Payroll – What are your obligations?

Who has to remit source deductions?

Payers, such as employers, administrators, trustees, and financial institutions must withhold and remit source deductions when applicable.

What source deductions do you have to withhold and remit?

The source deductions you have to withhold and remit to the CRA may be any combination of:

  • Canada Pension Plan (CPP) contributions;
  • employment insurance (EI) premiums; and
  • federal, provincial, or territorial income tax.

For example, if you are an employer and you pay a salary to an employee, you will generally have to deduct CPP, EI and income tax. If you are a pension plan administrator, you will have to deduct income tax but not CPP or EI.

What happens if you do not remit your source deductions?

If you do not remit your source deductions and employer shares of CPP and EI as and when required, the CRA can take actions against you. For more information, go to Failure to pay amounts deemed to be held in trust.

Forms and publications

Best way to Structure Your Real Estate Investments in Alberta

Real Estate investments can be held two ways:

Personally – The properties are held in your name personally.

Within a Corporation – The properties can be held in either an existing operating company, a holding company or a property company.

Depending your type of situation in the investments, then I would recommend the following:

  • You are going to dabble in real estate with very few properties. In this situation, the simplest method would be to hold the property personally.  In this situation, you would:
  • Purchase the property in your name and the obtain financing personally.
  • You would report the net income on property annually in your personal tax return.
  • In the year the property is sold, you recognized a capital gain or loss on your personal return and pay the associated taxes at your personal tax rate.
  • You plan to be in the business of real estate investing by purchasing multiple properties. In this situation, you’ll want to consider holding the properties within a corporation. The advantages of this type of structure are:
  • there is much less liability risk in the holding company because it holds shares of companies with no direct assets. The “property” company and the operating company are the risk companies, meaning if something goes legally wrong, you cannot be held personally legally liable.
  • you have the ability to defer some of the taxes owing by paying wage bonuses and/or dividends at later dates, not automatically in the year the sales transaction occurs.

The types of corporations are as follows:

  1. Operating Company – Setup to control the business operation and your day-to-day project management. All your active business components are within this company and also your risk.
  2. Holding Company – This is for building your family wealth. The holding company owns the operating company so we can strip residual income up into the holding company on a tax-deferred basis via dividends and then allow the holding company to acquire assets.
  3. Property Company – The use of this is for acquiring real estate on behalf of the holding company. Each property with a significant amount of risk may need its own company so that it does not put the others at risk.

How can this be set up?

This can be done in steps and it doesn’t have to happen all at once. The starting point depends on the size of the building you’re buying and the type of property management you’re doing.

Make sure you take records properly and that you’re reporting to your bank, mortgage holders and Revenue Canada appropriately.  If you’re committed to being in the business of real estate investing and you’re in it for the long haul, work with your advisors to setup the proper structure the first time. Although this isn’t a system for someone that’s dabbling, it can be a serious benefit to real estate investors that want to grow their portfolio over time.

Self-employed – What are your tax obligations

·       As a self-employed person, you and your spouse or common-law partner have until, June 15th annually to file your personal income tax returns or the tax department may charge you a late-filing penalty.

·       You have to report your income from any business you run yourself or with a partner. For more information, go to cra.gc.ca/selfemployed.

 ·       If you own a business or are engaged in a commercial activity, keep complete and detailed records. Your records should be detailed enough to calculate the tax you owe and to support any deduction or credit you are claiming. They also must be supported by original documents.

·       Keep your supporting documents for six years after the end of the tax year to which they relate. The tax department may ask you to prove your claims for deductions or credits with documents other than official receipts, like cancelled cheques or bank statements.

·       If you get income that has not enough or no income tax withheld during the year and you owe more than $2,000 in taxes, you may have to pay tax by instalments in future years. For more information, go to cra.gc.ca/instalments.

