Corporate Taxes Archives - Page 2 of 2 - Fulcrum Group - Chartered Professional Accountants

Accelerated Capital Cost Allowance

September 26, 2022

Staff post by Sarah Penner, CPA

Did you know that certain capital expenditures can be completely written off under CRA’s immediate expensing incentive?

What purchases qualify?

All capital cost allowance (CCA) classes qualify with the exception of classes 1 through 6, 14.1, 17, 47, 49, and 51 (these exceptions are generally long-lived assets such as buildings, other structures, parking lots, and intangible assets like goodwill or trademarks). This means that purchases of vehicles and trailers (Class 10) and other equipment (Class 8) can be fully deducted in the year of purchase.

When is this available?

Canadian Controlled Private Corporations: For purchases made after April 18, 2021, and available for use before 2024

Canadian resident individuals and partnerships: For purchases made after Jan 1, 2022 and available for use before 2025 (or available for use before 2024 for partnerships where not all partners are individuals)

Is there a limit?

Up to $1.5 million per year, shared between associated corporations, persons, or partnerships. This limit cannot be carried forward to another year if not used.

How does this help me?

Under the normal rules, the CCA claim was limited to a certain percentage per year which meant that a capital purchase was written off over several years. With the immediate expensing incentive, there are tax planning options available such as offsetting high-income years with capital purchases.

Do I have to use the incentive?

No – CCA is a discretionary deduction, so you can choose to deduct less than the fully allowed amount of CCA. You can still choose to spread out the deduction for your capital purchase over a number of years in order to normalize your net income.

If you have questions about how the immediate expensing incentive will work best with your business scenario, please contact our office.

Prescribed Interest Rate Changes

June 21, 2022

Did you know that CRA will be raising its interest rates as of July 1, 2022? Much like the Bank of Canada and most financial institutions, CRA will be increasing it’s prescribed interest rates this coming year.

After holding interest rates steady for several years and even decreasing rates in the third quarter of 2020, CRA will be increasing most prescribed interest rates in the third quarter of 2022 by 1%.

These changes will apply to amounts owing both to and from CRA. Updated rates can be found in the column to the far right below on various types of balances with CRA:

	First quarter (January to March 2022)	Second quarter (April to June 2022)	Third quarter (July to September 2022)
Charged on overdue taxes, CPP contributions, EI premiums	5%	5%	6%
Paid on corporate taxpayer overpayments	1%	1%	2%
Paid on non-corporate taxpayer overpayments	3%	3%	4%
Used to calculate employee taxable benefits and shareholder loans	1%	1%	2%

For more information, contact our office.

Taxation of Cryptocurrencies

December 23, 2021

Basic Concepts

There are many questions when it comes to how cryptocurrencies are taxed and what you are required to report for tax purposes. CRA has taken the stance on cryptocurrency that they tend to have on a multitude of income tax subjects, which is “it depends on the fact and circumstances.” This can cause confusion for taxpayers and difficulties for advisors as well. Below is some information to help identify when you may have income tax reporting obligations from cryptocurrency transactions.

Cryptocurrency may contain the word “currency”, but it is taxed as a commodity for purposes of the Income Tax Act. Gains or losses can be treated as either business income or capital, depending on the circumstances of the transaction. If you hold multiple types of currency through an exchange or wallet, they are treated as separate assets and must be valued separately.

Reporting Income

Income or losses must be reported on dispositions of cryptocurrency. Dispositions arise when you do any of the following:

Sell or make a gift
Trade or exchange, including converting one type of cryptocurrency to another (such as converting Bitcoin to Etherium)
Convert cryptocurrency to cash
Use cryptocurrency to purchase goods or services

Dispositions do not include buying cryptocurrency and holding it, transferring between wallets, or transferring cryptocurrency between an external wallet to a brokerage account.

Income or Capital?

