Surviving Inflation: The Importance of Budgeting in Canada with the Help of an Accountant

April 11, 2023

By Ian Penner

Budgeting is a crucial aspect of financial management, particularly in a high-inflation environment. Inflation, defined as the increase in the price of goods and services over time, can make it challenging for individuals and businesses to manage their finances effectively. In Canada, the inflation rate has been on the rise over the past year, making it more important than ever to budget wisely. In this blog post, we will explore the importance of budgeting in a high-inflation environment and discuss how an accountant can help with this process.

One of the most significant challenges of a high-inflation environment is the decrease in purchasing power. As prices rise, the value of money decreases, and individuals and businesses need to spend more money to purchase the same goods and services they were able to buy for less previously. This makes it more challenging to plan for the future and manage expenses effectively. By creating and sticking to a budget, individuals and businesses can better control their spending and plan for inflation-related increases in prices.

Another challenge of a high-inflation environment is the uncertainty it creates. It is difficult to predict how prices will rise and which goods and services will be affected the most. A budget can help manage this uncertainty by providing a framework for financial decision-making. By tracking expenses and income, individuals and businesses can adjust their budgets as needed to account for changes in prices and market conditions.

An accountant can be a valuable resource in the budgeting process, particularly in a high-inflation environment. Accountants have the knowledge and expertise to help individuals and businesses navigate the complexities of inflation and manage their finances effectively. They can help create a realistic budget based on income and expenses, taking into account the potential impact of inflation. They can also help monitor expenses and income, identify areas where costs can be reduced, and provide guidance on investment strategies that can help mitigate the effects of inflation.

One strategy that an accountant may recommend is to invest in assets that are likely to appreciate in value during inflationary periods. For example, real estate and gold are often considered inflation hedges because their value tends to increase as prices rise. An accountant can help identify opportunities for investment in these types of assets and provide guidance on how to manage and monitor them effectively.

In addition to providing guidance on investment strategies, an accountant can help individuals and businesses manage debt in a high-inflation environment. High inflation can make it more challenging to pay off debt because the value of money is decreasing over time. An accountant can help develop a debt management plan that takes into account the potential impact of inflation and helps individuals and businesses pay off debt as quickly and efficiently as possible.

Finally, an accountant can help individuals and businesses prepare for the unexpected in a high-inflation environment. Inflation can lead to economic instability, which can increase the risk of job loss and other financial hardships. An emergency fund can provide a financial safety net in case of unexpected expenses or loss of income.

In conclusion, budgeting is critical in a high-inflation environment like the one Canadians currently face. Inflation can create uncertainty and decrease purchasing power, making it challenging to manage finances effectively. By creating and sticking to a budget, individuals and businesses can better control their spending and plan for inflation-related increases in prices. An accountant can be a valuable resource in this process, providing guidance on investment strategies, debt management, and emergency preparedness. By working with an accountant, individuals, and businesses can navigate the complexities of inflation and manage their finances effectively in a high-inflation environment.

2023 Federal Budget Highlights

March 31, 2023

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Underused Housing Tax (UHT)

February 24, 2023

By Ian Penner & Sarah Penner

What is the UHT?

As part of the 2022 federal budget, the government passed the new Underused Housing Tax Act. This legislation creates a new 1% tax on the value of ‘underused housing’. While the underused housing tax (UHT) is intended to target foreign ownership, many Canadians through partnerships, trusts and small businesses will be required to file an annual return (Form UHT-2900) even though there are many exemptions from the tax itself. If you own residential property other than your principal residence, it will be essential to review any filing obligations.

Types of Property

Residential property of is defined as one of the following:

A detached house
Duplex (2 residential dwellings under one title)
Triplex (3 residential dwellings under one title)
Semi-detached house
Townhouse or rowhouse unit
Residential condominium

Unaffected property includes properties with 4 or more dwellings such as 4-plexes and apartments.

Types of owners

There are two types of owners in regard to the UHT. Type of ownership is based on December 31 of the calendar year.

