rate

For 2024, the tax year will be split into two periods for applying different inclusion rates:

  • Period 1:  Up to June 24, 2024, taxed at 50%
  • Period 2: From June 25, 2024, taxed at 66.67%.

Taxpayers will need to net capital gains against capital losses for each period to determine the applicable inclusion rates.

 

If you would like us to review your investment portfolio or if you have further questions regarding the capital gains inclusion rate changes, please contact our office.

 

*The information contained in this post reflects the proposed change at the date posted and may or may not be relevant at future dates

 References

Capital Gains – 2023. (2024, January 23). Canada.ca. Retrieved June 7, 2024, from https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4037/capital-gains.html

Chapter 8: Tax Fairness for Every Generation | Budget 2024. (2024, April 16). Canada.ca. Retrieved June 7, 2024, from https://budget.canada.ca/2024/report-rapport/chap8-en.html

How do you calculate capital gains and capital losses? (2024, January 23). Retrieved June 7, 2024, from https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-12700-capital-gains/completing-schedule-3/publicly-traded-shares-mutual-fund-units-deferral-eligible-small

Tax Fairness for Every Generation. (2024, April 16). Canada.ca. Retrieved June 7, 2024, from https://www.canada.ca/en/department-finance/news/2024/04/tax-fairness-for-every-generation.html

Navigating HST Across Provinces: A Guide for Alberta Businesses

February 27, 2024
Post by Matthew Kozlowski, CPA

In our experience as an accounting firm based in Alberta, we have noticed that many of our clients are not fully aware that they can claim the provincial portion of the Harmonized Sales Tax (HST) as an Input Tax Credit (ITC) when HST is paid on goods.

This lack of awareness can lead to missed opportunities, especially when dealing with transactions involving provinces where HST is applicable. Understanding these nuances is crucial for businesses in Alberta to ensure that all GST/HST Input Tax Credits are claimed appropriately.

It is important note that HST and Provincial Sales Tax (PST) are not the same. The HST merges the federal Goods and Services Tax (GST) with PST, applied in provinces like Ontario and Nova Scotia, and administered federally by the Canada Revenue Agency (CRA). Conversely, the PST, separate from GST and known as QST in Quebec, is levied in provinces like British Columbia and Saskatchewan, with each province setting its rates and handling its administration. The primary difference lies in HST’s amalgamation and federal oversight, contrasting with PST’s independent provincial management.

  1. Provinces with HST and Their Percentages

Firstly, it’s important to know which provinces charge HST and their respective rates. As of now, the following provinces have HST:

Province HST Rate
New Brunswick 15%
Newfoundland and Labrador 15%
Nova Scotia 15%
Ontario 13%
Prince Edward Island 15%

 

  1. HST Implications for Alberta Businesses

For businesses in Alberta (which typically have GST at 5%) the tax implications can be complex, especially when transactions involve provinces that do.

A common scenario to consider is when goods are purchased from an HST province (New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, or Prince Edward Island) and delivered to Alberta. This situation should prompt a review of the source documentation to determine if HST (and not just GST) was paid on the invoice.

What type of sales tax (GST or HST) is charged is determined generally by the place of supply. The place of supply is determined on where legal delivery of the goods occur. When legal delivery of the good occurs is typically outlined in the terms of the agreement for the sale of goods.

Example 1 (HST can be claimed):

A manufacturer in Ontario sells a good to a corporation in Alberta. Legal delivery of the good occurs in Ontario at the manufacturer’s premises as per the terms of the sales agreement. The corporation regularly purchases goods from the manufacturer and establishes freight terms with a common carrier for the regular transportation of goods from the manufacturer’s premises to Alberta whenever required. The corporation instructs the manufacturer to contact the carrier directly to advise the carrier whenever goods are ready for pick-up. The carrier invoices the corporation for any transportation service that is provided pursuant to their arrangement.

The good is delivered to the purchaser in Ontario. Therefore, the supply is made in Ontario and is subject to HST at a rate of 13% all of which can be claimed as an ITC.

Example 2 (GST only can be claimed):

A corporation in Ontario sells a good to a purchaser in Alberta. Based on the terms of delivery in the agreement for the supply of the good, legal delivery of the good to the purchaser occurs in Alberta.

Because legal delivery of the good to the purchaser occurs in Alberta, the supply is made in Alberta and is subject to GST at a rate of 5%.

