With the holiday season upon us, the staff and partners at GH&A would like to take this opportunity to say THANK YOU to all of our clients. As we reflect on 2021 and look forward to the new opportunities that 2022 will have to offer, we want to let our clients know that we are here to help you navigate whatever challenges lie ahead.
In this year’s edition of the Christmas Letter, we will focus on important updates to COVID-19 benefits and other COVID-19 support measures, recent developments in personal and corporate tax, and some important tools and tips available to help manage your business and accounting needs.
Update on COVID-19 Benefits for Individuals and Business
As the COVID-19 situation in Canada has continued to evolve, and many businesses are starting to return to levels of operating closer to those experienced pre-COVID, the following is an update on what COVID benefit programs for individuals and businesses are still available, which are being discontinued, and some important deadlines to keep in mind:
- CEWS and CERS - The Canada Emergency Wage Subsidy and Canada Emergency programs are ending effective October 23, 2021. Applications for the final subsidy period of September 26 to October 23, 2021, are due on or before April 21, 2022.
- CRHP – The Canada Recovery Hiring Program which provides a wage subsidy based on a percentage of incremental wages over and above total wages from the baseline period of March 14 to April 10, 2021, was originally scheduled to end on November 20, 2021. On October 21, 2021 the Department of Finance announced the introduction of new proposed legislation to extend this program to May 7, 2022, and an increase in the subsidy rate to 50%.
- New Wage Subsidy Programs – As part of the October 21 Department of Finance announcement, proposed legislation for the following new wages subsidies was also introduced:
- Tourism and Hospitality Recovery Program, which would provide support through the wage and rent subsidy programs, to select tourism and hospitality businesses including hotels, tour operators, travel agencies, and restaurants, with a subsidy rate of up to 75 per cent.
- Hardest-Hit Business Recovery Program, which would provide support through the wage and rent subsidy programs, would support other businesses that have faced deep losses, with a subsidy rate of up to 50 per cent.
- Applications for these new programs are now open, starting with period 22, covering the period of October 24 to November 20, 2021.
These programs will be available until May 7, 2022, with the proposed subsidy rates available through to March 13, 2022. From March 13, 2022, to May 7, 2022, the subsidy rates will be reduced by 50%.
- CEBA loan repayment due by December 31, 2022 – If your business took advantage of the Canada Emergency Business Account (CEBA) loan program for small businesses financing of up to $60,000, the balance of the loan (minus the forgivable portion) must be repaid prior to December 31, 2022 in order to qualify for the forgivable portion ($10,000 on the base $40,000 loan and an additional $10,000 from the $20,000 extension). Contact your bank to discuss the specific repayment terms of your loan.
- Individual Benefit Update – On October 21, 2021 the Department of Finance announced the following proposals for individual benefit programs:
- Extend the Canada Recovery Caregiving Benefit and the Canada Recovery Sickness Benefit until May 7, 2022, and increase the maximum duration of benefits by 2 weeks. This would extend the caregiving benefit from 42 to 44 weeks and the sickness benefit from 4 to 6 weeks.
- Establish the Canada Worker Lockdown Benefit which would provide $300 a week in income support to eligible workers should they be unable to work due to a local lockdown anytime between October 24, 2021 and May 7, 2022.
It should be noted that the final period for the Canada Recovery Benefit was for October 10 to October 23, 2021, and applications for this period will remain open until December 22, 2021. Individuals who are without work after October 23, 2021 may continue to qualify for benefits through the Canada Recovery Caregiving Benefit, Canada Recovery Sickness Benefit (see discussion above), or through regular Employment Insurance (EI) benefits.
- Deferred income tax owing from 2020 due April 30, 2022 – Individuals who met the eligibility criteria for a deferral of their 2020 personal tax payment, and chose to defer payment will have until April 30, 2022 to pay the balance of tax from their 2020 personal tax return. Any balance from 2020 which remains outstanding after this date will begin to accrue interest.
COVID-19 Medical Expenses Tax Treatment
Medical expenses eligible for a personal tax credit are limited to those specifically provided for by the Income Tax Act. While an expense may clearly relate to an individual’s health, it may still not be an eligible medical expense. CRA recently provided comments on a number of medical expenses related to COVID-19.
- Face masks – In a February 25, 2021 Technical Interpretation, CRA opined that the costs of a non-medical mask, that is mostly used to protect others from the wearer, would not likely qualify as a medical expense. However, in the specific situation where a medical practitioner prescribes a medical face mask or respirator for a patient to cope with or overcome a severe chronic respiratory or immune condition, the mask or respirator would likely be an eligible medical expense.
