Tip of the week

September 2019

Principal Residence Deduction

September 26/19


I still hear people say that you are allowed to sell a principal residence each year and avoid paying tax on that gain. That is not true. If your plan is to buy a house, move into it, fix it up and sell it - and you want to repeat that a couple of times, it is quite likely that Canada Revenue Agency is going to be wondering about you. 

They will be wondering how you earn your living, are you a contractor, or a real estate agent? If CRA can show that you are earning a portion of the income, you need to support your lifestyle by selling property that you call your principal residence. They are going to be asking you to pay tax on those gains. 

They will consider you to be in the business of selling property. If you are moving, there is usually a reason, you got a new job, you want your kids to go to different schools, etc. Something other than you think you can make some money by selling your house. 

Since 2016, we have been reporting every property sale that is made on our personal income tax returns. CRA is building a database of who sold what, they are paying attention to people who are moving frequently. You can make money on your principal residence and not pay tax on it, you just can’t do that very often.

Employee or subcontractor?

September 17/19

The question about whether someone is an employee or a subcontractor is a frequent topic of discussion, and I have spoken about this before. However, a recent federal court case has introduced a new problem. The court case involved a person who was characterized as a subcontractor and worked for the company for a long time. When the company decided that they no longer needed the services of the subcontractor, he sued them, asking for a severance payment. The court looked at the situation and determined that the subcontractor was entitled to the severance payment.  The reason, of course, was that although they called him a subcontractor he was in fact an employee. How do you decide? 

If you tell someone when to come to work and when to go home and they use your tools and equipment on your premises, chances are that they are an employee. A subcontractor works for a number of different customers, they generally work when they feel like working and they use their own tools. If you have employees that you are calling subcontractors and you think that the only risk you are facing is having to pay their CPP and EI, if you get caught, here is another risk, the risk of having to pay severance.

CRA Personal Tax Instalment Letter

September 10/19

Canada Revenue Agency has sent instalment letters that seem to be more confusing than usual. The letter is offering you a “no calculation” option, which means that they want half of what you owed for 2018 paid by September 15th, 2019 and the other half paid on December 15th, 2019. 

If you read the letter, you will see that they have not taken into consideration the instalments that you already paid on March 15th, 2019 and June 15th, 2019. They also say on the letter, if you have made instalments, CRA has not taken that into consideration. So the “no calculation” option is only appropriate for you if you have made no payments at all yet on your 2019 income taxes. 

We are getting calls of alarm from our clients who want to know why CRA is asking them to pay twice as much as we recommended when we did their 2018 tax return. It's all in the fine print.  It is important to read the letter carefully. CRA is asking for instalments as though no amounts have been paid yet. 

CRA Wants Their Money Up Front

September 3/19

 If you recently received a bill from CRA for 2019 and this is confusing to you, it probably means that you have never been asked to pay instalments before. CRA generally likes to get its money as soon as possible. Employees have Tax, EI and CPP taken from their paycheques each payday and CRA gets that money. If this is the first time CRA has asked you to pay taxes for the year that you are currently in, then this is the first time that you have owed them more than $3,000 when you filed your 2018 personal tax return. 

CRA has taken that amount (let’s say it was $4,000) and they are asking you to pay $2,000 by September 15th and $2,000 by December 15th. If your tax situation is the same in 2019 as it was in 2018 then you should send them the money they asked for. If the reasons you owed money in 2018 is not going to happen in 2019, then you should be able to ignore the notice.