Fraudsters Calling In The Name Of CRA

Many a time taxpayers get a frightening call from someone representing Canada Revenue Agency (CRA) asking him to pay an astronomical sum of money in the name of tax payment due. In a week, on an average three to four clients report to me about receiving such a call.

Usually, these calls are made by fraudsters in the name of CRA and contain the common features like:

1)      You owe a large sum of money by way of tax payment which is remaining outstanding for long.

2)      CRA has proceeded against you and issued an arrest warrant.

3)      A compromise settlement can be reached by paying a certain sum of money that you need to pay immediately.

Therefore, the immediate reaction of the person receiving such calls is fearfulness and not knowing what to do immediately.

After sometimes, if you receive such call, you can immediately call your accountant (if you have one) to verify your amount of owing.

Upon receiving such calls, you should not get worried and keep in mind the following things:

1)      If you have tax owing, you can immediately verify the same by going online and checking your account with CRA under CRA module called “My Account”. “My Account” can be checked online if you are registered with CRA and have the username and the password. You can check at CRA website www.cra.gc.ca

2)      If you owe the taxes to CRA, CRA never threatens you over phone to pay up immediately but communicates in writing and reminds you several times about your outstanding debt/s.

3)      If you are not sure of the amount of tax money that you owe to CRA, you can call CRA on their general phone lines for Individual tax payers 1-800-959-8281 and 1-800-959-5525 for businesses and verify if you have any outstanding payable to them.

4)      Call your accountant (if you have one), and discuss about your outstanding tax owing, if any.

5)      Report to the Crime Stoppers on the number displayed on CRA website to stop them harassing to others.

6)      Never pay or agree to pay to the fraudsters any sum of money in compromise of any tax dues.

7)      CRA normally does not file a law suit against you for collection of any outstanding taxes but hands over the matter after a considerable time to collection department and such department asks for payment in a civilised tone and would also suggest you to make an agreement to the tax dues in installments.

Hope the above information would help you if you receive such a call.

Since the year end and the tax season is round the corner, such fraud calls will only be on the increase.

Disclaimer:

Any discussion on this blog relating to tax matters is purely for educational purposes and not taking any specific actions based the general tax rules described therein. Your tax situation could be different and as a result there may be different tax strategies applicable in your case. We do not claim the tax situations described above to be exhaustive or conclusive. In case of any specific tax situations or problems, you are advised to seek professional advice.

Filing of Form T-1135 –Foreign Income Verification Statement

What is form T1135 and who needs to file?

When you file your income tax return each year, one of the questions that you need to answer is whether you hold (own) asset/s outside Canada in excess of $100,000 at any time during the year. Canada Revenue Agency (CRA) wants to keep a track on those taxpayers who are holding assets outside Canada and generating income out of such assets.  

This requirement applies to all the types of entities namely individual, partnership, corporation and trust.

What is the deadline for filing this form?

This form needs to be filed along with the individual tax return (T1) and the latest date to file is April 30 each year.

What is the penalty for not filing or late filing?

The failure to file this form is per day penalty of $25 up to a maximum of 100 days (maximum $2,500)

What does this form contain?

Mainly following assets require disclosure:

1)      Funds held outside of Canada

2)      Shares of non-resident corporations

3)      Indebtedness owed by non-resident

4)      Interest in non-resident Trusts

5)      Real property outside of Canada

6)      Other property held outside Canada

This form also contains the disclosure of information such as cost at the end of the year, maximum      amount outstanding at the year end and income generated out those assets. Please take a look at the below mentioned link

https://www.canada.ca/content/dam/cra-arc/migration/cra-arc/E/pbg/tf/t1135/t1135-16e.pdf

How do you determine the cost of assets for this form?

When you enter Canada and own the assets outside of Canada, the fair market value of asset as on the date of entry needs to be regarded as cost for the purpose this form. In case if you are already a permanent resident and subsequently become the owner of the asset outside of Canada by purchasing asset, the cost to acquire such asset is considered for reporting for this form. In case if you become the owner of an asset by any other means such as inheritance from the parents, grandparents etc. The fair market value of such asset as on the date of inheritance should be regarded.

Methods of Reporting:

Please note that the requirement to file this form applies when you own assets outside of Canada, the total of which exceeds $100,000 and not when each asset is exceeding $100,000. Figures are to be expressed in Canadian Dollars in this form.

There are two methods of reporting 1) Simplified reporting method 2) Detailed reporting method.

When you own assets the total of which is between $100,000 and $250,000, simplified reporting method can be adopted. Under simplified method of reporting, you need to report only the different kind of assets held, income and gains or losses generated out of such assets. You do not need to report the total cost of such assets held.

Detailed Method of Reporting:

Under this method, each individual asset held needs to be reported along with its cost at the end of the year, maximum outstanding during the year, country where such asset is held and the income or gain (or loss) from such asset.

Staring the year 2015, this form can be e-filed to CRA.