*Note – the above place of supply rules do NOT apply to specified motor vehicles. Specified motor vehicles are generally all motor vehicles except racing cars and any prescribed motor vehicles.

For specified motor vehicles, the place of supply is determined by where the vehicle was registered (other than on a temporary basis).

  1. Claiming HST as an Input Tax Credit (ITC)

If HST is paid by a registrant business or individual in Alberta and it was incurred for commercial goods used in a commercial sense, then the HST (including the provincial portion) can be claimed as an Input Tax Credit (ITC). This is a significant aspect for businesses as it allows for the recovery of HST paid on business-related purchases.

Key Takeaways

-Always review source documentation for transactions involving provinces with HST to determine tax implications.

-Generally, where the good is legally delivered is the place of supply and that is the relevant GST/HST tax rate that should be used.

-If you are a GST/HST registrant and have paid HST on a business-related item you can claim the full amount of HST (including the provincial portion) on your GST return.

For any further questions or clarifications, please contact our office at 780-532-4641 or e-mail office@fulcrumgroup.ca

2023 Trust Reporting Requirements (T3 Return)

February 23, 2024

 

 The federal government recently released new federal trust reporting requirements that will be effective for taxation years ending after December 30, 2023 (which means that taxation years ending December 31, 2023, will be affected). These changes will have an impact on many trusts, including those previously exempt from reporting obligations.

Expanded Reporting for Trusts

The new rules significantly broaden the scope of trusts required to file an annual Trust Income Tax and Information Return (“T3”). This includes most personal trusts resident in Canada, even those without income tax liability or distributions during the year. Notably, bare trusts, often used in joint ventures, real estate holdings, or probate planning, may now also be subject to these new reporting requirements.

What Could Constitute a Trust?

  • Co-Signing or Being on a Property Title: If you have co-signed a loan or are on a property title to help someone (like a child) acquire a property, with the understanding that the benefit, profits, or control are theirs.
  • Estate Planning: Holding, controlling, or being named on assets that are intended to be passed on or utilized by others in the future.
  • Asset Management: Managing assets, be it money, bank accounts, property, or investments, with clear instructions (usually in writing) about who benefits or how the assets should be managed or distributed (this can include bank accounts held in more than one person’s name with a balance of $50,000 or more).

Trusts created for holding personal-use assets for estate planning or asset protection, such as those above, which may have previously qualified for the filing exception, will no longer be exempt under the new rules.

 

New Obligations and Requirements

Expanded T3 Return Filing Obligations

  • Previously, certain trusts, especially those with no activity or income tax payable (like those holding a vacation property), were exempt from filing a T3.  This exemption will no longer apply to most of these trusts starting in 2023.

For supporting information from Canada Revenue Agency, click the link below
CRA Media Release

 

Expanded T3 Return Reporting Requirements – Beneficial Ownership Information of a Trust:

  • Express trusts, non-resident trusts and bare trust arrangements may now be required to file a T3 return and must also report additional detailed information.
  • The new Schedule 15 in the T3 is now required to be completed and filed with all T3’s to report more the additional disclosures.
  • Schedule 15 requires the name, address, date of birth, jurisdiction of residence, and taxpayer identification number (SIN, BN, ITN) for each settlor, trustee, beneficiary, and any person with influence over trustee decisions.

To download the Schedule 15 form, click on the link below
Schedule 15

 

Exemptions from the expanded requirements

The following trusts are exempt from filing a T3 return:
  • Trusts that hold assets with a maximum fair market value (“FMV”) of $50,000 throughout the year (these assets are limited to deposits, government debt obligations, and listed securities)
  • Trusts that have been in existence for less than three months
  • Qualified disability trusts
  • Trusts governed by registered plans (including registered retirement savings plans and tax-free savings accounts)
  • Mutual fund trusts, segregated funds, and master trusts
  • Employee life and health trusts
  • Cemetery care trusts and trusts governed by eligible funeral arrangements
  • Lawyers’ general trust accounts
  • Graduated rate estates
  • Trusts, all the units of which are listed on a designated stock exchange
  • Trusts that qualify as non-profit organizations or registered charities
  • Certain government-funded trusts

Additionally, information subject to solicitor-client privilege is exempt from these new reporting requirements.