‘Excluded Owner’

These are owners that DO NOT have to file the UHT-2900 and include:

an individual who is a Canadian citizen or permanent resident (except a trustee of a trust or a partner of a partnership)
a trustee of a mutual fund trust, a real estate investment trust (REIT) or a specified investment flow-through trust (SIFT)
a corporation whose shares are listed on a Canadian stock exchange
a registered charity
a cooperative housing corporation, hospital authority, municipality, para-municipal organization, public college, school authority, or university
an Indigenous governing body or a corporation wholly owned by an Indigenous governing body

‘Affected Owner’

These are owners that MUST FILE the UHT-2900 regardless of tax obligation and include:

an individual who is not a Canadian citizen or a permanent resident
an individual who is a Canadian citizen or permanent resident who owns a residential property as a trustee of a trust (other than as a personal representative of a deceased individual)
any person, including an individual who is a Canadian citizen or permanent resident, that owns a residential property as a partner of a partnership (this includes those that have filed a rental schedule – T776 on their personal return as a partner with a spouse or other individual)***
a corporation incorporated outside Canada
a Canadian corporation whose shares are not listed on a Canadian stock exchange
a Canadian corporation without share capital

All Affected Owners MUST file a separate return for EACH property even if they are exempt from the tax. Similarly, EACH member of a partnership MUST file a separate return for EACH property.

***Rental properties owned jointly with spouse (common-law partner). There is a possible obligation to file returns for personally owned property including property owned jointly with your spouse. Depending on circumstances, this arrangement can be considered a partnership. We encourage you to consult with your Fulcrum Group advisor to determine your filing obligations.

****Property held in trust (cosigning and estate planning). There is an obligation to file a return when you are listed as the legal owner of a property but do not have beneficial ownership and are then deemed to own the property in trust. Below are two common examples of this but other do exist. Please consult Fulcrum staff if you might be a trust owner.

Scenario 1

A child is unable to qualify for a mortgage and a parent cosigned. Banks requires cosigners to be on title so now the parent is listed in fact as a legal owner. The child is the beneficial owner. The parent owns the property in trust and is deemed to be a trustee. The parent must file a UHT-2900 return (but will generally be exempt from tax). The child does not have a filing obligation for their personal residence.

Scenario 2

An aging parent is now the sole owner of their home. In order to simplify the estate a child/children are added to the title of the home. This is often done so the property can avoid probate. The child/children are now legal owners of the property but beneficial ownership is still solely that of the parent. The child/children have become trustees and must file a UHT-2900 return (but will generally be exempt from tax). The parent does not have a filing obligation for their personal residence.

Exemptions

Affected owners have several exemptions that will remove any tax obligations. However, even where exemptions apply, the affected owner will still be required to file the UHT-2900 return. The exemptions are classified in 3 parts as defined on Form UHT-2900.

Part 4 Exemption

Exemption for primary place of residence

The property must be the primary place of residence for any of the following:

You
Your spouse or common-law partner
Your child who is pursuing authorized study at a designated learning institution
Your spouse’s child who is pursuing authorized study at a designated learning institution

Part 5 Exemptions

Exemption for qualifying occupancy

The property must have one or more qualifying occupancy periods totaling at least 180 days where each day is part of increments of at least 1 month. (Short term rentals do not qualify for this exemption).

You will need to provide the total number of days on UHT – 2900 if claiming one of the following exemptions.

An arm’s length individual was given continuous occupancy of the dwelling under a written agreement
A non-arm’s length individual was given continuous occupancy of the dwelling under a written agreement for consideration that is not below fair rent[i]*
You or your spouse or common-law partner have continuous occupancy for the purpose of pursuing authorized work under a Canadian work permit
Your spouse, common-law partner, parent, or child, who is a Canadian citizen or permanent resident of Canada, has continuous occupancy

For individual owners who are neither Canadian citizens nor permanent residents, if between you and your spouse you own multiple residential properties, your ownership may not qualify for Part 4 or Part 5 exemptions. You and your spouse must each file an election with the CRA to designate only one property (the same property) for the purposes of the Part 4 and Part 5 exemptions.

Part 6 Exemptions

Other exemptions

You own the property as a partner of a specified Canadian partnership[ii].
You own the property as a trustee of a specified Canadian trust[iii].
You own the property and are a specified Canadian corporation[iv].
The property is not suitable for year-round use.
The property is seasonally inaccessible.
The property was uninhabitable for a minimum of 60 consecutive days due to a disaster or hazardous conditions beyond your control.
The property was uninhabitable for a minimum of 120 days due to renovations. (This exemption cannot be used if it was used in the previous 9 years)
You became the owner of the property in the calendar year and you had not been an owner of that property in the previous 9 years.
The owner died during either the current or in the previous calendar year.
You are the personal representative of a decreased individual who was an owner of the residential property during the calendar year or the previous calendar year
You were an owner of the residential property with an individual who was also an owner of the residential property on the day the individual died in the calendar year or the previous calendar year, and the deceased individual’s percentage of ownership was at least 25%.
Construction of the residential property is not substantially completed before April of the calendar year.
Construction of the property is substantially completed between January and March of the calendar year, the property is listed for public sale, and the property has not been occupied.
The property is located in an eligible area and is used as a place of residence by you or our spouse (common-law partner) for at least 28 days during the calendar year.