- COVID-19 vaccines and tests – In an April 22, 2021 Technical Interpretation, CRA opined that a COVID-19 vaccination received outside of Canada and a COVID-19 test (for example, those required for travel) must be prescribed by a medical practitioner to potentially be eligible as a medical expense. CRA also reiterated that they do not have the discretion to waive the prescription requirement.
- Leasing costs of temporary accommodations – In a January 19, 2021 Technical Interpretation, CRA stated that the leasing cost of a second condominium to protect a family member’s health during the COVID-19 pandemic does not qualify as an eligible medical expense.
ACTION ITEM: Although expenses may relate to an individual’s health, they should still be reviewed to determine eligibility for the medical expense tax credit. Collect medical-related expenditures throughout the year such that at personal tax time, we can review whether an expense is eligible or not.
Private Members Bill C-208 and New Opportunities for Intergenerational Business Transition
Canadian small business owners have long been calling for changes to the Income Tax Act which would make it easier for business owners to transition their business to the next generation without having to trigger a large tax bill. On June 29, 2021 the federal government passed Private Members Bill C-208, which attempted to ease some of the restrictive legislation in the Income Tax Act and provide new opportunities for the transition of small business ownership. Bill C-208 consisted of two main components:
- Paragraph 55(5)(e) Amendment and Impact on 55(2) – Updates the definition of “related party” as it applies to Subsection 55(2) of the Income Tax Act to include siblings in scenarios where a dividend was received or paid by a corporation of which a share of the capital stock is a Qualified Small Business Corporation (QSBC) share or a share of the capital stock of a family farm or fishing corporation. This amendment will make it easier for a corporation owned by siblings to access the related party exception to 55(2) in order to allow for completion of a “butterfly” type divisive reorganization (where assets of one company are split out into separate corporations) involving siblings.
- Section 84.1 Amendments – Section 84.1 of the Income Tax Act deems proceeds received on the sale of shares to a non-arm’s length corporation to be treated as fully taxable dividends, as opposed to capital gains. The proposed amendments to Section 84.1 of the Income Tax Act provide that where the shares of a Qualified Small Business Corporation (QSBC) or Family Farm Corporation are being sold to a corporation owned by an adult child of the vendor, 84.1 is deemed not to apply, provided that certain other specific criteria are met.
At face value, these new amendments will provide a means for an intergeneration transfer of a corporation and make it possible to achieve the same treatment on a sale of shares to a corporation owned by an adult child as could be achieved on an unrelated third-party sale, without the application of 84.1 (including access to capital gain vs. dividend treatment and use of the vendor’s Lifetime Capital Gains Exemption where applicable).
There have, however, been significant concerns raised by both the Department of Finance and advisors alike as to whether the amendments as originally legislated achieve the anticipated results, without facilitating transactions that take advantage of the ability to avoid the application of 84.1(1) while not actually involving a genuine intergenerational business transfer.
The Department of Finance has indicated their intention to revise these amendments to take effect some time after November 1, 2021. To date there has been no further announcement on additional revisions to this legislation. In light of this timeline, business owners who are considering a genuine intergenerational transfer of their business will need to consider whether to act now based on the July 29, 2021 legislation, or wait until additional information is available on the proposed revisions and what the legislation will ultimately look like.
Update on Home Office Expenses and What You Need to Support Your Claim
In 2020 the Department of Finance introduced several additional tax measures for individuals and businesses in order to address the fact that as a result of COVID-19, a significant portion of Canada’s workforce had begun working from home on a regular basis, and employees are starting to bear some of the additional costs associated with maintaining a workplace in their home.
For 2021, the government has confirmed that some of these measures will continue for the 2021 taxation year. However, some of these measures have not been extended. Here is an update on what to expect for reporting home office and other employment expenses for the 2021 tax year:
- Temporary Flat Rate Method for Work-Space-In-Home – In 2020 the Department of Finance introduced a temporary “Flat Rate Method” for employees who worked from home more than 50% of the time during any period in 2020. Eligible employees were able to claim $2 for each day worked from home during that period plus any additional days you worked at home in 2020 due to the COVID-19 pandemic. The maximum you could claim for 2020 using the new temporary flat rate method is $400 (200 working days) per individual. In it’s fall Economic and Fiscal Update 2021, released December 14, 2021, the Department of Finance confirmed that the Temporary Flat Rate Method would be extended to the 2021 and 2022 taxation years and that the maximum deduction would be increased to $500.
