2017-2018 Quebec Budget Summary

Under the Auspices of the Quebec Order of Chartered Professional Accountants, I am pleased to provide a copy of the2017-2018 Québec Budget Summary2017-2018-Résumé du budget du Québec.  I will also place a link on the Tax Links Page, and they will remain there, along with future federal and Quebec budget summaries for future reference.

2017 Federal Budget Summary

Under the Auspices of the Order of Chartered Professional Accountants of Canada, I am pleased to provide a summary of 2017 Federal budget summary/ 2017 Résumé du budget fédéral. I will also place a link on the Tax Links Page, and it will remain there, along with past federal and Quebec budget summaries for future reference.

Can Employees Deduct Cost of Cell Phone Plan?

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This should be an area of interest to pretty much anyone that owns a cell phone, so I thought I’d reproduce it here. It’s a recent CRA technical interpretation on the question of whether the cost of a cell phone plan is deductible from employment income.

Deductions from employment income must be specifically provided for under the Income Tax Act. Section 8(1)(i)(iii) deals with supplies used up in the course of performing employment duties. There must be a requirement under the employment contract for the employee to pay for his own supplies, and the employer must sign form T2200 to attest to this requirement.

The CRA was asked whether the cost of a basic cellular service plan is deductible from an employee’s employment income where an employer requires the employee to use a cellular phone to perform employment duties.

CRA Response: It is a question of fact. Section 8(1)(i)(iii) of the Income Tax Act (the “Act”) provides a deduction to an employee for “the cost of supplies that were consumed directly in the performance of the duties of . . . employment and that the . . . employee was required by the contract of employment to supply and pay for.” For supplies to be considered consumed directly in the performance of employment duties, the supplies must be used up and play an integral and essential part in the performance of the employment duties. The cost of the supplies should also be reasonable.

Based on the above, cellular minutes and data would be considered “supplies that were consumed directly” where it is determined that the cellular minutes and data were used up and played an integral and essential part in the performance of the employment duties. It is our understanding that service providers typically provide a detailed breakdown of each cellular minute used, but do not similarly provide a detailed breakdown of cellular data used. It is our view that without a detailed breakdown an employee would not be able to substantiate the amount of cellular  data that was used for employment purposes. Where the cellular minutes or data and costs cannot be substantiated, a deduction from employment income is not permitted under s. 8(1)(i)(iii) of the Act. If an employee can substantiate that they used their cellular phone exclusively for employment purposes (i.e., no personal use), it is our view that the basic service plan may reasonably reflect the cost of those cellular minutes and data. Where there is both employment and personal use and the employment use can be substantiated, an employee may apportion the basic service plan on a reasonable basis. However, if only the employment use of cellular minutes can be substantiated, only the portion of the basic service plan for minutes may be apportioned (i.e., the portion of the basic service plan for data cannot be deducted).

Sold your House? Make Sure You Report It!

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If you have sold your home recently, you should take note of the new reporting rules announced by the CRA regarding the principal residence exemption (“PRE”).

The PRE applies on a pro-rata basis based on the number of years you are claiming the house as your principal residence. Form T2091 is technically required to report and claim the PRE on the sale. If you were claiming the exemption for the full period of ownership, then the gain on the sale is fully exempt from tax. The CRA’s policy until now has been that no reporting was required in such a case.

However, for 2016 and future years, this administrative policy has changed. Form T2091 is still not required if the full exemption is claimed, However, the sale must be reported on Schedule 3 of your tax return for the year. You will need to report a description of the property,  the year of acquisition and  the proceeds of disposition. Failure to report the sale will result in the denial of the PRE. However, you may go back and amend your return to report the sale and claim the exemption, subject to possible penalties of $100 per month to a maximum of $8,000.

For Quebec tax reporting, there has never been any administrative policy regarding a fully exempt sale of a principal residence and form TP-274 continues to be required.

Changes for Trusts

If your principal residence is owned by a trust, new rules will apply to you. I outlined the current rules in a previous post.

Under the new rules, only certain specialized trusts are now eligible to claim the PRE. They are alter-ego trusts, certain spousal or common law partner trusts, certain protective trusts or certain qualified disability trusts.

Starting in 2017, any trust that owns a home and does not fit within any of the categories above, will no longer be eligible for the PRE on the sale of the home. Therefore, if the house is sold before the end of 2016, the PRE can still be claimed.

For 2017 and later years, a home that was owned by a trust that no longer qualifies for the PRE will be allowed to calculate the exemption based on transitional rules that would require a valuation of the property as at the end of 2016. The PRE will be available for the “notional” gain up to the end of 2016, while the future growth in value will be subject to capital gains tax.

Anyone who currently lives in a home owned by a personal trust should consult their tax advisor.

Changes for Non-Residents

New rules will also apply to anyone who was a non-resident at the time they purchased a residential property in Canada. Under the current rules, the pro-rata formula that is used to calculate the PRE allows for an extra year (the plus 1 rule) in calculating the exemption. This generally allows for the fact that in a year where someone sells their home, they may own two properties, both of which should qualify for the exemption.

For a non-resident, the plus 1 rule allowed them to claim a portion of their gain as exempt, even though they never qualified since they were non-residents of Canada. Accordingly, for all sales on or after October 3, 2016, the Plus 1 rule will no longer be available to any taxpayer who was a non-resident of Canada in during the year in which he or she acquired the property. There are no transitional rules to this provision.

2016 Federal Budget Summary

Under the Auspices of the Order of Chartered Professional Accountants of Canada, I am pleased to provide a summary of 2016 Federal budget summary / 2016 Résumé du budget fédéral. I will also place a link on the Tax Links Page, and it will remain there, along with future federal and Quebec budget summaries for future reference.

