Corporate Tax Planning Letter

2008 Budget February 26, 2008:Click Here

GST changes for 2008 - Click Here!
GST info is available at GST @ Taxtips.ca
Can't find it here - TRY - Tax Tips.ca- OR -CRA'sWebsite
Corporate tax enquiries CRA 1-800-959-5525 - All sites active at time of writing.

QuickBooks - Downloads and updates Click Here

Simply Accounting by Sage Payroll tax updates are included with product updates CLICK HERE

Corporate Year-Ends - Corporate Year-ends are generally set the first year of business and can only be changed by formal request to CRA after that.

Records to be maintained - CRA provides a number of publications for your information as to what they expect of you or your organnization in this regard:

• RC4409 Keeping Records
• IC78-10R4 Books and Records Retention/Destruction
• IC05-1 Electronic Record Keeping
  
• RC4188 What you should know about audits
  
• Starting a Business
• Internal Control Certification - Smaller Public Companies
• An Introduction to the Scientific Research and Experimental Development Program

January 2009 - We suggest you ensure that by the third working day of January (due to various remitting schedules dictated by CRA), all employee deductions to December 31, 2008 be remittedto CRA. If management bonuses were declared or wages credited to shareholders' loans during the year ensure that the correct remittance has been made. Interest and late filing penalties will be imposed on all remittances received after your January due date. This is very important. "DO NOT PAY LATE". CRA has a guide that outlines your due date - See ** ** RC4001 Employers' Guide Remitting Payroll Deductions

Be sure to include the letters "RP" with your account number when making remittances for Deductions at Source.
NOTE: The letters included in your account number are very important. Payments made to the wrong account are a hassel to correct. So be careful and include the complete account number including the letters.
Use RP for Deductions at Source. (i.e. 86999 6125 RP0001)
Use RT for GST. (i.e. 86999 6125 RT0001)
Use RC for Corporate tax. (i.e. 86999 6125 RC0001)

Social Insurance Numbers - Every individual should have a Social Insurance Number (SIN) as it facilitates many actions. For example, children use them for registration in sports (Hockey, Soccer etc.). They are also useful for opening bank accounts and holding Canada Savings Bonds or other investments. Banking institutions require SIN's. Also, if the young person has an opportunity to work they should have a SIN for payroll and tax reporting purposes. Social Insurance Number application kits are available at post offices. A SIN beginning with the number "9" is a person who is not a Canadian citizen or a permanent resident of Canada. Under the Immigration Act, you cannot hire a person who is not a Canadian citizen or who is not a permanent resident unless that person is authorized to work only for you. If you do, you may be penalized under that act. It is an offence to disclose a Social Insurance Number without written consent except where required by the Income Tax Act or regulation.

FEBRUARY 28, 2009 - All T5s, T4s, T4As (see business relationships below) and T4 summaries must be sent in by this date to avoid late filing penalties. This includes T4's to the shareholders for bonuses, wage credits, and taxable benefits (i.e. standby charges for use of company vehicle or imputed interest as a result of interest free shareholder loans) during 2008. See CRA's site for Employers' Guide - Taxable BenefitsT4130 Employers' Guide - Taxable Benefits All tax deductions should have been remitted in January (see above) so that when the 2008 T4's are calculated the amount owing to or due from CRA is minimal. If a shortage (exceeding $500) exists, penalties will be imposed, along with interest charges, retroactive to the January due date.

2007/2008 - - FREE DEDUCTIONS AT SOURCE ON-LINE CALCULATOR - Specify payroll period on second screen.

Apprenticeship Job Creation Tax Credit

CRA comments on Deductions at Source Compliance

For 2008 The CPP contribution rate is 4.95% to a maximum Pensionable Earnings of $44,900 less the basic $3,500 exemption. The employer matches the deduction at 100%. Employer and employee each contribute to a maximum of $2,049.30 ($4,098.60 total remittance).

EI applies to ALL employees except shareholders (usually 40 % of shares or more) and employees in special circumstances - The premium rate was 1.8% of Insurable earnings to a maximum insurable of $40,000. --- ($ 720.00 Max for 2008). The employer must also pay 140% of the amount deducted from the employee (Maximum employer contribution $ 1,008.00 Employees who earn $2,000 or less in a taxation year will be able to claim a refund of all EI premiums paid (as shown on their T4's) when filing their personal tax returns. In 2008 all employees (except as noted) had EI therefore T4's will be required for ALL employees.
For 2008 The EI premium rate is 1.73% of Insurable earnings to a maximum insurable of $41,100. --- ($ 711.03 Max for 2008). The employer must also pay 140% of the amount deducted from the employee (Maximum employer contribution $ 995.45).

In cases where too much Canada Pension or Employment Insurance has been remitted the employer can obtain a refund by filing form PD24 and submitting this with the completed T4 return. Problems in this area involve the insurability of shareholders with 40% or less of the voting shares. In situations where individuals holding less than 40% of the shares are employed by their spouse's company consider a ruling request to make them EI exempt.
* Note Where there is a change in the organization's business structure (Where a corp is formed or dissolved or a business is acquired) the new payor may be able to continue the EI and CPP deductions as if the employee's employment was continuous. The benefit is not restarting the employee's deductions as a new employee. Some conditions apply . A ruling application should be made in advance to determine if this benefit would be available in your circumstances.