Taxes and the Tax Department – What to do when someone who has died

We understand that dealing with the death of a loved one is difficult time.  It does involve dealing with their tax situation after they have passed away.  Some of the tasks that need to be done include:

  • Contacting the tax department and let them know the deceased’s date of death as soon as possible at 1-800-959-8281.
  • If the deceased was receiving any benefit or credit payments such as the Goods and Services tax (GST) credit, the working income tax benefit advance payments, and/or the Canada child benefit, please also let the tax department know to stop the payments and, if applicable, transfer them to a survivor.
  • A final personal tax return must also be filed for the deceased. On the final return, all of the deceased’s income, credits, and deductions   are included from January 1st of the year of death up to and including the date of death.
  • Income earned after the date of death may have to be reported on a T3 Trust Income Tax and Information Return.
  • The legal representative or executor is required to file any tax returns for the years that the person did not file before he or she died.
  • The due date for the final return depends on the deceased’s date of death. Please contact our office for help in determining due dates and timing for all tax filings due.

What’s New for 2017 Tax Filing Season

Canada child benefit (CCB) – As of July 2016, the CCB has replaced the Canada child tax benefit (CCTB), the national child benefit supplement (NCBS), and the universal child care benefit (UCCB).

Northern residents deductions  – The basic and additional residency amounts used to calculate the northern residency deduction have both increased to $11 per day.

Children’s arts amount  – The maximum eligible fees per child (excluding the supplement for children with disabilities) has been reduced to $250. Both will be eliminated for 2017 and later years.

Home accessibility expenses – You can claim a maximum of $10,000 for eligible expenses you incurred for work done or goods acquired for an eligible dwelling.

Family tax cut – The family tax cut has been eliminated for 2016 and later years.

Children’s fitness tax credit  – The maximum eligible fees per child (excluding the supplement for children with disabilities) has been reduced to $500. Both will be eliminated for 2017 and later tax years. 

Eligible educator school supply tax credit  – If you were an eligible educator, you can claim up to $1,000 for eligible teaching supplies expenses.

Tax-free savings account (TFSA) – The amount that you can contribute to your TFSA every year has been reduced to $5,500.

Dividend tax credit (DTC) – The rate that applies to “other than eligible dividends” has changed for 2016 and later tax years.

Investment tax credit  – Eligibility for the mineral exploration tax credit has been extended for flow-through share agreements entered into before April 2017.

Split income of a child under 18 – The tax rate has increased to 33%.

Sale of principal residence – The sale of a principal residence must now be reported, along with any principal residence designation, on Schedule 3.

Retirement Planning Resources

Thanks to everyone who attended our seminar on Technology and Retirement Planning!  It was great seeing everyone brave the cold weather to attend.

As promised, we are posting the retirement planning resources available to assist you in achieving your retirement goals:

Top 5 Things to Remember about Retirement Planning

  1. Planning ahead and wisely will make retirement must less stressful.
  2. How much cash and investments you will need in retirement will depend on what your retirement goals are.
  3. Government payments such as CPP, OAS and GIS are not enough to fund your retirement.  So, make sure you contribute to Government tax deferral/saving opportunities like the RRSP and TFSA when you can.
  4. If you have the opportunity, participate in company pension plans and maximize any company matching contribution benefit available.
  5. Make non-registered investments part of your retirement plan.

Canada Revenue Agency’s reporting requirements for the sale of a principal residence

When you sell your principal residence, usually  you do not have to pay tax on any gain from the sale. This is the case if you are eligible for the full income tax exemption (principal residence exemption) because the property was your principal residence for every year you owned it.

Starting with the 2016 tax year, generally due by late April 2017, you will be required to report the sale on Schedule 3, Capital Gains of the T1 Income Tax and Benefit Return. Reporting will be required for sales that occur on or after January 1, 2016.

