Monthly Archive: July 2018

We Finally Grew Into Our Dream Space

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2005 Sheppard East treated us well for 17 years. But it was never meant to be a forever address. We wanted to be conveniently central for clients and staff and no more than 20 minutes from Bay Street. We wanted an open-concept space to suit the modern working world. And we wanted a brighter, more collaborative environment.

So the goal was to grow big enough to warrant looking for an office like that and pulling the trigger on it. Well, we did. And then we did.

In August, we’ll be moving to the corner of Yonge and York Mills. We’ll be 90 seconds from the 401 and 17 minutes by subway from King and Bay. We’ll be surrounded by green space and close to great lunch options onsite and at Yonge and Lawrence, Yonge and Sheppard and Yonge and Eglinton. We’ll have underground guest parking, GO/TTC bus and subway access, and beautiful natural light in the office. You’ll love being here and we’ll love having you, just like we always dreamed.

Growing the Segal Team

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Giles Osborne CPA, CA joins the Segal team as a Principal with a focus on information technology.

Giles is a financial and tax advisor to private corporations and not-for-profits, with a concentration on clients in Toronto’s tech and start-up space. He has been involved in all stages of his clients’ development, from start-up through funding rounds and growth to business sale.

Drawing on 4 years’ consulting experience with Deloitte and 8 years as the Director of Professional Services, Americas, for Systems Union/Infor, a mid-market accounting vendor, Giles is also involved in the firm’s IT initiatives, including systems selection, implementation and integrative advisory services.

Giles received his accounting education at the University of Ottawa, and his CA designation from the Institute of Chartered Accountants of Ontario in 1994. He is a member of the Canadian Tax Foundation and has completed the Canadian Securities Course. His community and social involvement includes roles as Treasurer of Bellwoods Centres for Community Living and Vice-Commodore Finance of Ashbridges Bay Yacht Club.

We are very excited to welcome Giles and his unique IT, accounting and tax background to the firm.

Foreign Corporations in Canada: Permanent Establishment and Taxes

By Howard Wasserman, Principal—Taxation at Segal LLP 

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Any non-resident that has sales in Canada is taxable in Canada on the profit on those sales.

A number of treaties state that a non-resident corporation is only taxable in Canada if the non-resident corporation has a permanent establishment in Canada: a fixed place of business through which the business of a resident of one country is carried on.

In the Canada-US tax treaty, a permanent establishment is defined to be a place of management, a branch, an office, a factory or a workshop. Building sites or installation projects are also considered permanent establishments if they last more than 12 months. So too are people in Canada habitually exercising the authority to conclude contracts in the name of the non-resident.

And what’s not a permanent establishment?

1. The use of facilities for storage display or delivery of goods.
2. The maintenance of a stock of goods.
3. The purchase of goods or merchandise or the collection of information.
4. Advertising.
5. The use of a broker commission agent or any other independent agent.

Tax implications of permanent establishments

Once a permanent establishment has been created, the non-resident is taxable only on the profits earned in Canada, not the revenues. This can be calculated using foreign expenses that relate to the activity in Canada. For example, a non-resident corporation could allocate some management or administration costs if they can be clearly tied to the activities in Canada.

Additionally, the non-resident corporation must meet Canadian filing requirements even if no taxes are payable. More specifically, the foreign corporation should file schedule 91 and schedule 97 that would be attached to the jacket of a T2 corporate tax return. In this filing, the non-resident corporation is stating that the corporation earns Canadian revenue but is not taxable in Canada because there is no permanent establishment.

Tax implications of doing business in Canada in general

All payments to the non-resident corporation doing business in Canada are subject to 15% withholding tax on the work done in Canada. If it has been determined that the non-resident corporation is not taxable in Canada, then the non-resident corporation can file the treaty-based tax return and request a refund of the withholding taxes.

There is an opportunity to request a waiver for the 15% withholding tax on work done in Canada before the work commences. In order to get a waiver, a submission must be made to CRA, which often includes the contract related to the work being done in Canada. This gives CRA an opportunity to examine the situation to determine if the foreign corporation is taxable in Canada.

If the non-resident corporation receives a waiver, the corporation can give this waiver to its customers to ensure the no withholding tax is payable. Even if a waiver is received, the non-resident corporation must still file a treaty-based Canadian income tax return because of the Canadian revenues earned.

There are a number of issues to be dealt with on carrying on business in Canada, but the first one is always the determination of whether the company owes Canadian corporate income taxes. For help or advice, you can contact me directly.