If you qualify for any one of the part 4, part 5 or part 6 exemptions, then there is no tax obligation.

Calculation of Tax

If you do not qualify for an exemption, you must calculate the tax owing for the calendar year.

Calculation:

Taxable value of the residential property x 1% x ownership %

Taxable value of the property is determined as follows:

Greater of:

Assessed value (obtain from property tax assessment)

OR Most recent sale price on or before December 31 of the calendar year

A Fair Market Value election can also be done to use the fair market value of the property rather than the taxable value. The amount reported as the fair market value of the residential property must be supported by a written appraisal prepared by an accredited real estate appraiser that was done specifically for the purposes of the UHT. This appraisal must be prepared between January 1 and April 30 of the following year.

Penalties for not filing

Minimum $5,000 for affected individual owners
Minimum $10,000 for affected corporate owners

Filing Deadline

The filling deadline for all UHT-2900 forms is April 30^th of the year following; however, an extension was granted for all 2022 returns to October 31, 2023. For future years, the deadline will remain April 30th.

Documentation

Several pieces of information are needed to file your UHT return, including a valid CRA tax identifier number (such as Social Insurance Number or Business Number). Corporations will also need to register for an Underused Housing Tax (RU) program account identifier code.

If you engage Fulcrum group to file the UHT 2900 on your behalf we will need the following for each property you or your spouse or common-law partner own:

A signed engagement letter
Mailing address
Citizenship of individual owner
Address of property
Current year (2022) property tax assessment
Property ID from registration system (in Alberta this is the title number from Alberta Registries) – Fulcrum can generally access this number for properties in Alberta through the Alberta registries portal at no charge.
A description of the type of property (see types of property above)
Year ownership was acquired.
Type of ownership
- Sole
- Joint tenancy (ownership is evenly split between the owners with the right of survivorship, that is, when one owner dies their ownership is passed to the surviving owners and is not subject to probate).
- Tenants in common (ownership can be freely decided, that is, when an owner dies their ownership passes according to their will and is subject to probate).
A list of all other owners and everyone’s percentage of ownership for each property you own
Original purchase price of the property. This can be confirmed through Alberta Registries if you are unsure of the exact amount.

A separate UHT-2900 return will be required for each property in which you have affected ownership. The forms can be submitted to CRA either through your CRA My Account or by mail to your designated tax centre (Winnipeg Tax Centre for Alberta residents).

[i] Fair rent is 5% of the taxable value of the residential property for the calendar year

[ii] A specified Canadian partnership is where all partners are either an excluded owner, and would be an excluded owner if they were not part of a partnership, or specified Canadian corporations (below)

[iii] A specified Canadian trust is a trust were each beneficiary on December 31 of the calendar year is either an excluded owner or a specified Canadian corporation.

[iv] A specified Canadian corporation is a corporation incorporated under federal or provincial laws in Canada and at least 90% of the equity and voting shares are owned by Canadian citizens, permanent residents or specified Canadian corporations.,

Alberta Affordability Action Plan

January 17, 2023

Danielle Smith announced that seniors, families with children under 18, and Albertans on benefit programs may be eligible for a non-taxable benefit of up to $600 per person (or per child in the case of families) to help with the rising cost of living. This will be paid out at $100/month over six months.

Application opens January 18^th and will remain open until June 30, 2023. To be eligible for these benefits, you must sign up for a verified Alberta.ca account. The following information will assist you in finding out if you are eligible and whether you need to apply or if you will automatically be enrolled:

Eligibility Requirements:

Eligible seniors 65 and older:

Age 65 or older by June 30, 2023.
- If you turn 65 during the application period, you may apply but your payments will be held until your birth month. You will receive $100 for every month you are 65.
Adjusted household income is below $180,000 according to your 2021 tax return.
Alberta resident as of November 30, 2022, and remain so on the first day of each month between January and June to be eligible for each month’s payment.
Have not been incarcerated for 90 days or more during the January to June 2023 period.
Payments are generally seen at the end of the month the application is successfully completed.
- If you apply between the period of January and June, payments will be retroactive to the first month you are eligible.