Reporting income appropriately is very important as business income is fully taxable, but capital income has an income inclusion rate of 50%. There are a number of factors that CRA uses for determining business income such as:

you carry on the activity for commercial reasons and in a commercially viable way
you undertake activities in a businesslike manner, which might include preparing a business plan and acquiring capital assets or inventory
you promote a product or service
you show that you intend to make a profit, even if you are unlikely to do so in the short term

Business activities normally involve some regularity or repetitive process over time. Single transactions can be considered a business when it is an adventure or concern in the nature of trade. Cryptocurrency businesses include mining, active trading, or exchanges (including ATMs).

Most cryptocurrency users hold for capital appreciation and transact irregularly, so they would not be considered a business. In this case, income can be reported as capital.

GST/HST Considerations

Where a taxable property or service is exchanged for cryptocurrency, the GST/HST that applies to the property or service is calculated based on the fair market value of the cryptocurrency at the time of the exchange.

If your business accepts cryptocurrency as payment for taxable property or services, the value of the cryptocurrency for GST/HST purposes is calculated based on its fair market value at the time of the transaction.

Keep all records that show how you calculated the fair market value.

Keeping Books and Records

If you acquire or dispose of cryptocurrency, you have to keep records of your transactions. When valuing cryptocurrency, you can choose the exchange rate from your broker or an average of midday values from high-volume brokers. However, you must be consistent with the method you choose.

The easiest method is likely to use the rate at the date of the transaction provided by your broker. However, brokers have different standards for records and how long they keep them. It is best practice to export your records regularly, so you always have a copy. You are required to keep supporting documents for at least six years from the end of the last tax year they relate to.

CRA recommends maintaining the following records on cryptocurrency transactions:

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 mining cryptocurrencies, 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
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

Relief for Unreported Income

If you have already filed your tax return and missed reporting income from cryptocurrency transactions, you can correct the error using CRA’s voluntary disclosures program. This program may provide interest and penalty relief for voluntary correcting unreported income.

Foreign Reporting

If the total cost amount of specified foreign property you own is over $100,000 CDN, CRA requires a T1135 – Foreign Income Verification Statement be filed with your tax return. CRA takes the position that the foreign reporting requirements extend to cryptocurrencies that are situated, deposited, or held outside of Canada. If you hold your cryptocurrency outside of Canada it could be subject to foreign reporting requirements if it exceeds a cost of $100,000, or if the cost of cryptocurrency held outside of Canada and all other foreign assets exceeds $100,000.

For more information, contact our office or view CRA’s cryptocurrency guide at:

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

Steps to Take Following Incorporation

November 9, 2021

So you’ve incorporated a company, now what??

1. Register for CRA Program Accounts

Depending on the requirements of the corporation, the corporation should register for GST and Payroll accounts with the CRA. Our office can assist with identifying your specific needs regarding these accounts and registration when necessary.

2. Open a Corporate Bank Account

After setting up a corporation, you need to open a bank account in the corporation’s name. This will allow you to properly segregate transactions that are directly related to the corporation such as business expenses and revenue.
To open a corporate bank account, you should bring a copy of the articles of incorporation that you received when registering your corporation to the bank or credit union of your choice and ask to open a business bank account.
To use the account effectively it is important to run only business-related expenses and revenue through the account. This will simplify the accounting process and help keep accounting bills as low as possible.

3. Apply for a Corporate Credit Card

Applying for a corporate credit card is an important step for a corporation because using the corporate credit card for business expenses allows you to build the credit score of the corporation. Think of the corporation as it’s own person, separate from you as the owner. Having a positive corporate credit history will assist the corporation in any future financing that it requires.
Further, credit cards often have benefits associated with them such as cashback rewards, travel reward points, and various other benefits that can be of benefit to the corporation.
Should the corporation be unable to obtain a credit card, a personal credit card could be opened and designated only for business expenses to simplify the accounting process.

4. Company Records

Any company records such as corporate registry documentation (articles of incorporation, company by-laws, shareholder agreements, annual returns, etc.) should be retained in a corporate minute book. This minute book can be held by your legal professional and should be updated every year.
All receipts and invoices for the corporation should be kept for seven years. It is recommended to scan the documents into digital format and retain the PDF documents in case they are required at a future date. There are various cloud storage solutions available for this purpose (for more information contact our office).