Make Payments Directly to the CRA Online

“My Payment” is an electronic payment service offered by the CRA that uses Visa Debit or Interac Online for individuals and businesses to make payments directly to the CRA using their bank access cards.  To access the service, please use the following link:

My Payments Page

You can use “My Payment” if you have a bank access card from the following financial institutions:

Interac Online logo only:

  • BMO Bank of Montreal (personal accounts only)
  • RBC Royal Bank
  • Scotiabank
  • TD Canada Trust
  • First Nations Bank of Canada
  • Acadian Credit Union
  • Accent Credit Union
  • Access Credit Union
  • Affinity Credit Union
  • Assiniboine Credit Union
  • Beaubear Credit Union
  • Caisse Populaire de Clare
  • Coastal Financial Credit Union
  • Columbia Valley Credit Union
  • Community Credit Union (Atlantic)
  • Community First Credit Union
  • Consolidated Credit Union
  • Copperfin Credit Union
  • Credit Union Atlantic
  • Eagle River Credit Union
  • East Coast Credit Union
  • EasternEdge Credit Union
  • Envision Financial
  • Évangéline-Central Credit
  • Goodsoil Credit Union
  • iNova Credit Union
  • Interior Savings Credit Union
  • Kindred Credit Union
  • Kingston Community Credit Union
  • LaHave River Credit Union
  • Libro Credit Union
  • Limestone Credit Union
  • Luminus Financial
  • Mainstreet Credit Union
  • Malpeque Bay Credit Union
  • Morell Credit Union
  • NBTA Credit Union
  • New Ross Credit Union
  • OPPA Credit Union
  • OMISTA Credit Union
  • PenFinancial Credit Union
  • Progressive Credit Union Limited
  • Provincial Credit Union
  • Public Service Credit Union
  • Reddy Kilowatt Credit Union
  • Souris Credit Union
  • Sudbury Credit Union
  • Sydney Credit Union
  • Tandia Financial Credit Union
  • The Police Credit Union
  • Tignish Credit Union
  • Toronto Municipal Employees’ Credit Union
  • Valley Credit Union
  • Venture Credit Union
  • Victory Credit Union
  • Windsor Family Credit Union
  • Your Credit Union

Visa Debit logo:

  • CIBC
  • RBC Royal Bank
  • Scotiabank
  • TD Canada Trust

Employee Benefits and Allowances

Your employee is considered to receive a benefit if you pay for or give something that is personal in nature:

  • directly to your employee; or
  • to a person who does not deal at arm’s length with the employee (such as the employee’s spouse, child, or sibling).

A benefit is a good or service you give, or arrange for a third party to give, to your employee such as free use of property that you own.

An allowance is a limited amount decided in advance that you pay to your employee on top of salary or wages, to help the employee pay for certain anticipated expenses without having him or her support the expenses. An allowance can be calculated based on distance or time or on some other basis such as motor vehicle allowance using the distance driven or a meal allowance using the type and number of meals per day.

A reimbursement is an amount you pay to your employee to repay actual expenses he or she incurred while carrying out the duties of employment. The employee has to keep proper records to support the expenses and give them to the employer.  These are not taxable.

There are many types of benefits and allowances that you may have to include in an employee’s income. Whether or not they are taxable depends on the type of benefit or allowance and the reason an employee receives it. To determine if the benefit is taxable, the tax department has a useful guide.  Please see Chapters 2 to 4 of the Guide T4130, Employers’ Guide – Taxable Benefits and Allowances (follow the link).

Once you determine that the benefit is taxable, you need to calculate the value of the specific benefit. The value of a benefit is generally its fair market value (FMV). This is the price that can be obtained in an open market between two individuals dealing at arm’s length. The cost to you for the particular property, good, or service may be used if it reflects the FMV of the item or service. You must be able to support the value if you are asked by the tax department.

Add the taxable benefits and allowances to the employee’s income each pay period to determine the total amount that is subject to source deductions. The benefits and allowances may be subject to CPP contributions, EI premiums, and income tax deductions.