Eligible families and caregivers with children under 18:

Parent or guardian of dependent children who are under 18 between January 18 and June 30, 2023.
- If your child turns 18 during the application period, you will get $100 for every month they are under 18.
- If you have a baby during the application period, you will get $100 per month starting the month they are born.
- If you share custody 40 to 60% of the time, both parents can apply to get $50 per month for each child.
Adjusted household income is below $180,000 according to your 2021 tax return.
Alberta resident as of November 30, 2022, and remain so on the first day of each month between January and June to be eligible for each month’s payment.
Have not been incarcerated for 90 days or more during the January to June 2023 period.
Note that, if you meet these requirements, you will be eligible for $100/month for each child in your custody.

Who needs to apply:

Seniors over 65 that are not receiving Alberta Seniors Benefit, AISH, or Income Support.
Families with biological or adopted children that are under 18 years of age.

Who is automatically enrolled:

Foster and kinship caregivers that have children under 18 will be automatically enrolled to receive the benefits, but need to apply for biological or adopted children.
Albertans on eligible benefit programs receiving:
- AISH
- Income Support
- Alberta Seniors Benefit
- Persons with Developmental Disabilities (PDD)
If you receive benefits and have children under 18, you must apply to receive the $100 per child, per month.

Agri-Invest Update

December 21, 2022

We have become aware that AFSC discovered a glitch in their process where they send batches of financial information to the AgriInvest Administration. This has resulted in thousands of applications submitted from June 2022 being delayed until December.

AFSC has now forwarded the application backlog and these are being keyed in manually by AgriInvest Administration. Warning letters were sent out by AgriInvest Administration on December 5 to farmers for whom they had not yet received 2021 financial information. If you received one of these letters, it is possible that AFSC did receive your information but it is just now being keyed in late by AgriInvest Administration.

A sample of the letter is as follows:

This glitch should not affect farmers who file Form T1163 (sole proprietors and partnerships with individual partners), as this information is filed directly with AgriInvest Administration via CRA when personal taxes were filed.

If you received one of these warning letters:

Call our office if we are your authorized representative with AFSC and we can investigate for you to make sure all is in order
Or call AFSC at 1-877-899-2372 to ensure that they received your financial information and which day it was forwarded to AgriInvest (you will need either your PIN number or AFSC ID number)

AFSC has confirmed that there will be no late filing penalty for applications submitted to AFSC prior to the September 30 deadline, even if not received by AgriInvest Administration until after that date.

For your information – the AgriInvest application process is normally supposed to work as follows:

Financial information is submitted to AFSC in the form of Statement A.
AFSC then forwards all Statement A’s in batches to AgriInvest Administraiton.
Then AgriInvest Administration issues a deposit notice to the farm.
The farm can then make a deposit into their AgriInvest bank account.
The government matches the deposit. This matching deposit is tax-free until withdrawn from the account.

If you have any further questions, please contact our office.

CRA Update: Gifting Employees

December 16, 2022

Happy Holidays from Fulcrum Group! If you are considering giving your employees a gift this Christmas, it is important to ensure your gifts meet the criteria set out by CRA, so that it is not considered a taxable benefit to the employee.

In order for a gift or award to your employee to be tax-free, it needs to meet the following criteria:

It cannot be more than $500.00 including all applicable taxes
It cannot be given to non-arm’s length employees such as shareholders or any person directly related to a shareholder
The gift must be for a special occasion like a holiday, birthday, wedding, or the birth of a child
The award must be for overall contribution to the workplace, and not performance-based, such as yearly reviews
If the gift or award was provided by manufacturers and other payers to your employees, provided through prize draws, loyalty or other points programs, or social events and hospitality functions, it is not included in the $500
The gift or award cannot be cash or a cash equivalent. This includes cash, cheques, bonds, securities, and until recently, all gift cards. These items are considered to be taxable benefits to the employee.

Changes for Gift Cards

Prior to this update, CRA always deemed gift cards to be a taxable benefit when gifted or awarded to employees. Under recent changes, gift cards will not be considered a taxable benefit if all of the following apply:

It comes with money already on it and it can only be used to purchase goods or services from a single retailer, or a group of retailers identified on the card.
The terms and conditions of the gift card clearly state that amounts loaded onto the card cannot be converted into cash
A log is kept to record gift card information that includes all of the following:
- Name of employee
- Date the gift card was provided to the employee
- Reason for providing the gift card
- Type of gift card
- Amount of the gift card
- Name of retailer(s)

This includes gift certificates, chip cards, and electronic gift cards. If the gift card meets all these conditions, it is considered non-cash for the purpose of the CRA’s administrative policy and is not a taxable benefit to the employee. If the card does not meet these conditions, it is considered a near-cash benefit and is taxable.

