Manitoba Budget 2020
On March 19, 2020, Manitoba Minister of Finance Scott Fielding tabled the province's 2020-2021 budget. The budget contains several tax measures affecting individuals and businesses in the province.
Personal tax measures
There were no changes to personal tax rates or brackets announced in the budget. Previously basic personal exemption and tax brackets were raised for 2020 due to normal indexation.
- Primary Caregiver Tax Credit will need to be renewed every three years.
Business tax measures
There were no changes to business tax rates or the $500,000 small business deduction limit.
Other tax measures
- Retail Sales Tax rate will be reduced from 7% to 6% effective July 1, 2020.
- Retail Sales Tax on professional fees related to the preparation of personal income tax returns will be eliminated effective October 1, 2020.
- Probate fees will be eliminated effectice July 1, 2020.
- Vehicle registration fees will be reduced by 10% for renewals starting July 1, 2020.
- Health and Post-Secondary Education Tax Levy will have its annual remuneration exemption threshold increased from $1.25 million to $1.5 million and the limit available for reduced rate is increased from $2.5 million to $3 million effective January 1`, 2021. The rates will remain the same.
- Green Levy of $25 per tonne of carbon dioxide equivlent emissions on liquid, gas and solid fuel products intended for combustion will be imposed effective July 1, 2020. There will be a separate output-based pricing system for large emitters producing over 50k tonnes of carbon dioxide equivalent emissions. Retail sales tax will not apply to the Green Levy.
- Tobacco tax rates will be increased effective July 1, 2020 to account for the decrease in the retail sales tax rate.
- Manufacturing Investment Tax Credit refundable portion will be reduced from 7% to 6% effective July 1, 2020 to coincide with the reduction in the retail sales tax. The Manufacturing Investment Tax Credit is also being made permanent.
- A new Manitoba Production Company Bonus of 8% is being added to the cost-of-production credit for the Film and Video Production Tax Credit effective June 1, 2020, resulting in an increase to the total cost-of-production credit up to 38%. Principal photography must begin on or after the effective date of this measure.
- Child Care Centre Development Tax Credit spaces limit is increased from 208 spaces to 682 spaces, an increase of 474 spaces. Additionally, the maximum daily amount that can be charged is eliminated.
Optometrists will be allowed to provide their professional services through a professional corporation.
On March 18, 2020, the Government of Canada announced a set of economic measures to help stabilize the economy during this challenging period. The government's announcement can be found here:
The measures include the following:
Support for Canadians
- Waiving the one week waiting period for sick leave benefits for EI, for people in imposed quarantine, effective March 15, 2020.
- Waiving the requirement for medical certificate for EI sick benefits.
- Introducing Emergency Care Benefit, $900 bi-weekly, up to 15 weeks, for workers, including self employed, who do not qualify for EI, who are quarantined or sick with COVID-19, or taking care of a family member who is sick with COVID-19 and parents with childing who require care or supervision due to school closures.
- Longer Term Income Support for workers, including Emergency Support Benefits for people not eligible for EI and who are facing unemployment and an EI Work Sharing Program for workers who agree to reduce their normal working hours.
- One-time special payment by early May 2020 through the GST Credit which will double the annual entitlement.
- Increasing the Canada Child Benefit for the 19/20 year by $300 per child, to be paid out with the May payment.
- Six month interest-free moratorium on repayment of Canada Student Loans.
- Reducing minimum withdrawals from RRIFs by 25% for 2020 to help with volatile market conditions
Support for Taxpayers
- Tax filing deadline for individuals for 2019 tax returns is deferred to June 1, 2020. We encourage people to file as soon as they can to get their tax refunds and to ensure their entitlement to Canada Child Benefits is not interrupted.
- Trusts filing deadline is deferred to May 1, 2020 (previously March 30, 2020).
- Taxpayers are allowed to defer payment of any income tax amounts that become owing on or after today until after August 31, 2020. No interest or penalties will accumulate on these amounts during this period.
- CRA will allow tax preparers to get electronic signatures on forms T183 and T183Corp as a temporary measure.