2016-2017 Quebec Budget Summary

Under the Auspices of the Quebec Order of Chartered Professional Accountants, I am pleased to provide a copy of the 2016-2017 Québec Budget Summary2016-2017-Résumé du budget du Québec.  I will also place a link on the Tax Links Page, and they will remain there, along with future federal and Quebec budget summaries for future reference.

Death of Testamentary Trust Rules

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The favourable tax rules enjoyed by estates and testamentary trusts until now are almost dead.  Major changes that were introduced in the 2014 federal budget are about to come into effect on January 1, 2016. Don’t be caught off guard.

Estate vs. Testamentary Trust

Until now, most of us have viewed a testamentary trust in basically the same way we would an estate. They both essentially were included in the definition of a “Testamentary Trust”, meaning a trust arising as a consequence of the death of an individual. As such, they were treated in similar fashion under the law, both benefiting from graduated tax rates and both able to have an off-calendar fiscal period for tax purposes.

But now, we must make a distinction between an estate and a testamentary trust.

A testamentary trust is generally a trust that is created by the will of the deceased person. Assets from the deceased’s estate are transferred to the trust for the benefit of named beneficiaries. These assets are then administered by designated trustees. Such a trust could go on for an indefinite period of time, depending on the terms of the trust.

On the other hand an estate is essentially the bundle of assets owned by an individual at the time of death, which is to be distributed by the liquidator to the beneficiaries pursuant to the will within a relatively short period of time. The CRA likes to refer to the “executor’s year”, implying that it should take a year or so to clear the estate and distribute the assets. In many cases it may take longer.

Elimination of Benefits to Testamentary Trusts

Now that we have our terms of reference, the first thing to note is that beginning in 2016, most testamentary trusts will no longer benefit from graduated tax rates, and they will have to switch to calendar taxation years. The only exception will be for “Qualified Disability Trusts”, which essentially is a testamentary trust with a beneficiary that qualifies for the disability tax credit.

There are no grandfathering rules. All existing testamentary trusts will have to cut off their taxation years on December 31, 2015. This could result in many trusts having two tax years in 2015. You should note that the due date for the first of these calendar taxation years will be March 30, 2016.

Furthermore, beginning in 2016, these trusts will:

  • be subject to the highest marginal tax rates
  • will have to make quarterly tax instalments
  • will lose the $40,000 alternative minimum tax exemption
  • will lose the ability to object to an assessment within one year (i.e. the 90 day deadline will apply)
  • will lose the ability to transfer investment tax credits to its beneficiaries
  • will lose the right to apply for a refund after the normal reassessment period
  • may become subject to part XII.2 tax on certain types of income where non-resident beneficiaries exist

Graduated Rate Estates

On the other hand, estates may continue to benefit from graduated rates and off-calendar fiscal years, under certain conditions. Estates that meet the requirements will be known as “Graduated Rate Estates” (“GRE”).

A GRE will qualify only under the following conditions:

  • no more than 36 months have passed since the death of the individual
  • the estate otherwise meets the definition of a “Testamentary Trust” under the law
  • the estate designates itself as a GRE in its tax return for the first taxation year ending after 2015
  • the deceased individual’s social insurance number is provided in the tax return
  • no other estate is designated as the GRE with respect to that individual.

Once 36 months has expired, the estate will no longer be a GRE and will become subject to the less favourable rules described above.

Charitable Donations by a GRE

Currently, a charitable gift made by an estate that was designated by the will of an individual is deemed to have been made by the deceased, and is not deductible within the estate.

Beginning in 2016, a GRE will benefit from new and more flexible rules regarding the claiming of charitable donations. If the estate is a GRE, then such donations may be claimed by:

  • the deceased in the year of death or the preceding year
  • the estate in the year in which the donation is made, or
  • the estate in an earlier taxation year or subsequent 5 years.

Other Changes

Other more complex changes regarding testamentary trusts are coming into effect as well, but a detailed description of these is beyond the scope of this short summary. Briefly, the election to pay tax within a trust, notwithstanding that income is paid to beneficiaries, will be virtually eliminated, unless certain conditions apply.

Finally, for testamentary life interest trusts, such as spousal trusts, upon the death of the beneficiary, a year-end will occur, and any gains or income triggered upon death will be deemed to have been paid to the beneficiary’s estate, making it liable for the taxes on death. This may create a mismatch between the liability for taxes and the ownership of the assets in cases where trust capital is to be paid out to persons who are not beneficiaries of the deceased beneficiary’s estate. A common circumstance where this issue could become a problem is in a case such as a second marriage where children from the first marriage are to receive the capital of a spousal trust upon the death of the beneficiary spouse.

 

Something a Bit Different

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BUSKIN’ RELEASED TODAY!

Hello everyone. I know I usually post on tax issues on this website, but today I’d like to share with you something I’ve been working on for the last 2 years. I’ve just released my new CD, entitled BUSKIN’. It contains 10 songs of original material and it is now available at iTunes, Amazon, CDBaby and many other music sites.

Please take the time to listen to the first single released last month, entitled One More Talk.

Thanks for listening, and I hope you enjoy the album!!

–Dave

 

2015 Federal Budget Summary

Under the Auspices of the Order of Chartered Professional Accountants of Canada, I am pleased to provide a summary of 2015 Federal budget summary  / 2015 Résumé du budget fédéral. I will also place a link on the Tax Links Page, and it will remain there, along with future federal and Quebec budget summaries for future reference.