 Filing Deadline

  • The T3 return along with Schedule 15 must be filed within 90 days of the end of its fiscal year. Most of these trusts have a December 31, 2023, fiscal year-end and will be due by March 30, 2024

 

Non-Compliance Penalties

  • The penalty for non-compliance  is the greater of $2,500 or 5% of the trust’s maximum fair market value during the year. 
  • These are in addition to existing penalties for failing to file a T3 return, which also carries a maximum penalty of $2,500, meaning trusts could incur multiple penalties.
  • Standard late-filing penalties may also apply.

 

Conclusion

The new trust reporting rules mark a significant shift in the transparency and disclosure requirements for trusts in Canada. It is essential for trustees and relevant parties to understand these changes to ensure timely compliance. Our team at Fulcrum Group is here to assist you in navigating these new requirements so please feel free to reach out for further clarification or any assistance you may need in filing your T3s.

Cryptocurrency: Navigating the Complexities and Tax Implications in Canada

February 20, 2024
Post by Ian Penner

Cryptocurrencies have taken the financial world by storm, offering new and exciting opportunities for investors and businesses. However, as with any financial asset, it’s essential to understand the tax implications involved, especially in the ever-evolving landscape of Canadian tax law. In this blog post, we’ll explore the key considerations and guidelines for handling cryptocurrencies from a tax perspective in Canada.

Understanding the Basics:

Transactions with Cryptocurrencies like Bitcoin, Ethereum, and others may result in either business income (loss) or capital gain (loss)for tax purposes in Canada. As there is nuance in determining how crypto transactions should be recorded it is important to understand the basics before entering into these transactions.

Business Indicators:

Per CRA,  “The following factors may indicate that you are carrying on a business:

  • Frequency of transactions – you have a history of extensive buying and selling of crypto-assets
  • Period of ownership – you hold your crypto-assets for a short period of time, and you turn them over quickly
  • Knowledge of crypto-asset markets – you have knowledge of, or experience in, crypto-asset markets
  • Time spent – you spend a substantial part of your time studying crypto-asset markets
  • Financing – you finance your crypto-asset purchases by some form of debt
  • Advertising – you advertise that you are willing to buy crypto-assets”[1]

When the factors indicate that you are carrying on a business the full amount of the gain on the disposition of crypto will be included as business revenue. You will be able to deduce and expenses related to the business against this revenue to reduce your taxable income.

Buying and Selling Cryptocurrencies as Investment:

When you purchase or sell cryptocurrencies, it triggers a capital gain or loss. The capital gain or loss is calculated based on the difference between the purchase price (adjusted cost base) and the selling price. This applies when there is no indication of business income. The advantage is only ½ of the capital gain is included in income for tax purposes.

Cryptocurrency Mining:

For individuals or businesses involved in cryptocurrency mining activities, the mined coins are considered income at their fair market value at the time they are acquired. Subsequently, any future selling of these coins would result in capital gains or losses.

Cryptocurrency as Payment:

If you accept cryptocurrencies as payment for goods or services, the fair market value of the cryptocurrency received needs to be reported as income for tax purposes.

Tax Reporting Obligations:

Annual Reporting:

Canadians are required to report their cryptocurrency transactions on their annual tax returns. This includes detailing each transaction, the date of acquisition or disposition, the amount involved, and any associated costs.

Keeping Records:

It’s crucial to keep meticulous records of all cryptocurrency transactions, including receipts, invoices, and details of wallet addresses. This information will be invaluable when reporting to the Canada Revenue Agency (CRA).

Foreign Exchange Gains and Losses:

Cryptocurrency transactions involving foreign exchanges may also result in foreign exchange gains or losses, which should be reported for tax purposes.

Tax Planning Strategies:

Capital Losses and Offsetting Gains:

Consider strategic planning to offset capital gains from cryptocurrency transactions with capital losses from other investments, helping to minimize overall tax liability.

Use of Tax-Advantaged Accounts:

Explore the possibility of holding cryptocurrencies within tax-advantaged accounts like Tax-Free Savings Accounts (TFSAs) or Registered Retirement Savings Plans (RRSPs) to defer taxes.

Conclusion:

As cryptocurrencies continue to gain prominence, understanding the tax implications becomes increasingly important. It’s recommended to consult with a qualified tax professional to ensure compliance with Canadian tax laws and to develop effective tax planning strategies. Stay informed, keep accurate records, and navigate the complexities of cryptocurrency taxation with confidence.

Remember, this blog post provides general information and should not be considered as professional advice tailored to your specific situation. Always consult with a tax professional for personalized guidance.