Support for Businesses
- Small businesses may be eligible for a temporary wage subsidy for three months equal to 10% of remuneration paid during that period, up to a maximum of $1,375 per employee and $25,000 per employer. Businesses will be able to benefit immediately from this support measure by reducing their remittances of income tax withheld. Employers benefiting include corporations eligible for the small business deduction, as well as non-profit organizations and charities.
- Businesses can defer until after August 31, 2020 the payment of any income tax amount that becomes owing on or after today and before September 2020. The relief would apply to tax balances due, as well as instalments. No interest or penalties will accumulate on these amounts.
- CRA will not contact any small or medium businesses to initiate any post assessment GST/HST or Income Tax audits for the next four weeks. For the majroity of businesses, CRA will temporarily suspend audit interaction with taxpayers and their representatives.
At Rawluk & Robert Chartered Professional Accountants Inc., we are here to help steer you through this extremely difficult time. If you have any questions or concerns about the above or other tax matters, do not hesitate to contact our office by telephone - 204-237-6053 - or by email.
In August 2019, CRA released guidance on when an employee of a company, who is also a shareholder of the company, can deduct employment expenses on their personal income tax return.
But, before we get into those requirements, let's look at how this all started.
In about September 2017, CRA began asking employees of corporations, who were also major or sole shareholders of the corporations and who were claiming employment expenses, to support their claim for those employment expenses. They ended up reassessing those employees/shareholders on the basis that the expenses could not be a requirement of employment since the shareholder was not going to fire himself for refusing to incur those expenses.
In February 2018, after backlash from the public and the tax community and media interest, CRA backed down from the program and reversed any reassessments that had taken place. They also promised consultation with stakeholders in the tax professional community to provide clarification.
That clarification is as follows: if you are an employee and a shareholder, you must satisfy two key conditions before you can deduct employment expenses on your personal income tax return.
1. The expenses were incurred as part of your employment duties, and not as a shareholder.
If you are a shareholder, you must establish that the expenses were incurred in your capacity as an employee and not a shareholder. To do this, you must be able to establish that the expenses are comparable to expenses incurred by employees (who are not shareholders or related to a shareholder) with similar duties at your company, or at other businesses similar to your company in size, industry and services provided. You do not need to include this information on your tax return or the Form T2200 Declaration of Conditions of Employment, however, the CRA could ask you to provide this later.
2. You were required to pay for the expenses yourself as part of your employment duties.
Usually, a written contract of employment specifies the expenses a non-shareholder employee must pay. Sometimes there is no written contract or the requirement to incur expenses is not clearly identified in the contract, but there is an implied requirement for the employee to pay the expenses. For example, an employee can demonstrate an implied requirement by showing they face possible disciplinary action from their employer if they do not meet the requirement.
If you are a shareholder-employee however, an implied requirement may be more difficult to demonstrate, and a written contract may not be adequate to establish that you were required to pay for the expenses as part of your employment duties.
To satisfy this condition, you must therefore be able to establish that the expenses are comparable to expenses incurred by employees (who are not shareholders or related to a shareholder) with similar duties at your company, or at other businesses similar to your company in size, industry and services provided. This will support that you were required to pay the expenses to fulfill your obligations in your capacity as an employee.
You must satisfy both key conditions to deduct the expenses on your personal tax return. If both conditions are met, you may, as a shareholder, have the authority to certify Form T2200 Declaration of Conditions of Employment, for yourself or a related employee.
Tax planning between your corporation and shareholder(s) can be challenging and fraught with unforeseen consequences to both the corporation and the owner-managers. A CPA can help navigate ever changing tax legislation to ensure you stay compliant. Contact Ryan Rawluk, CPA, CGA or Eric Robert, CPA, CGA to get the proper advice.
The Disability Tax Credit (DTC) is an important tax credit that provides financial support for persons with disabilities or their supporting persons. Before anyone can claim the DTC, they must first apply for the DTC with Canada Revenue Agency to determine their eligibility. The application process can be long and complex.
A person may be eligible for the DTC if one of the following situations applies: be blind, be marketly restricted in speaking, hearing, walking, eliminating (bowel or bladder functions), feeding, dressing, or mental functions necessary for everyday life, or require life sustaining therapy.
