14th February 2018
Tax season is here and Canadians across the country are now filing their returns. This year, as every year, there are of course changes to the tax law. One specific trend that deserves some special attention is cryptocurrency. 2017 saw the boom of bitcoin as the digital currency exploded to a price of over US $19,000 this past December. As many Canadians jumped into the cryptocurrency market last year, and some certainly made capital gains, it is worth noting that these citizens could be liable to pay taxes for their digital transactions using the coins.
The tax implications of cryptocurrency
Many Canadians are unaware that they must pay tax on specific cryptocurrency transactions. Last December, when bitcoin was experiencing its biggest boom yet, Bank of Canada Governor Stephen Poloz commented on the tax implications of buying into the trend.
During a Toronto speech, Poloz said, “Generally speaking, they can be thought of as securities. That means, if you buy and sell them at a profit, you have income that needs to be reported for tax purposes.”
Does this comment from Poloz mean that everyone who bought bitcoin or another digital currency must pay taxes? The answer is no. If a Canadian purchased any cryptocurrency but has not traded it since, then he or she is not liable to pay tax on it. Only when a person has traded their digital currency for real world dollars or has purchased a product or service using a cryptocurrency are there tax implications.
In 2013, the CRA issued a letter that said digital currencies, such as bitcoin, ethereum and dash, aren’t thought of as legal tenders. Instead cryptocurrencies are thought of as commodities whose losses and gains can be taxed.
“The act of buying bitcoin or receiving bitcoin should not be taxable,” said Lana Paton, Managing Partner of PwC Canada’s Tax Services. “The act of using bitcoin, will be taxable.”
Examples of when Canadians are taxed
If a Canadian bought a bitcoin in 2011 for one dollar and then sold it last December for $18,000, that person will need to declare $17,999 in capital gains.
Another example of when a cryptocurrency is taxable is when it is exchanged for goods or services. If a Canadian bought a bitcoin for $100 dollars in 2013 and then used it to buy a used car last year for $8,000, that person would have to declare a capital gain of $7,900. The bottom line is, any gain, whether it’s a few pennies or thousands of dollars, is subject to tax.
Fees should also be considered when it comes to cryptocurrency. Transaction fees, which reached a high of $55.16 last December, can also add to the loss, or reduce the gain.
Are cryptocurrency miners subject to tax liabilities?
The unprecedented rise of cryptocurrency value last year was also accompanied by another trend: mining. Mining is the process of using computers to help process digital currency transactions. For performing this task, miners are rewarded with cryptocurrency.
Gains that miners receive are also subject to taxes, but they can deduct expenses related to the cost of computers and electricity that are necessary to mine.
31st January 2018
Finding time to file taxes can be difficult for people anywhere. The Canada Revenue Agency (CRA) is finally deciding to make the process easier. Canadians will soon enjoy a more convenient tax filing system.
Facing widespread criticism over their service, the CRA will implement a system where low-income Canadians can file their taxes by phone. Citizens who file using paper tax forms will also enjoy added convenience, as paper tax packages will now be sent directly to their mailboxes.
Criticism of the CRA
2017 was a year of criticism for the CRA. Last November, Auditor General Michael Ferguson noted issues occuring at the CRA’s call centres. Canadian citizens were either receiving erroneous information or they weren’t able to access call centre services. Ombudsman for taxpayers Sherra Profit also acknowledged problems with the CRA’s service issues. There were close to 1,500 complaints reported to her office in 2017.
A new and improved phone filing system
In early January of this year, the National Revenue Minister Diane Lebouthillier announced the new automated service ‘File My Return’. As part of this service, approximately 950,000 Canadians will be able to file returns by answering a number of questions on the phone. To qualify for this service, Canadians must have reported a predictable fixed or low income over the span of several years. This demographic of people represents two to five percent of all Canadian tax filers.
This, however, is not the first time the CRA has tried to introduce a Telefile system. The former system, which enabled Canadians to file basic returns, was cancelled in 2013 in an attempt to get more people to file online.
Unlike the previous Telefile service, which required taxpayers to complete their income tax return and perform their own calculations beforehand, this new system will no longer involve these now unnecessary steps. How does the system accomplish this? Using a combination of information given on the call, and information in the CRA’s records, it automatically figures out the benefits, deductions and credits a person is eligible for. This technology enables the taxpayer to complete and file their return more conveniently than ever before.
Paper tax packages will be mailed directly to homes
For the two million Canadians who file their tax returns via paper, there is also some good news. In addition to the convenience of the new Telefile system, Canadians who file paper tax returns will now receive their tax package directly to their mailbox. In the past few years, paper tax filers had to pick up their tax package at a Canada Post, Caisse populaire Desjardins outlet, or Service Canada. This can be difficult for some Canadians, and Diane Lebouthillier acknowledged this.
"We know that Canadians lead busy lives and doing taxes can sometimes be a challenge. This is especially the case for people with reduced mobility, people who live far from service locations and people without internet access. The CRA is working to make it easier and simpler to find, complete and file a return,” stated the Minister.
23rd November 2017
A recent report by C.D. Howe Institute is making headlines across Canada. Its alarming analysis suggests young workers won’t be able to bear the financial burden of Canada’s growing elderly population. Because of this, the report notes taxes will be forced to increase in the coming decades, and the budgets of popular public services such as education, child benefits and health care will be squeezed.
What is the root cause of this issue? How much truth is there in the report? And is a tax hike really inevitable? These are questions surely on many Canadians minds. To discover the answers, Canada’s latest census reveals the facts about the country’s demographics.
How many young Canadians are there compared to the elderly?
Canada’s latest census, from May 2017, reveals that there are now more seniors in Canada than children under 14 years old. The reason for this is not surprising. The post-war baby boom juxtaposed with today’s trend of bearing fewer children is a major cause. Also, due to better health care, Canadians are living much longer lives than they did in decades past. All these factors contribute to the growing elderly population.
Are social services to blame?
Government education, child benefits and health care are a major cause for the potential tax hikes. The report asserts that the costs of these programs will increase from 15.5 percent of Canada’s GDP to 24.2 percent between 2016 and 2066.
The director of research at C.D. Howe institute, Colin Busby, had this to say about the analysis, “It’s something to be concerned about because if these programs continue to eat up a larger share of overall income in society, the prospects of having to significantly raise tax revenues in the future [are] altogether possible and feasible.”
Busby is not the only one concerned. This past May, Senator Sharon Carstairs argued that Canada is “woefully unprepared” to handle the country’s aging population. To add fuel to the flames, a Canadian Medical Association report revealed that Canada’s 65 and older population consumes around 45 percent of all health care spending, even though this demographic makes up only 15 percent of Canada’s population.
When will the effects of this problem be seen?
Busby argued that the beginning stages of this issue are already happening now. And as time passes, the problems will escalate. Busby noted, “We’re just at sort of the early stages of it right now. The big upward pressure isn’t going to hit until most of the baby boomers are starting to leave the labour force, and when they start to hit ages that really put pressure on the health care system.”
Is there a way to mitigate the problems?
While it will be difficult to avoid the tax hikes of a growing elderly population, it is not inevitable. There are a few solutions that can help avoid or decrease the negative effects. The report suggests raising the retirement age to 67 and that the government partially terminate Universal Old Age Security. Instead of providing the benefits of OAS to everyone, the program should be targeted to people who struggle without its support.
Outside of these two changes, the government will likely need to make the social services system more efficient to account for the increase in the elderly population.
23rd October 2017
When it comes to the question ‘who should pay the most in taxes’, the pervading philosophy has been to raise taxes on the wealthy. The rich have more money, so they can afford to pay a bit more. But how much do the wealthy actually pay in taxes? Are they truly paying their fair share? A recent survey by the Canadian Taxpayers Federation (CTF) aimed to address just this question.
What percentage of Canada’s taxes are paid by the wealthy?
A recent study by the CTF has revealed some surprising results. Canada’s wealthiest individuals are actually footing a large amount of the country’s tax bill. The two tax groups who pay the most in taxes are Canadians who earn over $100,000 a year (before tax) and Canadians who make more than $250,000 a year.
According to the study, Canadians who make over $100,000 pay the largest amount of Canada’s tax bill. While this group is made up of only 8.4 percent of the population, 52 percent of all Canada’s income tax was paid by this group in 2014.
Next, Canadians who earn more than $250,000 annually constitute 1 percent of the population. According to the CTF survey, this group was responsible for 21 percent of all income tax revenue collected by the federal government.
Between these two high earning groups, 73% of all Canada’s tax revenue is collected. Still, while few people will likely feel sorry for these wealthy individuals, the survey shines a light on the common argument that “the wealthy don’t pay enough tax.”
A history of high tax rates for the wealthy
As Canada’s tax system is based on the amount of money individuals earn, higher taxes on the wealthy are nothing new. However, since the Liberals took office in late 2015, they have concentrated on fulfilling their campaign promise of raising taxes on the upper class. A new income tax bracket was formed dedicated to Canadians who earned $200,000 per year or higher. This group’s tax bill was raised from 29 percent to 33 percent.
Recently Prime Minister Justin Trudeau claimed this is still not enough, falling back on the old argument that “the middle class pay too much in taxes and the wealthiest don’t pay enough” noted Mark Milke, author of the CTF study.
Milke’s study shows that this belief is simply not true, and he commented, “The middle class could always use a tax break. But it is false to say higher income Canadians do not pay their fair share.”
While the statistics revealed by the survey are surprising, the CTF may have another agenda. The group is also asserting that Canada’s taxes are too high in general, noting, “The most recent statistics from 2015 show the general revenues to all Canadian governments amounted to 38.6 percent of (gross domestic product).”
Whether or not the results of the CTF’s survey change the perception of the wealthy’s tax responsibility, is yet to be determined. Will current tax policy change? Will taxes be reduced for all Canadians? This survey may play a role in answering these questions in the coming years.
29th September 2017
After Canadian Finance Minister Bill Morneau proposed a plan for tax reforms, he received critical responses from many sectors, including those from members of the Canadian Chamber of Commerce who said he owes them an apology. The tax reform proposal, according to Morneau, is believed to close loopholes which enable wealthy business owners to avoid paying higher tax rates by incorporating themselves.
The reform’s changes
The plan included more controls on business owners’ activities, including doctors and lawyers, who avoid their high tax rate by participating in “income sprinkling” to family members in lower tax brackets.
It also aimed to put restrictions on the use of private corporations to passively invest in unrelated companies, as it may allow a person to have tax deferral advantages. Another change would limit Canadian business owners from claiming regular income of a corporation as capital gains, which are generally taxed at a much lower rate.
Voices from Chamber of Commerce members
Upon learning the news, many of the business owners say the proposed reforms, and the Liberal government in Ottawa itself, are casting a negative light on them and the minister owes them an apology.
"Whenever a process from government starts to position business people and the business community in such a negative light, it is an absolute disaster from a communications perspective and I think an apology from our federal minister to the Canadian business community would be appropriate," said Steve McLellan, CEO of the Saskatchewan Chamber of Commerce.
In addition, the concerns were expressed that the reforms could be unfair for family farmers and small business workers.
"We may very well find that it discourages entrepreneurship and investment in Canada and has damaging impacts on the Canadian economy," said Perrin Beatty, CEO of the Canadian Chamber of Commerce.
The meeting also discussed the proposal as it would impact how doctors pay their taxes and could shake up the Canadian healthcare system. As of now, medical associations on many provinces have conducted surveys on doctors’ opinions towards the change. The results are shocking.
In New Brunswick, 65% of more than 500 doctors said they would consider reducing working hours, 46% would move their practice outside of the province, and 25% would consider retiring from the profession, if the measures are implemented.
In Nova Scotia, more than half of 864 doctors would consider leaving the province if the proposal passes.
There are growing concerns that Morneau’s tax reform will largely affect the patients as the loss of only a portion of doctors in a province like Nova Scotia could impact the needs for essential healthcare services. Given that it already faces a hard time caring for the aging and sick population, the passing of this proposal could have serious repercussions.
However, Mr Morneau said he is open to all opinions including those from doctors and willing to take them into consideration.
"We're out listening to people and haven't concluded on the fiscal measures," he said.
30th August 2017
July 25th, 2017, marks the day Canadians have been paying their income tax for a century! The same day in 1917, three years into the First World War, The Conservative Finance Minister Sir Thomas White introduced Parliament to federal income tax. The purpose of the tax was mainly to increase military support.
Many Canadians thought the tax was for a temporary period, especially because it was wartime. Sir Thomas otherwise stated in his tax introduction that it was intended for one or two years after the war, then the Parliament would review the clause to determine whether it was suitable for future application. Today, Canadians still pay the income tax. But how has the tax evolved as it turns a century old?
“The tax started out as a levy on the very richest Canadians. In the early years, as few as one in 50 people paid,” wrote Professor William Watson of McGill University. He also commented that only 2.3% of the population paid the tax in 1938. However, as of today, the tax was paid by most Canadians and 75% of them also file tax returns. This means income tax makes up nearly half of the country’s federal revenue.
However, as its population and economy grow, the country needs to revisit their income tax in other perspectives. Professor Watson suggested that Canada’s income tax is “too high, too important, too complex and too costly” for the country’s current situation.
Statistically, Canadians pay for their income tax at higher rates than most US states. According to the report, seven Canadian provinces were ranked in the top 10 marginal tax rates in North America. Professor Watson also noted the difference of margins for paying at top rates, “Top rates for U.S. states start at over $500,000, in some cases almost $1.5 million. In most provinces, by contrast, the top combined federal-provincial rate starts at $200,000”.
Out of 35 OECD countries, Canada ranks fifth highest for countries that rely on income tax revenue. The federal government, together with other provinces, received more than 33% of their revenue from income tax payers nationwide, while the average of other OECD countries is less than 25%.
Other points of concern for this current income tax are that it is “too complex and costly”. According to Dr. Watson, the current income tax contains a million words which is equivalent to 1,406 pages, compared to when it first launched in 1917 (it spread to only 10 pages). More importantly, there is significant increase in tax expenditures. In 2014, Canada recorded their tax expenditures to as many as 128 while there is also a 27% increase in number. Moreover, with all the complexity, every year a Canadian family on average spends no less than a value of $500 either in time or expense to have their tax done.
According to Professor Watson, in order to have a more efficient and reasonable income tax program for everyone, Canada may have to rethink their tax system. They may have to change how people pay tax by making the base broader and the rate lower, or even considering a low but progressively rising rate on personal consumption.
27th July 2017
The notion that large corporations and the wealthy do their best to dodge taxes is nothing new. Like the tax systems of many countries, Canada has a number of loopholes that businesses and wealthy professionals have been able to exploit over the years. Now, the Canadian Government is looking to crack down on this issue.
Finance Minister Bill Morneau has proposed a plan that aims to prevent businesses from continuing a practice that has become known as income sprinkling. This legal strategy the government now looks to outlaw occurs when a business owner shifts part of their income to family members such as their children or relatives. As these individuals are not subject to the same high taxes a business has to pay, the company using this loophole is able to lower its tax bill.
The government estimates there are around 50,000 Canadian families who use this ‘income sprinkling’ strategy to their advantage. And it is not just corporations who do this. Morneau has noted, “There’s been a big increase in professionals that have been using these structures.”
Doctors and lawyers, among many other types of professionals, are some of the people Morneau claims to be participating in income sprinkling.
As with any sweeping changes made by a government body, it is certain there will be people who will be against the reforms.
“Of course, when you change things in a way that make it less advantageous for some people, they’re not going to be happy about it,” Morneau said.
Dan Kelly, the president of the Canadian Federation of Independent Business fears that if these changes pass, they will have negative repercussions on small and medium businesses. Smaller firms, especially, are more vulnerable to this type of legislation as they already face a large number of obstacles. Kelly notes that these firms must face the challenges of premium increases for the Canada Pension Plan and Employment Insurance, changes to NAFTA, as well as the difficulties brought about by a rising minimum wage.
While this tax reform will likely make it more difficult for Canadian small and medium businesses, Morneau notes there is a more important issue at stake, “I don’t want to see one small subset of the population advantaged because of our tax code, so it is about creating fairness.”
Perhaps as a testament to his belief, Morneau admits he is likely to be affected by these tax changes as well.
"I have not looked at my personal implications from these changes as we've gone through them, and I've done that on purpose because I want to make sure the system is fair and I don't want to consider my personal situation... My expectation is that these changes, over the long term, will mean that I’ll end up paying more tax." Morneau said.
Morneau firmly believes that all Canadians should have to pay their fair share of taxes, including himself.
At Accountancy Insurance, we hope to keep all our valued clients informed on the latest tax news and business trends.
25th May 2017
Two facts ought to draw close attention now that the regular tax filing season is complete.
The first is that record numbers of the highest-earning Canadians are paying no tax, according to a recent analysis by the CBC. The number is still small on a national scale – roughly 6,000 people, according to the most recent statistics made available – but it represents an increasingly visible issue in a country where many have argued that the tax laws are unnecessarily complex and vulnerable to clever accounting tactics that occasionally take advantage of original approaches to tax filing, including write-offs totaling billions of dollars each year.
The publicity alone surrounding this issue is likely to spur the Canada Revenue Agency into action, in addition to the CRA’s own recognition of the fact of lost revenue, as well as the likelihood that the Trudeau government would pressure the agency toward a more transparently equitable outcome.
The other noteworthy fact to consider is that the Offshore Tax Informant Program (OTIP) has been inundated with leads lately. The OTIP was launched in 2014, for the purpose of inviting taxpayers to report on their peers with any tips or information regarding those who are allegedly avoiding their obligation to pay taxes. The program offers the promise of rewards for those whose information leads to the collection of $100,000 or more in federal tax, and has already received hundreds of submissions.
Whatever one’s views about such a government program, the reality is that, by all accounts, the CRA is taking these submissions seriously and investigating the leads it has thus far generated. A spokesman for the CRA recently indicated that as a result of citizen submissions, the agency had initiated audits on 218 taxpayers, and reassessed upwards of $1 million in penalties and taxes.
And that’s just for tax issues related to international accounts. The program’s purely domestic analogue is far more active. In the 2016-7 financial year, reports indicate that the domestic tipline – which does not offer rewards for caught tax avoiders – has received well over 35,000 calls.
The CRA has not been shy about pursuing those it identifies as tax avoiders, as one Vancouver real estate developer recently learned to his cost. The man was recently stuck with a penalty of $300,000 for not paying GST on sales, in addition to the $203,082 he was deemed to have avoided paying in the first place.
Perhaps a third fact is also relevant to this picture of a possible increase in the number of audits to come. In an embarrassing development, the CRA has recently admitted that it sent $2 million in paychecks to former employees who were not supposed to be included on its current payroll. Moreover, this has been a recurring problem for the agency, which made similar mistakes in the past.
The upshot of all this is that the CRA has been given strong incentives to increase its frequency of demanding audits, reviews, investigations and inquiries – and that at the same time, it may well be doing so based on an imperfectly functioning database system.
5th April 2017
In stark contrast to the deregulatory flavor of the Trump administration, Canada has introduced a 2017 budget that features a strong government presence to keep watch over the economy. Put forth by Finance Minister Bill Morneau, the new budget gives accountants plenty to think about – as it attempts to tighten or close off several avenues commonly used to lower tax obligations.
Among the programs introduced or strengthened by the new budget are an ambitious 10-year, $11.2 billion affordable housing plan, expanded daycare services, job training and support, additional funding for education to prepare workers for high-tech industry developments, a national housing database, a “venture capital catalyst initiative”, and several projects to facilitate student loans.
Part of the cost of these programs will be met through raised employment insurance premiums as well as higher taxes on tobacco and alcohol, but a multi-front set of countermeasures against tax loopholes will also play a large part in ensuring a sustainable tax base moving forward.
Perhaps most notable among these is a new $523.9 million investment over the next 5 years to increase the number of government auditors and ensure compliance with financial reporting regulations moving forward. This announcement portends a new wave of tax avoidance investigation cases nationwide, and crackdowns on individuals and organizations whose tax returns are incomplete or contain errors.
The Canada Revenue Agency clearly anticipates that this proactive stance on tax evasion will reap significant additional income, estimating that the government will receive an extra $2.5 billion as a result of the CRA’s enhanced investigatory powers. The message for accountants in this new environment is surely to be as meticulous as possible, and also responsive to the new set of reporting rules summarized briefly below.
Most tax rates will remain the same over the coming year, but work-in-progress exemptions for billed-basis accounting in several professions will be disallowed. Home relocation loans and gifts of medicine will no longer be eligible for tax deductions; insurers for farmers and fishing properties will no longer enjoy tax exemption; education and disability savings plans will be subject to tax-avoidance rules; and the Public Transit Tax Credit will be discontinued. In addition, straddle transactions will no longer provide the benefit of allowing realization of a loss while an offsetting gain goes unreported.
Other common practices will be monitored for potential future action, including the shifting of funds to capital gains or portfolio investments, as well as to other family members, for the purpose of securing lower tax rates.
The government has also modified its rules on the recording of gains and losses on derivatives, proposing an elective mark-to-market regime that will clarify reporting standards for these financial instruments. Switch mutual fund corporations will be eligible for re-structuring into multiple mutual fund trusts, though restrictions do apply.
The budget contains several adjustments in other areas, and as with all accounting-related matters, close attention to detail is essential. Moreover, modifications may be made as the year progresses, although the budget’s theme of closer supervision of accounting practices is unlikely to change.
10th March 2017
Canada’s economy grew at an impressive 2.6% annualized rate through the fourth quarter of 2016, better than the US (at 1.9% growth) and significantly higher than expectations. December brought a $900+ million trade surplus to the country, its second consecutive month of a profitable trade balance. Canada’s unemployment rate has also dipped to 6.8% in January, thanks to a higher-than-expected addition of 48,300 jobs in January.
Moreover, the apparent failure of the Trans-Pacific Partnership, together with moves toward a breakdown of global trade norms thanks to victories for Brexit and Donald Trump, have prompted Canada to begin discussions with China for a possible free trade agreement, in a signal that Canada’s businesses may be looking to benefit from political turmoil in other Western countries. Many observers expect trade between Canada and Mexico to also increase if relations worsen between Mexico and the US.
A closer look, however, reveals warning signs and hints that such indicators of growth may not tell the whole story, and may suggest more optimism for the future than is actually warranted. The 2.6% rate of GDP growth from December is impressive indeed, but was largely prompted by an increase in household consumption and spending on financial services, rather than sustainable growth engines.
The Bank of Montreal reported that it made about $1.5 billion in the past 3 months, a 40% increase over the same period the previous year. Others such as the Royal Bank and CIBC also experienced double-digit growth. As Canada’s GDP enjoyed its recent 4th quarter rise, overall business investment declined by 2.1% over the same period.
The $923 million trade surplus came despite a 1% increase in imports and a 1.4% decrease in volume of exports. The bulk of the surplus came as a result of higher global oil prices, giving Canada a better profit margin on its sales. Increasing revenue numbers are all to the good, but such deep links between a country’s fortunes and world commodity prices may not always turn out so well.
Meanwhile, moves toward alternative energy systems continue to gain steam. Tesla Motors has spurred much of the auto industry toward production of electric cars, while SolarCity (owned by Tesla) is pursuing its ambitious plans to connect much of the US to solar grids. Successes here will mean replication elsewhere, as countries and consumers looking to wean themselves off of oil could see their opportunity.
Regarding employment, of the 48,300 jobs added in January, 67% of them were for part-time positions and 88% were in the services sector. Trends in Canada, as elsewhere, have seen increased participation in the “sharing economy”, coinciding with the rise of companies like Uber, Lyft and Airbnb. Between November 2015 and October 2016, 2.7 million Canadian adults reported participating in the sharing economy, whose critics complain of low wages for workers as well as a distortion of real estate prices.
Canada remains hopeful that its continued positive relationship with the US and with other world powers lead to strengthening economic numbers in the years and decades to come. As with all countries in this changing economic landscape, however, success will most likely depend on how well Canada focuses on anticipation and adaptation, as new industrial and political realities unfold around it.
(primary source: http://www.cbc.ca/news/business/canada-gdp-q4-2016-1.4006233)
25th January 2017
One of Donald Trump’s first actions as president was to remove the US from the Trans-Pacific Partnership, the controversial trade deal he criticized as a candidate, along with NAFTA. Some potential member nations are urging a resumption of talks and a new iteration of the deal, absent any US involvement, while others seem less sanguine about their hopes.
While the TPP’s future is highly questionable at this moment, it does seem certain that NAFTA will receive new scrutiny and very likely significant changes, as a revitalized focus on trade deals was a clear theme of Trump’s inauguration speech upon entering office.
The free trade agreement linking Canada, the US and Mexico has been at the center of much debate, and the economic priorities it represents have still not been accepted by its critics. The deal, like the proposed TPP and other trade deals over the years, aimed to boost trade between these countries to integrate their economies and allow business development to accelerate between them.
The most common criticisms are that such deals allow larger companies to prosper at the expense of smaller ones, that workers in the more developed countries lose jobs due to offshoring, and that the relative absence of workplace regulations in some countries (such as Mexico) increases pollution and other externalities.
Whatever the merits of NAFTA, clearly some kind of agreement needs to be in place for these countries as they move forward. For its part, the new US administration has signaled to Canada that, despite its frequent mentions of imposing tariffs in other contexts, it foresees no significant changes in the economic relationship between the two countries. The US posture toward Mexico, by contrast, may be up for realignment.
The Canadian economy – and indeed the US’s – relies heavily on positive trade outcomes between them. No country buys more American goods than Canada, which is the top purchaser of goods made in 35 of the 50 American states. In the other direction, 70% of Canadian exports go to the US – numbers that illustrate the close bond (and near-dependence) that develops between countries whose economies are tightly linked through free trade.
Given the economic ties binding the two nations, Canadian businesses on the whole will lose if the Trump administration leads the US into a recession the way that some analysts fear. It is also worth closely watching how America’s relationships change with other countries. If the Trump administration presides over a notable deterioration in trade relations with Mexico or other countries, Canadian companies may either suffer (if they use the US as a geographical intermediary for the transport of goods) or succeed by undercutting two countries whose tariffs are aimed at making each other’s goods less competitive domestically.
13th December 2016
A $70 million tax change that has members of Canada’s medical community fuming has received the support of the country’s highest ranking finance officer. Finance Minister Bill Morneau has come out in defense of the change, saying that it is aimed to simplify the tax rules for all professionals who run small businesses.
Mr Morneau appeared before the Senate National Finance Committee in early December where he received a tongue-lashing by Senators as he attempted to defend his latest budget bill, C-29. Mr Morneau was summoned to address concerns lodged by physician organizations about a tax change that limits how professionals working in a grouped corporate structure are eligible for small business tax deductions.
The government argues that professionals should not be allowed to claim they are a stand-alone small business if they are operating under one corporate entity. The measure was announced in the March budget to quell the ability of ‘high-net-worth individuals to use private corporations to inappropriately reduce or defer tax.’
“We believe the approach we’ve is fair across small businesses. We are not treating physicians in any way different from other professionals or other small businesses”, Mr Morneau told the Senate. “What we’re saying is one small business is able to have one small business deduction, he continued.”
The Finance Minister also affirmed that the tax change related to the small businesses will raise $70 million in new revenue per year. The change applies to a gamut of professionals, but physicians have rallied in an aggressive campaign, arguing that unlike other professions, they can’t pass the higher operating costs onto the consumer. They also contend that having many specialists operating in the same facility, the very reason they’ve been singled out as working within a corporate structure, leads to better healthcare. These joint medical partnerships were created to pool income to cover the costs for healthcare that is needed but not covered by provincial plans.
Many Senators voiced concerns on behalf of a multitude of physicians’ and medical professional’s associations, that such a tax change would have a negative impact on Canada’s ability to keep physicians and specialists in the country.
One medical association has said that the change would lead to some physicians owing tens of thousands in addition taxes. Another organization warned that the change is a tipping point which, in conjunction with several unresolved financial matters with the provinces, could have many of the most talented Canadian specialists jumping across the border to the United States.
Furthermore, many physicians feel like the lack of talented doctors and other healthcare professionals will impede support for research and education in addition to hampering the range of care and expertise.
15th November 2016
The Senate finance committee seeks to add an amendment to Bill C-2 that if enacted would make substantial changes to Canada’s federal tax brackets. Conservatives control a majority within the committee including the committee’s chair, Larry Smith of Quebec, who proposed the amendment. After heated debate, the motion to move the amendment to a full Senate vote passed 9-3.
The amendment would give Canadians making between $45,282 and $52,999 annually a larger tax break. The changes would have the effect of raising taxes by $1.7 billion in an attempt to address a funding shortage in the original plan.
Although it is not common for the Senate to amend a government bill, especially a tax bill, if the Senate passes the amendments, the bill goes to the House of Commons for a vote there. The Senate can’t initiate legislation that brings about new taxes or new spending which is part of the reason the committee’s debate grew heated.
The original bill, Bill C-2, applies the tax changes Justin Trudeau’s Liberal government made which came into effect on January 1. The original reduces the second marginal tax rate from 22 percent to 20.5 percent on yearly earnings between $45,282 and $90,563 and creates a new tax bracket with a tax rate of 33 percent on income over $200,000. The government can apply tax changes after voted on in principle in the House of Commons without approval from the Senate.
According to Mr Smith, the government’s changes aren’t revenue neutral and higher-income citizens are set to receive weighted benefits from them. He claims his committee’s changes benefit more of the middle class and would achieve income neutrality.
The committee’s changes would make a new, reduced tax rate of 16.5 on income greater than $45, 282, but less than $52,999. It would retain the 20.5 percent rate on income more than $53,000, but less than $90,563. According to documentation provided by Mr Smith’s office, ‘a transition as an individual moves to the third bracket for income above $90,563 which would make the tax plan revenue neutral.
If Mr Smith and his fellow Conservative committee members are to have success, it needs to come soon. The Senate will soon welcome a new wave of Senators appointed by the prime minister. Mr Tredeau’s appointments will outnumber the Conservatives 44 to 40, although committees will not be changed to reflect this majority. Thus the Conservatives will continue to have a majority in committees.
Most of the existing Independents on the finance committee, who represent a minority, and those throughout the Senate, expressed strong disapproval to Mr. Smith’s amendment. Some Independent Senators argued that the committee’s plan would discourage Canadians from earning more for fear of triggering the transition clause.
Canada’s Finance Minister Bill Morneau called the move ‘surprising’ because the liberal party had promise changes to the bill in the election campaign, but didn’t say much more about the issue.
14th October 2016
Earlier this month, Canadian Prime Minister Justin Trudeau announced his government’s plans to introduce a tax on carbon emissions beginning in 2018 in an effort to meet the guidelines set forth in the Paris Climate Change Agreement.
The announcement came October 3, 2016 as Trudeau addressed parliament. Politicians started debating whether Canada should approve the agreement made in Paris. The House of Commons ratified the Paris accord by an overwhelming majority just two days later. The agreement will attempt to keep global warming below two degrees centigrade in the 21st century and will come into effect on Nov. 4. Canada joins 60 other nations that have ratified the agreement to halt climate change.
Applying the carbon tax will fall on individual provinces and territories, as is stated in the Vancouver Declaration, either by setting up a direct tax on emissions of at least $10 Canadian per ton or by imposing a cap-and-trade system. Either way, each province and territory must apply one of these methods for taxing carbon emissions by 2018 or the federal government will enforce a tax of $10 a ton with an ascending scale of $10 per ton per year until it reaches $50 per ton by 2022. The prime minister said that although past inaction regarding climate change cannot be undone, a ‘real and honest’ effort to protect the health of the environment and the people of Canada can be made.
Mr Trudeau believes that a carbon-based tax gives the country a leg up on other nations toiling with the decision. He argues that pricing carbon pollution, as it is called, will give business leaders motivation to find new and cost-effective ways to reduce emissions and provide the country with thousands of jobs in the clean energy sector all while making Canada’s economy cleaner.
The prime minister isn’t the only one who feels this will be great for the country. Also in favor of the carbon tax is the Minister of Environment and Climate Change, Catherine McKeena. Of the day Canada voted to ratify the Paris Agreement she said it was ‘a great day’ for Canadians and that it marked a step forward after years of doing nothing under the previous government. The ratification of the Paris accord also signifies support of the Vancouver Declaration. McKeena also believes that the ratification will improve the Canadian economy.
Still, the enthusiasm Mr Trudeau shares with some of the members of his cabinet isn’t echoed by all throughout the House of Commons with criticism coming primarily from the Conservative Party.
There has also been stinging comments made from province premiers, namely Saskatchewan premier Brad Wall, who criticized the prime minister for making the announcement suddenly and unilaterally without seeking common ground or a sensible timeline with the provinces. Wall believes the tax will impair his province’s already reeling economy due to lowered commodity prices and that Saskatchewan will be among the hardest hit by such a tax because of its trade expose resource industries.
15th September 2016
Some of Ontario’s greatest economic minds have found themselves in a debate over the rising housing costs in and around Toronto. Some economic experts came out in favor of a 15% foreign buyer’s tax similar to the one in British Columbia. But those in the real estate industry warn moving ahead with such a tax without first understanding the possible negative economic effects could be harmful.
The heads of two of Toronto’s most influential real estate bodies have each submitted written objections to increases in Ontario’s taxation of foreigners buying property in the Greater Toronto Area (GTA). The leaders of the Toronto Real Estate Board (TREB) and the Ontario Real Estate Association (OREA) both wrote letters to the Ontario Finance Minister Charles Sousa and Toronto’s Mayor John Tory asking for more time to analyze and understand the effects the tax could potentially have on the economy if implemented too hastily. These groups and some others have called implementing the tax at this point ‘premature.’
On the other side of the coin, economists and politicians have said that the province’s leaders will have limited options other than implanting the foreigner buyer tax. These experts said that the Great Toronto Area’s (GTA) high land prices are caused by laissez-faire land supply policies and that a tax is one of the only ways to level the playing field. A 15% tax on purchases made by foreigners or non-residents of residential property could quickly achieve the stability needed in the market.
Ontario Finance Minister Charles Sousa has stated that there are no plans to implement a foreign buyer’s tax as of now. In addition, he said that both the Toronto and British Columbia housing markets will be monitored closely in the future to see how effective the tax works in British Columbia and if it could work in Ontario too.
Since British Columbia introduced its 15% tax on foreigner’s purchasing land in and around Vancouver over the summer, it appears to have slowed down housing activity significantly. According to the Real Estate Board of Vancouver, house sales have dropped more than 25% in August 2016 compared with a year earlier. However, Vancouver’s housing prices rose with the benchmark prices of residential properties increasing 31.4% from last year.
The assumption many have made after the tax arrived in Vancouver was that foreign money aimed at real estate would land elsewhere, such as Toronto, which saw a considerable rise in prices in the tax’s wake. Some real estate experts believe Toronto’s luxury market will also see a boon in response to British Columbia’s foreigner buyer’s tax.
18th August 2016
Canadian banks have received one more year to implement global reforms introduced by the Basel Committee on Banking Supervision in the wake of the 2007-2008 worldwide economic meltdown. The changes would attempt to improve risk disclosures and the time would allow lenders to devote time and resources to adopting new accounting standards before adopting the changes.
The Basel Committee on Banking Supervision (BCBS) was founded in 1975 and promotes regular cooperation on banking supervisory matters by providing a forum for banks across the globe. Its mission is ‘to enhance understanding of key supervisory issues and improve the quality of banking supervision worldwide.’ The committee members are banking experts and professionals from across the world. They come from countries such as Argentina, Australia, Brazil, Canada, France, Germany, Hong Kong, India, Italy, Japan, Mexico, Switzerland, the United Kingdom, and the United States, to name a few.
Canada’s financial supervisory body, the Office of the Superintendent of Financial Institutions stated that the back would have until October 2018 to make the changes to strengthen disclosure agreements. The additional time will give the country’s largest lenders more breathing room to focus on installing ‘high-quality’ global accounting standards.
Originally, the Canadian banks were supposed to be some of the first from any nation to adopt the latest version of the International Financial Reporting Standards (IFRS) in November 2017 with the vast majority of other countries adopting the standards in 2018. The supervising body said on its website that a ‘significant level of effort’ was required to implement the new international standards. The banking watchdog seems content to postpone the changes while the banks bring the accounting side of things up to snuff.
The big reason for the extension, according to experts, is because bringing in the new international accounting standards has been considerably more work than most expected. Banks have been buried in the implementation of IFRS and so the extra allotted time will give them some wiggle-room when it comes to the Basel disclosure requirements, experts said.
The new disclosure requirements would usher in several new and improved practices and guidelines. For example, the new risk disclosure guidelines would require banks to provide notice of expected credit losses earlier than before. Accounting firms across in Ottawa, Toronto, and across Canada realize the substantial impact this rule would have on the way financial institutions account for losses on loan portfolios.
As of now the Office of the Superintendent of Financial Institutions’ decision to extend the timeline to adopt the new reforms won’t affect the requirements on Canadian banks to hold certain levels of capital and liquidity.
Experts in tax law believe the Basel disclosure requirements and new accounting standards will each require banks to be more assiduous and thorough when providing details about the existence and extent of any risks coming from financial instruments.
As always Accountancy Insurance is here to not only provide its clients with the best in tax audit insurance, but also updates on current events occurring across the world in real time. If your accountancy or auditing firm is in need of tax audit insurance, contact Accountancy Insurance.
25th July 2016
Brexit—the United Kingdom’s vote to leave the European Union—shocked the world.
Many thought the referendum didn’t have a chance of passing. Some believed the majority of Britons saw that the benefits of staying in the European Union (EU) far outweighed its shortcomings. Other’s thought it was some politicians’ half-baked solution to a growing immigration crisis. Other saw it as the status quo which wouldn’t be shaken.
Whatever insignificance was attributed to the referendum before the vote on June 23rd, 2016 is now moot. Those in favor of leaving won by a 52-48 margin and now the UK and its strongest trade partners must deal with a period of uncertainty in its wake.
Here in Canada, like most other places, it is too early to tell how exactly the Brexit vote will pan out in the long or even medium term. The short term effects thus far have been fairly minimal. In a time of many permutations—simply put—Brexit can go one of three ways for the Canadian economy—good, bad, or neutral. Since a neutral result wouldn’t change anything we’ll leave that possibility out. Let us explore some of the positive and negative impacts this historical decision could have.
The immediate impact of Brexit saw stocks in Canadian companies with firms and investments in the UK drop as many did not foresee a departure from the European Union (EU) as plausible. This was because a strong push to Bremain—the campaign to remain in the EU—was making tracks leading up to the vote. Because the UK was Canada’s gateway to European trade and having previous trade agreements in limbo, some Canadian companies are considering relocating their UK operations elsewhere. Canadian workers in the UK have legitimate concerns regarding their future if the Canadian companies they work for decide to leave. If Canadian companies decided to leave due to uncertainty in the market or lack of conduits into Europe, the property values of the Canadian businesses that stay in London, for example, could fall a whopping 15-20% within five years.
Believe it or not, Brexit may not spell all the doom and gloom for Canadian companies as some experts predict. The uncertainty and anti-globalization sentiments present in the UK at present could have foreign investors re-evaluating doing business there and looking toward other markets such as Canada. Also Canada could strike new deals that benefit its economy better than the Comprehensive Economic and Trade Agreement (CETA) it has with the European Union (EU) while negotiating a new, more comprehensive, and now separate trade agreement with the UK, one of Canada’s biggest trading partners. The Canadian companies that do leave the UK in search of other countries to set up roots for European operations could resettle in markets such as The Netherlands, France, or Germany. This could be seen as a positive step into building new foundations and reaching further into Europe which as a collective in the largest economy in the world.
22nd June 2016
Choosing an accountant isn’t usually something most people think about. Often times, it’s something they don’t think about until it’s leading up to tax day (or the day before). When the time comes to see an accountant, some people simply go to whoever is closest and don’t consider any of the qualities that make a good accountant in the decision process. However, most of these people don’t realize is just how much the person they trust with their financial and tax matters, well, matters.
At the same time there are quite a few things an accountancy firm can do to keep smiles on their current customers, who know and trust them, while herding in new clients, who are finally looking for a quality accounting experience. There are the obvious things: an assiduous work-ethic, a good tableside manner, and overall professionalism are all traits that come with a good accountant. Here are a few more ideas for how to improve your accountancy business and give your customers, whether old or new, exactly what they want.
Communication is the key to any great relationship. While it is obvious that communication will happen naturally throughout the process of working on your client’s taxes, it is nice to set a few ground rules when it comes to when and how frequently each party should hear from the other. If the expectations aren’t made clear early the chance of a communication breakdown increases and may result in either or both refusing to work with the other. If a client calls every day with time consuming questions, it might cause problems. On the other hand, if there’s no communication until the day before the return is due, that won’t work either. It is important to discuss how you expect to communicate with your clients and to solidify a timeline you can both live with.
Clients are often drawn to the whole package—comfortable office, knowledgeable people, and a personalized touch. Another thing customers are becoming more and more attracted to is tax audit insurance. Firms using Audit Shield from Accountancy Insurance are able to give their clients a little bit more peace of mind that while everything will probably be fine, in case it doesn’t, they are covered. Having tax audit insurance in place is a huge selling point for informed clients.
3. HAVE YOU MET THE MAN?
Another question a lot of customers have for their accountant is ‘how much experience with the Canada Revenue Agency (CRA) do you have?’ Being contacted by the Canada Revenue Agency can be a nerve-racking experience full of uncertainty. Clients want to know that if they are ever issued a notice, that they will be in the hands of an experienced and professional accountant who knows what they are doing. They need the consul and expertise of an experienced and knowledgeable accountant in their corner.
Some other qualities an accountant might want to push to the forefront when courting new clients is their experience in business, their tax planning experience, and their relationship to other clients.
18th May 2016
Since expanding from Australia and New Zealand to Canada, Accountancy Insurance has established itself as a growing presence in the insurance field, especially in our specialty area of insuring accounting firms. The dedicated focus of our staff of professionals to the particular business needs of accountants has generated enthusiastic recommendations from our clients and helped us to emerge as a growing, exciting new player in the insurance industry in Canada.
The leading product offered by Accountancy Insurance is coverage for audit activity related expenses under Audit Shield. For modern, forward-minded businesses, the risk of unpredictable or variable expenses can be managed suitably with insurance products to remove uncertainty, streamline cashflow management, and generally eliminate risk. Just as liability and fire insurance assure confidence to businesses and homeowners, so firms can rest easier by insuring against unexpected costs associated with their clients' audits. Because the need for audits can come without warning—at times from a random drawing or the snap decision of a supervisory authority—the costs associated with complying with an audit can materially affect a firm's cash balance, sometimes with unfortunate timing. Firms already have the unwelcome choice of absorbing the cost themselves or passing it on to their client—a decidedly unappetising pair of options—but now have a third and starkly preferable option, thanks to tax audit insurance coverage with Audit Shield.
The Canada Revenue Agency (CRA) has indicated on its website that construction, retail, and hospitality and food service firms are the most likely Canadian businesses to be audited by the CRA. For business firms in these sectors, the exposure to auditing expenses can be an especially pertinent financial line item. Other businesses need to perform or conduct an audit in accordance with non-tax regulations or under contractual terms of their lenders. No matter the source, an audit is always an important business event, and one that needs to be handled in the right way.
But it's not just companies in those industries that need to think ahead: Every business that pays taxes can be required to undergo an audit. Every firm can be required to comply, on behalf of their clients, with a government audit for this year or years past. And that means that every firm providing accountancy services to their clients can benefit by managing risk and protecting your business. And our business bears that out: 95% of clients who have engaged Accountancy Insurance for tax audit insurance say that they would recommend their friends and colleagues to use Audit Shield.
Contact us to find out what Accountancy Insurance can do for you.
12th April 2016
Most Canadians have already filed their tax returns this year, but perhaps not everyone; those who have self-employment income have until June 15 to turn in their tax reports – following several significant changes in how Canadians must organize their finances at tax time.
This year saw general income tax breaks for the middle class, and a rate hike for the top 1%. Families with children are able to claim additional expenses ($8000 for each child aged 6 and under, and $5000 for kids aged 7-16), and the child fitness tax credit is now refundable.
Other policies are coming to an end, with this being the final time that the Enhanced Universal Child Care Benefit will be in effect, as it is set to be replaced by a new, tax-free Canada child tax benefit. Income-splitting between spouses earning different income levels, for the purposes of averaging out those incomes so as to stay within lower tax brackets, is also on its way out after this tax season.
Additional upcoming changes have been announced for next year and more are surely on the way. The complex nature of taxation in the modern world means that predicting the future is hard – and tax returns for companies or diversified individuals are likely to be examined more closely from now on.
With the possibility of an official audit, enquiry, investigation or review hanging overhead if the government suspects there might be a wrong number or statement on a tax form, one could be forgiven for feeling anxious about getting through tax season unscathed, even on the strength of an entirely competent accountant.
With all the variables at play in the tax code, and the reality of human error to consider, it’s a relief to know that Audit Shield is available from Accountancy Insurance in Canada and beyond. Holders of Audit Shield can rest easy in the knowledge that even if the government does single them out for special attention, the resulting long hours of preparation work that their accountants will need to do for them will be covered by our policy. In short: We pay for any extra accounting work made necessary by government demands.
We’ve heard from countless accounting firms that Audit Shield makes a big difference when marketing their services to clients, who are grateful for the optional protection that this special form of insurance can offer. The fear and dread that accompanies tax season loses much of its potency when Audit Shield is bundled together with a professional accounting firm’s promise of quality service.
New years are traditionally the time of new beginnings, and a new tax year is an excellent time to recalibrate one’s finances. Smart structuring of investments, clear and organized record keeping, as well as a mature investment in stability and security are all hallmarks of a balanced move forward.
Many people (and companies) are right now just one audit away from a massive and expensive headache. But with Audit Shield coverage provided by Accountancy Insurance, you can be on firm ground once again.