- T777S Simplified Form for Detailed Home Office Expenses – For employees wishing to claim a deduction for home office expenses based on actual expenses incurred, the Department of Finance introduced a simplified version of the T777 form (T777S) which employees that were required to work from home due to COVID-19 could complete in order to claim these amounts. The T777S form is effectively a streamlined version of the detailed T777 form and must be accompanied by a simplified T2200S form which acted as a streamlined version of the previously available T2200 form for employer certification of the employee’s eligibility to claim these expenses. This simplified method made it much easier for employees claiming only home office expenses to make these claims on their returns. For 2021, the government has not yet made an announcement on whether the simplified T777S form will be available again for 2021.
- In 2020 CRA commented that it would allow employers to provide employees with a one-time non-taxable reimbursement of up to $500 per employee for the purchase of personal computer or office equipment (including office furniture). The payment would be considered a deductible expense to the employer and employees receiving this benefit should be encouraged to retain receipts for the purchase of supplies to support the non-taxable nature of this benefit. For 2021, the government has not yet made an announcement on whether any similar additional payments to employees would be permitted in 2021 or any future periods.
Although the CRA has stated that they would not require detailed support to be provided for claims made under the temporary flat-rate method ($2 per day), employees claiming actual home office expenses under either the simplified method (T777S) or detailed method (T777) should be prepared to provide significant information to CRA in support of their claim. Information that may be requested by the CRA as part of a review of expenses claimed on T777S or T777 could include the following among other items:
- A copy of the employer signed form T2200S or T2200 (whichever is applicable) signed by the employer and indicating the applicable employment expenses;
- Detailed receipts for specific expenses incurred (note – credit card statements, bank statements, or cheques will NOT be accepted as sufficient support);
- Copies of cell phone contracts, monthly account summaries, and a breakdown of cell phone minutes and data used to earn employment income; and,
- For the workspace itself, calculation details for the percentage claimed, including space used for employment and personal purposes, and a copy of the floorplan of the residence with home office.
New Trust Reporting Requirements for 2021
As part of the 2018 federal budget the government proposed important new trust reporting requirements beginning for trust taxation years ending on or after December 31, 2021.
Prior to these rules coming into effect, many trusts were not required to file annual T3 trust tax returns if certain conditions were met such as no taxable income to report for the year or no distributions made to beneficiaries during the year. For many of these trusts the new reporting rules will create a requirement to file for 2021 and subsequent years, as well as a requirement to disclose specific personal information about persons involved with the trust.
The new trust rules will require most trusts to file a T3 return annually to report personal information for any person involved with the trust that falls into one of the following categories:
- Settlors;
- Trustees;
- Beneficiaries;
- Other persons with the ability to exert control over the trust (could include a protector of the trust or a director/shareholder of a corporate beneficiary).
The specific personal information that must be disclosed for each person includes their name, address, tax residency, and Social Insurance Number.
Failing to report this information can result in a penalty equal to $25 per return for each day that the information is outstanding up to a maximum penalty of $2,500. More significantly, in cases of gross negligence a penalty can be applied equal to the greater of $2,500 and 5% of the fair market value of the assets held by the trust.
Although certain types of trusts are excluded from the rules, most personal trusts and testamentary trusts (other than a Graduated Rate Estate) will not be exempt from these new reporting requirements. It will be important to contact your tax advisor if you are involved with a trust and unsure whether these new reporting rules may apply.
CRA Tax Tip – How to Pay your Business Taxes Online
If you are a business owner, and are not yet set up to pay your business taxes online, the CRA has recently released a tax tip on how you could save significant time by setting up online payments for all your business tax accounts (i.e. income tax, GST, and payroll). Check out the link below for details.
https://www.canada.ca/en/revenue-agency/news/newsroom/tax-tips/tax-tips-2021/businesses-pay-taxes-online-directly-financial-institution-directly-cra.html
Disability Tax Credit Changes
Did you know that in conjunction with recent changes to the Disability Tax Credit (DTC) proposed by the Department of Finance, the CRA recently introduced a new Disability Tax Credit - Digital Application for Medical Practitioners. This new application can be found on the Canada Revenue Agency website and is intended to guide medical practitioners through the completion of the detailed “Part B” of Form 2201, which asks for the taxpayer’s medical practitioner to certify specific information relating to the nature of the taxpayer’s impairment.
If you feel that you may qualify for the Disability Tax Credit, this new digital application process can be a useful tool for you and your doctor to complete and submit your application. For more information on the new digital application, and other changes to the Disability Tax Credit, visit our recent blog on The Disability Tax Credit – Expanded Access and Applications Made Easier.