If you think you, or someone you know, may be eligible for the DTC, you must first complete an application form. The form is called T2201 Disability Tax Credit Certificate. It is completed by the person with the disability or their legal representative and a medical practitioner. A medical practitioner can include a medical doctor, nurse practitioner, optometrist, audiologist, occupational therapist, physiotherapist, psychologist or a speech-language pathologist.
Once completed, the original form is submitted to Canada Revenue Agency where they will review the application and either approve or deny the application. CRA will mail a Notice of Determination informing you of their decision. CRA's service standard for this application process is eight weeks, however, it usually takes longer.
If the DTC application is approved, we request to have the tax returns amended for the applicable years to include the Disability Tax Credit. In Manitoba, the DTC credit is worth almost $2,000 in tax savings per year as well as opening up other tax advantages such as the ability to claim certain medical expenses and the ability to open a Registered Disability Savings Plan (RDSP).
If the DTC application is denied by CRA, they will explain why in the Notice of Determination. If you disagree with the decision, you have the option of discussing it with CRA, submitting additional information that may be relevant, requesting a review of the application or filing a formal objection. The formal objection has to be filed within 90 days.
Every year, we help our clients through this process. We charge $175 plus tax to discuss eligibility with our clients or their representatives, help with completing the form, reviewing the application and submitting to CRA, and amending the returns upon approval. This is a far better value for clients than those firms that work on contingency, which may cost up to $5,000 for the same work.
So, if you think that you or a family member, or someone you know, may qualify for the Disability Tax Credit, please discuss it with them or us or their accountant or tax preparer. It is a very important tax advantage.
Last month, the Federal Court of Appeal heard an appeal from an Ontario lawyer who operated a private law practice on a part time basis in addition to her full time employment with the Government of Canada. This is a common situation in Canada and we often see people working full time that set up 'side businesses'. Sometimes the intent is to start a business, build it up, make big profits and retire. Other times the intent is to write off otherwise non-deductible or personal expenses to create a business loss which can be applied against their employment income creating a 'tax refund'. A cautionary tale follows.
Ms. Renaud began working for the Government of Canada in 2000 and moved to the Ottawa region at that time. Prior to 2000, she ran her own full time law practice in Repentigny, but reduced her hours after taking on the new position.
From the years 2001 to 2014, she claimed business losses every year, ranging from $1,956 in 2003 to $15,680 in 2012. In addition to the losses, her gross billings were quite low with her maximum gross income reported in a year was $3,850. In three of those years (2005, 2009, and 2010), she reported no gross income.
At issue were the years 2011, 2012, 2013, and 2014. In those years she reported gross income of $2,500, $850, $850, and $3,850 respectively. Her losses for those four years were $12,613, $15,680, $4,014, and $6,662 respectively.
Ms. Renaud made assertions that she spent on average about 5 to 10 hours working in her private practice per week. She did not take on more work than she had time available and made sure there were no conflicts with her full-time job.
Her practice was varied; she practices family, civil, administrative and criminal law. She does consultations, gives legal advice and participates in negotiations.
Some of her answers to questions were vague. When asked how many clients she had or how many cases she handled, her answers were not very specific.
Ms. Renaud testified that she does not work on a volunteer or pro bono basis. She does, however, adjust her rates based somewhat on a client's ability to pay. She also testified that she does not advertise as she receives enough clients from word of mouth.
The issue in this case was whether Ms. Renaud had a 'source of income'. CRA didn't challenge the legitimacy of her expenses but challenged whether or not she actually was operating a business. If they can prove she didn't have a business, they could deny her losses.
To determine whether she had a 'source of income', the court turns to the Supreme Court of Canada and the 2002 case Stewart v. Canada. In this case, the Supreme Court determined a two-step process for determining if a 'source of income' exists. The first step equates 'Source of income' with an activity undertaken 'in pursuit of profit', which is consistent with the traditional common law definition of 'business'.
