Tip of the week

November 2019

Is Your Business Having a Great Year?

November 26/19

Many corporations have a December year-end and that year-end is coming up soon. If your corporation is having a great year, then more taxes are going to have to be paid for this year than were last year.

A corporation is supposed to be paying monthly installments of income tax. These installments are based on the amount of income that was earned in a prior year. The way the rules work is that you pay your installments during the year, each month, and then any amount owing that exceeds the installments that have been paid is due within three months of year-end. If you are making more money than you made last year, the monthly installments will not be enough, and you will owe more money when the return is calculated. 

So, if you are having a great year, understand that you are likely not paying enough in your monthly installments to take care of the taxes that you are going to owe.

Returns Have to Be Filed Even if There is No Activity

November 19/19

Canada Revenue Agency continues to improve their data analytics. In my practice we are hearing from people who have not filed corporate returns for inactive companies and CRA is requesting all those back returns be filed.

We currently have a number of trust returns where there has been no activity and CRA has caught up with those ones as well. The tax laws generally say that you have to file a tax return every year, even if you don’t have any amount owing. The conventional wisdom had been that if you stopped paying your annual dues to Joint Stocks, you would be struck off the register and then you could stop filing returns. CRA has said that they will continue to request returns until the corporation is dissolved - which is a different thing than being struck off the register.

Lately we have been seeing more corporations going the route of being legally wound up and receiving a certificate of surrender. Once you have that document you file a return up to the date on the certificate of surrender and your tax filing obligations are ended. Obviously you will need legal advice to decide if you want to continue to file returns with CRA or if you are going to take the steps necessary to obtain a certificate of surrender.

Records of Employment - Fines

November 12/19

An employer is required to file a record of employment form (ROE) when they have employees who have a break in employment. The most common case is when an employee is laid off or quits. The rule is generally that you have 5 days to file the form. If the form is not filed on time, it is possible that the employer will be fined. The usual fine is $2,000, but in one case in Ontario the court felt that the delay in getting the ROE caused significant hardship to the employee and the fine was $50,000. 

You also should be careful to fill in the reason for the ROE being issued. Services Canada investigates this on occasion, and you don’t want to have said that the ROE was issued for shortage of work if the actual reason was dismissal. When you are filling out the ROE, remember that it is a legal document, and should be filled out carefully and filed on time.

Recent Case on Proper Books and Records

November 5/19

Proper books and records is a phrase that we hear a lot. The Income Tax Act requires that every taxpayer, whether they are an individual, a corporation or a charity, keep records that prove that the receipts agree with the numbers that have been used to file tax returns.

A recent court case (2019 TCC 145) highlighted this problem. In this court case the charity could not provide documentation for money spent overseas. The result was that the charity has lost its ability to issue a donation receipt for a year. For most organizations the easiest way to fix this documentation problem is to stop paying cash for expenses. Use a debit or credit card, a cheque or an online transfer. It is important to be able to prove that you are the one who spent the money. 

For a taxable entity the failure to keep proper books and records will lead to paying more income tax. This is because you will not be able to get a deduction for expenses when you cannot provide a receipt. This should be avoided because we all pay enough taxes.