Your Trusted Toronto CPA for Business Growth & Financial Success

CRA REVIEWS AND AUDITS

CRA reviews about 3 million income tax returns every year to make sure income amounts, deductions, and credits are reported correctly and can be properly supported.

Your income tax and benefit return may be selected for review for a number of reasons, such as the information on your return does not match the information received from third-party sources, such as T4 slips, the types of deductions or credits you claimed, and your compliance history. The CRA may choose to conduct an audit based on a number of factors, such as the frequency or likelihood of errors in tax returns, indications of non-compliance with paying taxes owed, information not consistent with other similar files, or other audits or investigations.

Typically, a CRA tax review takes 2 weeks, when you file online and 8 weeks when you file a paper return.

Please contact us for guidance.

BE CAREFUL IF YOU ARE FLIPPING HOUSES AND CLAIMING PRINCIPAL RESIDENCE EXEMPTIONS

The CRA in recent years has been cracking down on taxpayers who, in its view, are inappropriately claiming the principal residence exemption. In a recent case involved a Vancouver taxpayer who purchased, demolished, constructed and then sold three homes in a six-year period. The CRA successfully reassessed the taxpayer for his 2006, 2008, and 2010 taxation years to include unreported net business income, unreported GST, and penalties under both the Income Tax Act and the Excise Tax Act in respect of the sale of these properties.

The CRA has identified the following key areas of concern:

• Reported income does not support lifestyle
• Property flipping
• Unreported capital gains tax on the sale of property by residents and non-residents
• Unreported worldwide income
• Unreported GST/HST on the sale of a new or substantially renovated home
• Rebates – Tax rebates available to the builder or purchaser
• Cryptocurrency Trading

If you are a professional contractor or renovator, developer, a speculator or investor, or an individual renovator the CRA is paying close attention to your property sales.

Please contact us for guidance.

CLAIMING TAX LOSSES FOR SEVERAL YEARS

CRA challenged business with consistent losses for several years since inception.

Running a small business, especially in the early years is not easy. Whether a business will ultimately become profitable, producing income that will one day be taxable, depends on many factors.

Business losses are generally tax deductible against any other income you have, provided you have a legitimate business, run in a commercial manner with a view to a profit.

If you have any questions, please contact us.

STUDENTS AND PARENTS TAX PLANNING

• File tax returns for post-secondary students
• There are benefits that are only available to taxpayers who file returns. For example: the GST/HST credit, which is available to lower-income individuals who are 19 years of age or older.
• Filing a tax return from an early age will help establish registered retirement savings plan (RRSP)
• If parents or other family members set up a registered education savings plan (RESP) to help fund a student’s post-secondary education, it’s important to be strategic about your withdrawals to reduce or, in many cases, even eliminate any tax bill associated with receiving the funds.
• Extra saved funds, if any, can be utilized in tax-free savings account (TFSA) and now there is a new option for 2023 is the first home savings account (FHSA).

If you have any questions, please contact us.

INCOME SPLITTING TAX STRATEGY

Some couples are looking at ways to income split, especially when one spouse or partner is in a much higher tax bracket than the other.

This can be a tax-effective strategy when it involves legitimate work and appropriate pay, the CRA is often quite skeptical of spousal employment arrangements.

If you have any questions, please contact us.

VALUABLE TAX CREDIT YOU MAY QUALIFY

The disability tax credit is a non-refundable credit that a taxpayer - or their family - can claim annually on their return.

The disability tax credit can provide significant financial support for those who qualify.

The categories include hearing, speaking, vision, walking, dressing, feeding, eliminating, or mental functions.

Many people who qualify are unaware and may be missing out.

Contact us if you have any questions.

TRADING ACTIVITY IN YOUR TFSA

Recently, the CRA reassessed the taxpayer's TFSA trading activity to constitute a business and was successful in the Federal Court of Appeal.

Frequent trading in a TFSA has been a focus area for the CRA's audit and reassessment activities.

Typically, CRA looks at several factors including frequency of trading in determining the TFSA income to tax as business income rather than being tax free.

Please contact us if you have any questions.

FILING CRA OBJECTION ON TIME IS CRITICAL

If you disagree with how the Canada Revenue Agency (CRA) has assessed your tax return, you need to follow the proper procedures, one of which includes filing a valid timely notice of objection.

Recent Tax Court cases evidence the importance of filing objection on a timely matter, where the taxpayer's appeal was quashed.

If you have any questions, please contact us.

TAKING A BUSINESS TRIP - CRA CAN ASSESS A TAXABLE BENEFIT

Your employer sends you on a destination business trip. Years later, you may get hit with a taxable employment benefit because you went on that business trip.

The Canada Revenue Agency looks at three determining factors:

• Does the benefit give the employee an economic advantage?
• Is the benefit measurable and quantifiable?
• Does the benefit primarily benefit the employee, as opposed to primarily benefiting the employer?

The assessment by CRA can be challenged and we can assist you in developing adequate supporting arguments and documentation.

If you have any questions, please contact us.

CRA TO SCRUTINIZE PERSONAL SERVICES BUSINESSES (PSB)

The Canada Revenue Agency is escalating their scrutiny of personal services businesses, and the consequences for breaching these tax rules can be severe.

Rather than hiring employees directly, many taxpayers retain non-employees to provide services, whether to fill a short-term need, obtain specific expertise or otherwise fill a role that is not suited to a full-time position.

In other words, an individual who chooses to incorporate their business in order to provide services for one other company might be considered to be operating a PSB.

In some industries, such as the following, it is a more common practice for hiring companies to require individuals to incorporate in order to provide services:

• Trucking
• IT Consultants
• Accountants
• Construction
• Catering

The CRA’s officials will be contacting Canadian businesses as part of this project and asking them to provide documentation on the nature of their payer/payee relationship. These situations carry significant income tax risk, and that risk depends on whether an individual or corporation is providing the services.

If you have any questions, please contact us.