For more information visit: CRA Policy on Gifts and Awards

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.

New Measures to Support Canadians

September 19, 2022

Staff post by Ian Penner

On September 13, 2022, the federal government announced new measures aimed to support Canadians in light of rising inflation. These measures include:

A temporary doubling of the Goods and Services Tax Credit (GSTC) for 6 months

For a single adult receiving the full GSTC, this will amount to an additional $233.50 and for a family of four, this will provide an additional $467. These amounts will be automatically calculated by CRA and paid as a lump sum payment before the end of 2022. Eligibility is based on net income and is calculated as part of filing your annual personal tax return.

Canada Dental Benefit for children under 12

Beginning this year, the federal government announced that it will be providing dental benefits to children that do not have access to dental insurance. This will consist of up-front direct payments of up to $650 per child per year for the next two years. This is the first stage of the government’s plan to provide dental care coverage to families with annual incomes under $90,000. More detail on how to access the program have yet to be announced.

Canada Housing Benefit Top-up

A one-time top-up will provide a tax-free $500 payment to eligible Canadian renters. Incomes must be below $35,000 for families and $20,000 for individuals to qualify and 30% of income must be spent on rent. This program is provided in conjunction with the provinces and more information can be found at https://www.alberta.ca/affordable-housing-programs.aspx.

The programs are yet to be passed into legislation, but the Government has indicated they will prioritize them when the House of Commons returns on September 15.

For more information, or to see if you may qualify for some of these proposed measures, contact our office.

Disability Tax Credit (DTC) Update

August 29, 2022

The disability tax credit (DTC) is a non-refundable tax credit that helps people with impairments. If you struggle with impairments in walking, mental functions, dressing, feeding, eliminating (bowel or bladder functions), hearing, speaking, vision, or require life-sustaining therapy, you may be eligible to receive this credit. The DTC can reduce the amount of income tax you may have to pay. Application requires that your doctor complete and sign a T2201 form and there are a few ways that this can now be done.

How to Apply

Applicants and medical practitioners have 2 options to complete the DTC application: Digital Form or Paper Form. Find the new application for Disability Tax Credit linked below:

DTC application

How to Submit

If you have filled out the digital copy, sign into your CRA Account and select (Submit Document).
If you have filled out the paper copy, Mail in the application to one of these listed addresses below (note that for most Albertans, the tax office to mail the application to is the Winnipeg Tax Centre):

Jonquière Tax Centre
2251 René-Lévesque Blvd
Jonquière QC G7S 5J2
Sudbury Tax Centre
Post Office Box 20000, Station A
Sudbury ON P3A 5C1
Winnipeg Tax Centre
Post Office Box 14000, Station Main
Winnipeg MB R3C 3M2

To avoid a possible delay, you should submit your DTC application before you file your tax return.

If you have any questions or are unsure if you should apply, contact our office.

Tax-Free First Home Savings Account (FHSA)

July 18, 2022

Budget 2022 had proposed to create the tax-free First Home Savings Account (FHSA) to help first-time home buyers save up to $40,000 for their first home.

Similar to an RRSP, contributions to an FHSA would be deductible against income. However, in contrast to an RRSP, any income earned in an FHSA along with any qualifying withdrawals from an FHSA that were made to purchase a first home would be non-taxable, similar to how income and withdrawals of a TFSA are treated.

Some important features to note include:

There will be a lifetime limit on contributions of $40,000, with an annual contribution limit of $8,000.
Any unused annual contribution room will not be carried forward, meaning that if you don’t contribute the $8,000 one year, you are not able to contribute $16,000 the next year. Each year, the maximum will only be $8,000 regardless of what you contributed in prior years.
Any withdrawals for purposes other than to purchase a first home would be taxable.
If an individual has not used the funds in their FHSA for a qualifying first home purchase within 15 years of opening an FHSA, their FHSA would have to be closed. At that time, you would have the option to transfer any unused funds into an RRSP, if you had sufficient RRSP contribution room. If you did not transfer into an RRSP, the amount in the FHSA would be taxable at the time it is closed.
The government will work with financial institutions to allow individuals to open an FHSA and begin making contributions in 2023.

In addition to the introduction of the FHSA, the government also announced an increase to the first-time home buyers get tax credit in Budget 2022, where first-time home buyers can now get relief of up to $1,500 on acquisitions of a qualifying home made on or after January 1, 2022. This us up from $750 prior to 2022.