Vehicle Mileage Tracker Apps
For any business owner claiming a mileage expense for the business use of a personal vehicle, the most important documentation to retain in support of the expense claimed is a logbook with details of business trips made during the year. There are a number of useful apps available for download that can be used to assist with vehicle mileage tracking including, in some cases, the automatic tracking of distance travelled. Below are some of the smartphone applications and other tools available:
- MileIQ - https://www.mileiq.com/
- Driversnote - https://www.driversnote.com/
- Milebug - https://milebugblog.blogspot.com/p/home.html
- Odotrack – https://odotrack.com/en/
Tips for Handling your Business Payroll
Are you looking to hire new employees or setting up a new payroll account for your business? Check out our latest Basic Tips for Payroll & Remittances blog for guidance on the applicable withholding and remittance requirements.
Farm Credit Canada – Farm Transition Guide
Are you looking to create a long-term transition plan for your farm, or looking to update your existing transition plan? Farm Credit Canada offers some great resources available on their website to help farm business owners with putting a solid transition plan in place, including their step-by-step Business Essentials farm transition guide.
Tax-Free Savings Accounts (TFSA) Contribution Room
Your TFSA contribution room is the maximum amount that you can contribute to your Tax-Free Savings Account.
You may contribute to a TFSA if you are 18 years of age or older, have a valid Canadian social insurance number and are a resident of Canada. The TFSA contribution room accumulates every year starting in 2009. The investment income earned within a TFSA and changes in the value of the TFSA investment will not affect your TFSA contribution room for current or future years.
TFSA eligible investments are not limited to standard savings accounts. Generally, the types of investments that are permitted in a TFSA are the same as those permitted in a registered retirement savings plan (RRSP). These would include:
- cash
- mutual funds
- securities listed on a designated stock exchange
- guaranteed investment certificates
- bonds
- certain shares of small business corporations
The 2022 annual TFSA contribution limit will be set at $6,000 which has remained consistent since the annual limit was last increased in 2019.
If you are unsure about how much you can contribute to your TFSA you can confirm your remaining TFSA contribution room for the year by following the steps below:
- Log in to your CRA My Account online or contact the CRA by phone at 1-800-959-8281 where you can request your TFSA contribution room as of January 1 of the current year.
- Subtract any contributions made during the year to date as the TFSA balance available from CRA will not yet consider the contributions made for the year. You may need to contact your financial institutions for the details of any contributions made to date.
It is important to keep in mind that withdrawals cannot be recontributed during the same year without counting against your available TFSA contribution room. This is because the amount of any withdrawal from your TFSA account is not added back to your contribution limit until the following year, whereas the amount of any recontributions is counted against your TFSA contribution room for the year in which the recontributions is made.
Protect Yourself Against Fraud
The Canadian Anti-Fraud Centre reported that Canadians lost almost $6 million to scammers claiming to be from the Canada Revenue Agency in 2018. So how can you protect yourself?
CRA WILL contact you via:
- Phone
To verify your account, CRA may ask for your:
- Name
- Date of Birth
- Social insurance number
- Details of your account (such as information from your tax return)
CRA WILL contact you regarding:
- Notice of legal action to collect debts
- Location and name of your bank
- To begin an audit process
- To let you know you have mail in your online CRA account
- To provide a link to specific information you have asked for
CRA will NEVER:
- Text you
- Threaten you with arrest or jail time
- Ask for your passport number, driver’s license number, or any personal financial information
- Send threatening emails or voicemails
- Arrange to meet with you in person to collect payment
- Ask you to make immediate payment via e-transfer, bitcoin, prepaid credit card or gift cards
Steps to take if you receive a suspicious call:
- Request the Caller’s Name, Phone Number, and office location.
- Tell them you want to verify their identity.
- Then call CRA at 1-800-959-8281 (for individuals) or 1-800-959-5525 (for business) to confirm that they are a legitimate agent.
Staff Announcements
In 2021 we welcomed Corrina Jolliffe and Nicole Worthylake to our team.
Erin Gregory will be on maternity leave until November 2022 after the birth of her second child.
Jodee McKinnon will be on maternity leave until December 2022 after the birth of her first child.
A congratulations on Retirement to Yvonne Hiller, who has worked at GH&A for the past 28 years! You will be missed! Enjoy the next chapter!
Community Involvement
The staff of GH&A are proud to be involved with the following organizations in our community:
- Rita’s Church in Rockyford
- Strathmore & Wheatland Chamber of Commerce
- Standard Lionettes
- Strathmore & Wheatland County Christmas Hamper Society
- Strathmore Pickleball Club
- Standard & District Ag Society
- Standard Municipal Library
- Strathmore & District Curling Club
- Wheatland County Food Bank
- Wheatland & Area Hospice Society
Social Media
Be sure to follow GH&A on social media for frequent updates and information on accounting and tax changes.
Disclaimer
The information in this publication is current as of December 17, 2021.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact Gregory, Harriman & Associates LLP to discuss these matters in the context of your particular circumstances. Gregory, Harriman & Associates LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.