 

[1] https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/compliance/digital-currency/cryptocurrency-guide.html

Personal Service Businesses

February 13, 2024
Post by: Cory Lefebvre, CPA, Associate

A personal services business (PSB) exists where the individual performing the work would be considered to be an employee of the payer if it were not for the existence of the corporation. A corporation may be a PSB if the following criteria are met:

  • the incorporated employee performing services owns at least 10% of the issued shares of any class of the corporation providing the services.
  • if the corporation did not exist, you would be considered an employee of the entity receiving the services.
  • your corporation does not employ more than 5 full-time employees throughout the tax year, and the amounts received by your corporation for services were not received from a related secondary corporation.

Tax Implications for Personal Service Businesses and its Owner:

  • Loss of eligibility for tax deductions: PSBs are not eligible for the small business deduction, which provides a lower corporate tax rate on the first $500,000 of active business income. There is also no access to the general rate reduction of 13% and an additional 5% tax penalty. In Alberta, if the corporation is classified as a PSB, the tax rate would be 41% compared to 11% for a similar corporation not classified as a PSB.
  • No Access to the Lifetime Capital Gains Exemption: PSBs do not have access to the Lifetime Capital Gains Exemption, which allows individuals to shield a portion of their capital gains from taxation upon the sale of qualifying assets.
  • Non-Deductibility of Certain Expenses: the only eligible expenses allowed for PSBs are salary and wages paid to incorporated employees, benefits or allowances provided to incorporated employees, expenses associated with selling property or negotiation contracts, legal expenses incurred to collect amounts owing. Common business deductions such as travel, professional fees, tax depreciation of capital assets, or fuel are all not eligible deductions for a PSB.

Risk Mitigation Strategies:

  • Diversify Client Base: avoid over-reliance on a single client, as this can trigger PSB classification.
  • Document contracting relationship with corporate customer: an employment relationship with your customer causes as PSB classification. Properly document the relationship with the contracting customer and ensure you use your own equipment, have control over your work and schedule, work independently with no close supervision, hire your own employees or subcontractors, and invoice your customer for services provided.
  • Provide Goods Alongside Services: offering goods alongside your services can help demonstrate that your business is not purely a personal service business.
  • Remuneration Planning: carefully plan how you pay yourself, balancing salary and dividends to optimize your tax position. Salary is the preferrable option for companies at risk as salaries are an eligible deduction for PSBs.
  • Focus on Growth and Expansion: invest in expanding your business, hire employees, and take on multiple projects. This can help prove that your business is not solely dependent on your personal skills.

Conclusion:

Operating a personal service business in Canada comes with unique tax implications and potential risks due to the distinct tax treatment. To mitigate these risks, it’s essential to diversify your client base, document your relationship, consider offering goods alongside services, manage your compensation wisely, and focus on business growth.  Feel free to contact our office if you have any questions about personal service businesses or feel you may be at risk.

Government Proposes Changes to Underused Housing Tax (UHT) for 2023

January 4, 2024

In Budget 2021, the Canadian government introduced the Underused Housing Tax (UHT), a 1% annual tax on the value of non-resident, non-Canadian-owned vacant or underused residential real estate. In response to feedback on the onerous filing, the government is proposing significant changes to streamline compliance. These changes have not yet been passed with federal legislation but are expected to be passed and enacted in the coming months.

 

One notable proposal is the elimination of filing requirements for certain owners. “Specified Canadian corporations,” partners of “specified Canadian partnerships,” and trustees of “specified Canadian trusts” are slated to become “excluded owners,” relieving them of UHT reporting obligations. The government aims to expand these definitions to include a broader range of Canadian ownership structures, reducing the compliance burden for eligible entities starting from the 2023 calendar year. 

 

This means that most Canadians should not have to file a UHT return in 2023.  

 

To further ease the transition, the government is also suggesting a reduction in minimum failure-to-file penalties. The minimum penalties for individuals and corporations for late filing UHT returns are proposed to decrease from $5,000 to $1,000 and from $10,000 to $2,000, respectively, beginning in 2022. 

 

The requirement to file UHT returns for 2022 under the original legislation will continue and the deadline has been extended to April 30, 2024. If you have not filed your UHT returns yet or are unsure if you have a filing obligation, please contact Fulcrum Group.  

 

*The information contained in this post reflects the standards and rules applicable at the date posted and may or may not be relevant at future dates

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Email: office@fulcrumgroup.ca

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