Exclusions from the reporting:

There are some exclusions from the above reporting the most prominent ones being, one personal vacation property and any asset held outside Canada in carrying out active business. 

Filing of this form is very important when the global standards of information sharing are changing each day due to the information sharing treaty taking place between Canada and rest of the world.

Disclaimer: Any discussion on this blog relating to tax matters is purely for educational purposes and not taking any specific actions based the general tax rules described therein. Your tax situation could be different and as a result there may be different tax strategies applicable in your case. We do not claim the tax situations described above to be exhaustive or conclusive. In case of any specific tax situations or problems, you are advised to seek professional advice.

   

Proposed Tax Changes for Private Corporations

On July 18, 2017 Department of Finance, Canada announced its intention to introduce changes affecting private corporation taxes whereby it sought to plug the tax loopholes with a view that everyone pays a fair share of taxes. Attached is the link below:

https://www.fin.gc.ca/n17/17-066-eng.asp

As soon as above proposed tax changes were tabled by the Finance Minister Mr. Bill Morneau, lots of opposition were raised expressing their resistance to new rules imposing very high tax burden on such private corporation.

Let us look at them as to what are those proposed changes. These changes were in three major areas as follows:

1. Income sprinkling in the private corporation.
2. Holding of passive investment in such private corporation.
3. Converting Private Corporation’s regular income into Capital Gains ( since Capital Gains are taxed at a lower rate)

Income Sprinkling In the Private Corporation: (Salary and Dividends Paid) Rules for Minor and Major Family Members:

Salary:

Currently, if the private corporation pays reasonable salary to the family members, the same is allowed:

• If the salary paid is reasonable.

Proposed Rule:

Salary paid to children over 25 years of age will be taxed at the maximum marginal tax rates, unless:

• The salary paid is reasonable and
•  It is equivalent to the Fair Market Value of services rendered.

Salary paid to children of 18-24 years of age will be taxed at the maximum marginal tax rates unless:

• The salary paid is reasonable and
• Is equivalent to the Fair Market Value of services rendered
• Children must be engaged on a regular, continuous and substantial basis in the activities of the corporation.

Dividend Payment:

Currently, if the private corporation pays Dividend to the family members as shareholders, the same is allowed.

Proposed Rule:

Dividend paid to children over 25 years of age will be allowed:

• If the same is paid at the Market Rate of Return

 Dividend paid to children of 18-24 years of age will be allowed at the prescribed interest rate which is 1% p.a.

Example Scenario:

• Steven (24) receives the Dividend of $100,000 from his father’s corporation because he is the preferred shareholder of the corporation.
• Steven also receives the salary of $30,000 when the market value of his services is $50,000,the calculation will be done as under:

Total Dividend Paid	$100,000
Less: Child being 24, Dividend allowed is at 1% pa on $100,000	< 1,000>
Less: Fair market of services rendered $50K-Salary paid of $30K	< 20,000>
Tax at Maximum Marginal rate on unreasonable dividend	$80,000

Action Required:

Consider making the dividend payments to the adult shareholders who do not contribute to your corporation.

Life Time Capital Gains Exemption on Sale of Small Business Corporation Shares:

Currently if the children are the shareholders, then each child is entitled to Life Time Capital Gains Exemption on the disposition of such shares. The maximum deduction allowed is $835,716 ($1 Million for Qualified Farm Property or Qualified Fishing Property)

However, going forward, no life time capital gains exemption will be allowed if the shareholder child is under the age of 18 years and if such shares are included for taxing the split income as shown above.

Also, it is proposed that there will be no life time capital gains exemption for non-arm’s length dispositions of a small business corporation shares.

Latest News:

Somewhere around October 20, 2017, Finance Minister Bill Morneau and the agricultural minister Lawrence Mac-Aulay made the announcement that the current government would not go ahead for implementing this part of their proposal since it would create difficulty for Family Farm to pass on the same to the next generation.

Passive Income Generated in the Private Corporation:

It was proposed in the new rules as regards the income generated by private corporation that it be taxed at a much higher rate by eliminating the tax that can be refunded in case if such private corporation pays dividend to its shareholder.

Latest News:

The Finance Minister has announced somewhere at the end of the third week of October that Government will not levy additional tax as indicated above up to a limit of $50,000 income from passive investments considering 5% per annum return on an investment of $1 million in a private corporation.   

At around same time it was also announced that the small business corporation’s Federal Rate of tax would be reduced from 10.5 % as at present to 9% giving out some more tax relief to private corporations which are the back bone of The Canadian economy.

It would be interesting to see how the above private corporation tax changes are finally crystalized and implemented. It is expected that these changes will be passed at the end of this November.

Disclaimer: Any discussion on this blog relating to tax matters is purely for educational purposes and not taking any specific actions based the general tax rules described therein. Your tax situation could be different and as a result there may be different tax strategies applicable in your case. We do not claim the tax situations described above to be exhaustive or conclusive. In case of any specific tax situations or problems, you are advised to seek professional advice.