Tax Relief for the Cost of Driving

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It’s something of an article of faith among Canadians that, as temperatures rise in the spring, gas prices rise along with them. In mid-May, Statistics Canada released its monthly Consumer Price Index, which showed that gasoline prices were up by 14.2%. As of the third week of May, the per-litre cost of gas across the country ranged from 125.2 cents per litre in Manitoba to 148.5 cents per litre in British Columbia. On May 23, the average price across Canada was 135.2 cents per litre, an increase of more than 25 cents per litre from last year’s average on that date.

Unfortunately, for most taxpayers, there’s no relief provided by our tax system to help alleviate the cost of driving as the cost of driving to and from work and back home. That said, there are some (fairly narrow) circumstances in which employees can claim a deduction for the cost of work-related travel.

Those circumstances exist where an employee is required, as part of his or her terms of employment, to use a personal vehicle for work-related travel. For instance, an employee might be required to see clients at their premises for meetings or other work-related activities and be expected to use his or her own vehicle to get there. If the employer is prepared to certify on a Form T2200 that the employee was ordinarily required to work away from his employer’s place of business or in different places, that he or she is required to pay his or her own motor vehicle expenses and that no tax-free allowance was provided, the employee can deduct actual expenses incurred for such work-related travel. Those deductible expenses include:

  • fuel (gasoline, propane, oil);
  • maintenance and repairs;
  • insurance;
  • license and registration fees;
  • interest paid on a loan to purchase the vehicle;
  • eligible leasing costs for the vehicle; and
  • depreciation, in the form of capital cost allowance.

In almost all instances, a taxpayer will use the same vehicle for both personal and work-related driving. Where that’s the case, only the portion of expenses incurred for work-related driving can be deducted and the employee must keep a record of both the total kilometres driven and the kilometres driven for work-related purposes. As well, receipts must be kept to document all expenses incurred and claimed.

While no limits (other than the general limit of reasonableness) are placed on the amount of costs that can be deducted in the first four categories listed above, limits and restrictions do exist with respect to allowable deductions for interest, eligible leasing costs and depreciation claims. The rules governing those claims and the tax treatment of employee automobile allowances and available deductions for employment-related automobile use generally are outlined on the Canada Revenue Agency website.

No amount of tax relief is going to make driving, especially for a lengthy daily commute, an inexpensive proposition. But seeking out and claiming every possible deduction and credit available under our tax rules can at least help to minimize the pain.

Deciphering the Notice of Assessment

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By the middle of May 2018, the Canada Revenue Agency (CRA) had processed just over 26 million individual income tax returns filed for the 2017 tax year. Just over 14 million of those returns resulted in a refund to the taxpayer, 5.5 million required additional payment and about 4.4 million returns were “nil returns” where no tax was owing and no refunds were claimed, but the return was used to provide income information to determine eligibility for tax credit payments (like the federal Canada Child Benefit or the HST credit).

No matter what the outcome of the filing, all returns filed with and processed by the CRA have one thing in common: they result in the issuance of a Notice of Assessment (NOA) by the Agency, outlining income, deductions, credits and tax payable for the 2017 tax year, whether you will be receiving a refund or you have a balance owing. The amount of any refund or tax payable will appear in a box at the bottom of page 1, under the heading “Account Summary.”

On page 2 of the NOA, the CRA lists the most important figures resulting from their assessment, including your total income, net income, taxable income, total federal and provincial non-refundable tax credits, total income tax payable, total income tax withheld at source and the amount of any refund or balance owing. Page 2 also includes an explanation of any changes made by the CRA to your return during the assessment process and provides information on unused credits (like tuition and education credits) that you earned and can claim in future years.

On page 3 of the NOA, you will find information on your total RRSP contribution room (i.e., maximum allowable RRSP contribution) for 2018.

Finally, page 4 provides information on how to contact the CRA with questions about the information provided on the NOA, on how to change the return filed and on how to dispute the CRA’s assessment of the individual’s tax liability.

In a minority of cases, the information presented in the NOA will differ from what you provided on your return. Where that difference means an unanticipated refund, or a refund larger than the one expected, it’s a good day! If the NOA will swing the other way, that’s less good.

When that happens, you must figure out why, and to decide whether or not to dispute the CRA’s conclusions. In that case, your best bet is to consult a tax or accounting professional at Segal LLP.