After considering the facts of the case, the judge stated that the practice "is quite simply not undertaken in pursuit of profit." He came to this conclusion partly by looking at the hours worked by the appellant. She claimed to work an average of 5 to 10 hours per week. At 50 weeks per year, the judge concluded she worked at most 500 hours per year. In the four years at issue, she billed $2,500, $850, $850 and $3,850 respectively. This works out to $5 per hour in the first year, $1.70 per hour in the second and third, and $7.70 per hour in the fourth year for each hour worked. He stated "This is not at all like a law practice as normally understood, even in the wildest sense."
Further, the judge pointed out that Ms. Renaud made no mention of cases that could be highly profitable later on and no evidence was provided to show Ms. Renaud sought to change her billing practices or make changes to her client base to increase income.
So if you are in a similar position to Ms. Renaud where you are operating a small business with multiple years of losses and deducting those losses from other sources of income, you may want to consider whether you have a 'source of income' and are operating 'in pursuit of profit'. If not, you should be aware that CRA can simply wipe out your losses for tax years that are not statuted barred.
Canadian's annual Tax Free Savings Account (TFSA) contribution limit will increase by $6,000 in 2019. The annual increase in contribution limit has been $5,500 each year since 2013 (except for 2015 when the limit was raised to $10,000 for the year) and, thanks to inflation, will be $6,000 per year for the next couple of years.
The cumulative limit for Canadians who were at least 18 years old in 2009 and who hold a valid social insurance number will be $63,500 in 2019.
Beginning on January 1st, 2019, Canadians will begin contributing more to the Canada Pension Plan (“CPP”). This change is referred to as the CPP Enhancement and is being introduced in two phases, over the next seven years. The purpose of the Enhancement is to increase pension benefits to recipients by approximately 50% over current benefit levels.
Since 2003, Canadians have contributed 4.95% (9.9% if self-employed) of their earnings (up to an annual maximum) to the Canada Pension Plan. Beginning January 1st, 2019, that rate will increase to 5.1% and will increase each year until January 1st, 2023 when Canadians will begin paying at a rate of 5.95% (11.9% for self-employed individuals), a 20% increase over 2018 contribution levels (excluding the increase in contribution limits).
For an employee earning $45,000 per year, the employee will pay CPP premiums of $2,116.50 for the year in 2019 whereas they would have paid $2,054.25 in 2018; an increase $62.25 per year. By 2023, the same employee on the same earnings would be paying $2,469.25 per year, or $415 more than they would have paid in 2018.
The same increase applies to businesses and organizations with employees. A business with 10 employees each earning $45,000 per year will pay an additional $622.50 in 2019 and an additional $4,150 per year by 2023 before any increases in pay. This would bring the total CPP costs to $24,692.50 for that business.
Phase 2 will begin in 2024 with the introduction of a higher annual limit for higher income earners. This higher limit will be set at 7% higher than the normal 2024 annual limit and 14% higher in 2025. Canadians and businesses will pay CPP at a rate of 4% (8% if self-employed) on this higher limit. The government projects this higher limit in 2025 will be $79,400 but that will change based on increases in the average wage in Canada between now and then.
To assess the full impact of the changes, we can look at an employee earning $79,400 under 2018 rules and under 2025 rules. The annual maximum earnings in 2025 is projected to be $69,700 and an employee would have otherwise paid $3,276.90 in CPP premiums under 2018 rates. Under the Enhanced CPP, the same employee would end up paying $4,326.90 for a total increase of $1,050 per year, a 32% increase.
1. A Professional Designation
Consider whether a professional designation, like a Chartered Professional Accountant, is important to you. CPAs are professionally regulated in each province and they help to protect the public through rigorous educational and certification programs. So, not only can you be assured that its members uphold the highest professional and ethical standards, but you have recourse if something goes wrong between you and your CPA. If a conflict or complaint arises between you and your non-designated accountant, you may find your alternatives are limited.
Always discuss fees with your accountant. Fees can vary widely from firm to firm and from accountant to accountant. Some accountants charge by the hour (ie. $150 to $400 per hour) and some charge by the job. Fees should be part of the initial discussion and, for new clients, accountants should be able to estimate the fees based on a review and discussion of prior year work. This discussion will help avoid surprises after the work is complete.
3. Level of Service
You will want to determine the level of service you need from your accountant and whether you can grow with your accountant. For example, as your business grows and gets more complex, can your accountant provide the increased level of service that your growing business needs. Many accountants do not provide audit services or review engagement services which you may find you need at some point.
You will want to find out how available your accountant will be. How quickly do they return phone calls or emails? Generally, within 24 hours is the norm, but two weeks is unacceptable. Also, do you get to speak to the accountant or is someone more junior returning your calls or emails.
5. Use of technology
Technology is changing each year and you will find that you want your accountant to match or exceed your level of technological savviness. If you're using a cloud based accounting software, you can often add your accountant and they can access your accounting records as you do. Not only does this matter from a practical viewpoint (does your accountant ask you to print out a general ledger from QuickBooks Online) but can your accountant offer you advice or training in better use of the software. Talk to your accountant about technology and you should also research them online. Do they have a website? Do they have a social media presence?
6. Risk tolerance
Just as people have different risk tolerances, so do accountants. If you're the type of person who likes to push the boundaries of tax law the opposite value in an accountant will not work long. In addition, an aggressive accountant with respect to tax compliance for a client who may have a low tolerance for risk may quickly find themselves in trouble with a tax agency. The accountant needs to be able to understand the clients' level of risk tolerance and advise appropriately.
7. Speak at your level
You will want to deal with an accountant that can speak to you at your level of financial expertise. You may be ok trusting your accountant to get your work done correctly, but the accountant should be willing to take time to explain or answer any questions you may have at a level that you will understand. After all, you are the one signing off on the work.
The average age of accountants in Manitoba is between 55 and 60 years old. While this experience can be a huge asset, you may find yourself going through the process of finding a new accountant again in a couple of years. You may want to find a trusted accountant that can guide you through to retirement. If your accountant is older and working on their own, what is their succession plan?
Consider the importance of location. You may only meet with your accountant once or twice per year. Do they have an office or are they meeting at a coffee shop? Is parking available? Would it be conveniently located to drop in on short notice?
10. Ask for Referrals
Finally, accountants get a big portion of their new clients from referrals. Happy clients are eager to share with friends and colleagues. Ask someone you know and respect who they use as their accountant, considering the points discussed above, and ask if they'd recommend them. Other people you can ask include your financial advisor, banker or lawyer.
On November 21, 2017, the Auditor General for Canada released its 2017 Fall Reports and one section of this report was particularly scathing about Canada Revenue Agency's Call Centres.
The Agency's call centres are in place to give individuals and businesses timely and accurate information about their taxes, credits and benefits. CRA currently operates nine call centres across Canada.
CRA publishes service standards each year and reports on its own results compared to these service standards. For example, when a caller calls the general enquiries 1-800 phone number and indicates they want to speak to an agent, CRA's goal is to have an agent answer the call within two minutes, 80% of the time. In fact, the Agency's own published results for the 2016-2017 fiscal year indicate this happened 81.2% of the time.
The Auditor General's findings were that if CRA could not handle the call volume, they would block calls. This means you would get a recorded message that instructed you to call back later and then ended the call. The Auditor General found that more than half of the calls to CRA call centres ended up being blocked.
The Auditor General also tested the Agency's accuracy as far as how it answered general tax related questions that people may have. The Auditor General found that almost 30% of the time, the Agency gave incorrect information.
For example, one of the questions asked was "When will the interest begin to be charged on my 2015 initial assessment?" The correct answer is May 2, 2016 but a CRA agent gave a different answer 84% of the time.
Obviously, Canadians expect and deserve better service than this. That's why at Rawluk & Robert Chartered Professional Accountants Inc, our clients rely on us to answer the phone promptly and to give them accurate and reliable information. This Auditor General report just reconfirms what our clients already knew.
On October 16, 2017, the federal government announced a reduction in the Small Business Corporate Income Tax Rate. The current rate is 10.5% after it had been previously reduced from 11% effective January 1, 2016.
The reduction will occur in two steps. The rate will be reduced to 10% on January 1, 2018 and further reduced to 9% on January 1, 2019.
The government also signaled that the non-eligible dividend tax rate will be increased on January 1, 2019 to compensate for the change in corporate tax rates.
As Manitoba's Small Business Corporate Income Tax Rate is already zero, Manitoba corporations will be subject to the above rates.