5. Accounting & Bookkeeping

When operating a corporation, it is important to choose an accounting system in which transactions can be recorded. There are various solutions for this; however, a cloud-based accounting system is preferred as it is more easily accessible by the shareholders of the company, bookkeepers, and accountants. For more information on cloud-based accounting solutions, please contact our office.
Once an accounting system has been selected, corporate transactions should be recorded in a timely manner. This will allow greater visibility of the corporation’s financial state and can provide useful information for management to make decisions. This will also allow for timely remittance of source deductions and filing of GST returns, which will prevent interest and penalties from the CRA.
You should also select an accountant to provide the appropriate financial services such as year-end tax return filing and financial statement preparation in addition to consulting and business planning opportunities.

6. Business-Related Expenses

Any business-related expenses should be paid for through the corporate bank account or credit card. These include any costs that the company incurs in order to earn income. For assistance in determining which expenses are business expenses or not, contact our office.
Further, any business expense that has been paid for personally by either shareholders or employees should be recorded separately and reimbursed by the corporation.

7. Vehicle Expenses

Vehicle expenses can be treated two ways in a corporation, and it depends on the vehicle’s ownership.
If the vehicle is owned personally by the shareholder, then all vehicle-related expenses such as repairs and maintenance, fuel, and insurance, registration, financing costs etc. should be incurred personally (not in the corporation) and an amount will be reimbursed based on the business use of the vehicle.
To determine the amount of the reimbursement, CRA’s prescribed per kilometer rates are used in conjunction with a kilometer log that is maintained by the shareholder. Our office can provide a log template that can be used to track the business versus the personal use of the vehicle. This log should have the date, destination (from and to), purpose, and the number of kilometers for each business-related trip. Please keep in mind that travel from your home to your base of operations is not considered eligible business travel.
If the vehicle is owned by the corporation (note that there must be a bill of sale in the corporation’s name and the vehicle must be insured, registered and available for use by the corporation), then any expenses related to the vehicle can be recorded directly in the corporation such as fuel, repairs and maintenance, insurance, registration, financing costs, etc.
If the vehicle is used for personal travel, the personal travel should be logged and may arise in a taxable benefit to the shareholder.

8. Use of Home as Office

If the shareholder’s personal residence is used for business purposes, the corporation can reimburse the shareholder for the business use of the personal residence.
Our office can assist in determining the appropriate reimbursement.

9. Wages and Dividends

It is important to consider how the shareholder will be paid by the corporation. The shareholder can either be paid wages or issued dividends or some combination of both wages and dividends.
If the company pays wages, there will be associated payroll calculations that will occur based on the amount and frequency of payment (bi-weekly, monthly, etc.) with accompanying source deduction remittances that will have to be made to CRA (typically monthly). Our office can assist in these calculations.
Dividends can be used effectively in tax planning situations and our office can also assist in this regard.
- If you have recently incorporated and are looking for guidance in any of the areas listed above, please contact our office for more assistance.

Proposed Accelerated CCA for Depreciable Property

October 26, 2021

The federal government recently proposed an accelerated deduction on eligible capital purchases for Canadian Controlled Private Corporations (CCPC’s). This accelerated deduction will be available for the years 2021 through 2023. When this measure is passed, it will allow for the immediate expenditure of new asset additions with a cost of up to $1.5 million each year. The rules apply to most depreciable property purchased after April 19, 2021, but excludes certain assets, such as buildings and intangible assets.

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Corporations Vs. Sole Proprietorships

October 5, 2021

Looking to start up a new business? Unsure as to whether you should incorporate or simply operate as a sole proprietor? There are several factors to consider before you decide what you would like to do.

Sole Proprietor:

Advantages:

Simple to set up and set up costs are relatively low
Any business losses can be offset against other personal income, including employment income
Proprietor receives all net profits of the business

Disadvantages:

The proprietor is liable for all debts and liabilities of the company. (Personal assets at risk)
All net profits will be taxed at the personal tax rate individual is subject to based on the total combined income when combined with all other sources of personal income
Personal tax rates are generally higher than corporate tax rates (ranging from 25% up to 48%)

Incorporation: