Quick Tax Notes

The Canadian tax and business scene have seen quite a few changes in the last couple of months. They include new or modified tax rules, class action settlements, and updated legislation. It’s important to stay in the loop if you’re living and/or running a business in Canada. This article discusses all of the relevant news in more depth, so keep reading to get all the details.

Interest and Penalties on Late Tax Filing

If a filing deadline is missed, generally a late filing penalty is assessed.?This penalty is also subject to interest as an unpaid balance.

?Given Covid, the government extended filing deadlines.?A taxpayer asked a question for clarification of the government as to whether the penalty and interest would be assessed and accrued from the original filing deadline or the extended deadline.

?The ministerial direction provided was similar to what happens when a filing deadline falls on a weekend – the penalties and/or interest commences on the next business day.

?So in the case of Covid filing extensions, the extension date (or the 1st?business day after that date should it fall on a holiday or weekend) is used to assess and accrue interest and penalties.

GST/HST Paid to Unregistered Suppliers

A March 2022 Tax Court of Canada Case considered a situation where Input Tax Credits were claim on payments to subcontractors without GST/HST numbers being obtained.

?After a CRA audit of the taxpayer, CRA disallowed $840,000 of ITCs claiming that the company did not meet the statutory requirement of obtaining the registration numbers first.?

?As a reminder, the invoice from your supplier should include their GST/HST number otherwise it is your obligation to get their GST/HST registration number from them.

?Credit Card Fee Charge Class Action

A May 30, 2022 CFIB Article (https://www.cfib-fcei.ca/en/media/news-releases/small-businesses-can-claim-600-class-action-settlement-visa-mastercard-and) discussed a class action settlement related to Visa and MasterCard Merchants.?Businesses that have accepted Visa and MasterCard payments between 2001 and 2021 can claim up to $30/year with no need to submit documentation – as long as your annual revenues were less than $5 million per year.?The process is easy and takes about 10 minutes.

?Also as part of the settlement, merchants will now be allowed to pass on merchant credit cards fees to customer effective late October 2022.?For those that take Visa and MasterCard, those fees that are associated with elite reward cards can really impact your bottom line, so this is somewhat welcome news – now, you just have to determine if this is something you want to do.

Ontario’s Disconnecting From Work Legislation

Just a reminder that if you are an employer with 25 or more employees in Ontario, effective January 1, 2022 you were required to establish a written policy on disconnecting from work.?This policy had to be distributed to your employees and active on June 2, 2022 and onwards.

?The term disconnecting from work?means not engaging in work-related communications, including emails, telephone calls, video calls or sending or reviewing other messages. While the Employment Standards Act does not require the policy to provide the right for the employee to disconnect from work or be free from work-related communications, the employer?should have their policy in writing.?For further information, see information on the Ontario Disconnecting from Work web page https://www.ontario.ca/document/your-guide-employment-standards-act-0/written-policy-disconnecting-from-work

TFSA Maximizer Schemes — Too Good To Be True?

There has been recent activity that has grabbed the attention of CRA.?IN May 2022, CRA added some wording into administrative provisions that discusses TFSA Minimizer Schemes.

?The Schemes invoice an investment in a special purpose mortgage investment corporation (MIC), which in turn makes loans back to the individual.?Essentially, the plan looks like this:

• The MIC issues two classes of Shares. The first is to be held by the RRSP, paying low rate dividends.?The second is to be held by the TFSA and pays a high-rate dividend.
• The MIC lends the capital investment back?to the individual in the form of a first and a second mortgage loan, bearing rates corresponding to the dividend rates. The mortgages are secured by the personal residence and the TFSA balance.
• The participant invest the loan proceeds?with the promoter.?Taxable investment income is earned.?Annual RRSP withdrawals are take to the extent that they are fully offset by an interest deduction for the mortgage payments.

Slowly, after several years, the entire balance in the RRSP (or RRIF) will be shifted to the TFSA tax-free.

?CRA’s position is that the arrangement is not commercially reasonable?since the MIC’s lending risk is negligible in light of the individual’s low risk profile.?Since the individual is, in essence, borrowing from himself, neither the high rate of interest on the second mortgage nor the high dividend rate?on the second MIC share class are justified.

CRA indicated that the following tax consequences?would occur:

• The high dividend?earned by the TFSA would be an advantage
• The second mortgage loan?would be an advantage?because it is conditional on the existence of the TFSA and has an interest rate that is unreasonable high under the circumstances (non-arm’s length)
• The Interest?paid on the loans may not?be fully deductible.

The importance to classifying this as an advantage?from CRA’s point of view, is that Advantages?are subject to a 100% tax?payable by the annuitant.

?So when you think that it is too good to be true, it usually is.

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?This blog is not meant to provide specific advice or opinions regarding the topic(s) discussed above. Should you have a question about your specific situation, please discuss it with your GBA advisor.

?GBA LLP is a full-service accounting firm in the Greater Toronto Area, but we primarily service all of Ontario as well as the rest of Canada virtually, except Quebec. Our team of over 30, provides Audits and Reviews of financial statements, and Compilations of financial information, as well as corporate tax returns.?We provide specialized corporate tax and succession planning for small and medium businesses, in addition to general advisory services.

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