INFO on "How to Prepare T4s RC4120
Automobile Deduction Limits and Expense Benefit Rates for Business
One reminder here has to do with the STAND-BY charge which is 2%/month of the original cost of the vehicle or 2/3 the lease payment. A reduced stand-by charge is available if annual personal driving does not exceed 20,000 Km AND the automobile is used primarily (More than 50%) for business purposes.
There are also changes to the calculation of Taxable Automobile allowances where a combination flat-rate and reasonable per-kilometer allowance is paid. The employee is required to include the combined allowance in his or her income and the employee can claim allowable expenses.
CRA Info now available:RC18 Calculating Automobile Benefits for 2008
Pick up trucks and vans having a seating capacity of no more than a driver and two passengers are exempt as automobiles IF the vehicle is used primarily for the transportation of goods and/or personnel in the in the course of a business activity. This can be increased in certain cases to include extended cab pickups at work sites (Defined term) and in cases where the driving is all or substantially all for the transportation of goods or passengers in the course of a business activity. This area will require careful scrutiny to ensure compliance with the many rules and exceptions.
The ceiling on the capital cost of passenger vehicles Class 10.1 for capital cost allowance purposes will remain at $30,000 (plus applicable federal and provincial sales taxes) for purchases after 2002. This ceiling restricts the cost of a vehicle on which CCA can be claimed for business purposes.
The limit on deductible leasing costs will remain at $800 per month (plus applicable federal and provincial sales taxes) for leases entered into after 2002. A separate restriction prorates deductible lease costs where the value of the vehicle exceeds the capital cost ceiling.
The maximum allowable interest deduction for amounts borrowed to purchase an automobile will remain at $300 per month for loans related to vehicles acquired after 2002.
2008 The limit on tax-exempt allowances paid by employers to employees is 52｢ per kilometre for the first 5,000 kilometres driven and 46｢ for each additional kilometre. (Yukon, NWT, Nunavut rates 56｢/50｢) See: CRA Website with rates.

RATES are reviewed annually and changes announced prior to the end of the calendar year so that businesses are aware of changes prior to January 1.
NOTE: GST credits are available to the payor of automobile reimbursements.
NOTE: Rates may differ for members of the Association for oilfield drilling contractors.
The general prescribed rate used to determine the taxable benefit relating to the personal portion of automobile operating expenses paid by employers is 24｢ per kilometre). For taxpayers employed principally in selling or leasing automobiles, the prescribed rate is 21｢ per kilometre).

Group Life Insurance - Premiums for all employer paid group life insurance are a taxable benefit reported as income on the employees T4 slip to be issued February 29, 2009.

Pension Plan Contributions - Employer paid pension contributions must be included on the T4 and reported by the employee on their personal tax return. This reduces the employees RRSP contribution limit.

Dividends - T5's and T5 Summaries for the year 2008 for corporate dividends and interest must also be filed by February 29, 2009. It is our policy to file T5's as they are issued. Therefore, if your company issued T5's to shareholders during 2008, you should have a COPY of the T5's and T5 Summary on hand. In some cases these were sent directly to clients for signature and forwarding to the Tax Department. Please ensure that you do not have any originals in your possession that should have been filed.

Penalty for Late T4 Distribution to employees is $25/day after February 29, 2009 to maximum of $2,500 plus interest. The minimum penalty is $100. In addition, late filing penalties under the income tax, CPP and EI acts are also imposed. These are expensive. There is a penalty of $100 for each missing SIN.

Business Relationships (Self-Employed) - These situations are clearer where a Contract for Services (see below) outlining the intent of the parties exists. A pamphlet (RC4110) is available to assist a payer or worker in determining whether you are in a employer-employee relationship (T4 Required) OR a business relationship (Possible T4A/T5018 Required). This guide explores the unique facets to an employment situation to help determine the treatment required in each case. Items considered include Control, Ownership of tools, Chance of Profit/Risk of loss and Intergration. The responsibilities in the relationship are described for each possibility. A special section deals with excluded employment and non-arms length relationships.This guide is available electronically - through CRA's site . It is also available in printed format by mail. Phone CRA Forms at 1-800-959-2221.

Contract Payment Reporting System - The Contract Payment Reporting System requires a business principally involved in construction to report amounts paid to sub-contractors on a T5018 Slip. These slips and summary reports Contract Payments made to CRA and is used to verify the contractors' income reporting. See See 5018 - AND - required Summary

Personal Service Business - should be considered here as it follows from business relationships. In some cases employers trying to reduce CPP and EI premiums or for other business reasons insist on hiring only corporations instead of individuals. Often individuals incorporate in order to be eligible for this work. Care must be taken to avoid being classed as a Personal Service Business. Since a personal service business is taxed at the top corporate rates and may deduct ONLY salary and wages paid to the "incorporated employee" it is important to ensure that your income sources are diversified. This problem can be encountered where the individual who performs the services, or any related person, owns 10 % or more of the shares of the corporation providing the service and that person would reasonably be regarded as an employee of the person to whom the services are being provided. Examine your situation to ensure you have a contract for service (Contractor) and NOT a contract of service (Employee) with your customers/clients. The pamphlet (RC4110) referred to in Business Relationships (above) can help define your relationship with your customer or employer. This situation does not apply to businesses with five or more full-time employees throughout the year or amounts paid to associated corporations.

Why have a Written Contract - A written contract of employment between an employer and employee/contractor, defines the unique terms of their relationship instead of the general terms of the applicable employment standards. It reduces the possibility of misunderstanding by defining the specific terms that the parties agreed to and clarifies matters which the common law does not deal with. A written Contract can be used to show CRA the intention of the parties at the time their relationship began and helps in the resolution of disputes between the parties.
Our Web LOOKUP Table includes more technical tax sites including CRA.

CORPORATE TAX
The PAYMENT deadline for Corporate taxes due is generally the last day of the second month following the fiscal year-end EXCEPT for Corporations which claim the Alberta Small Business deduction in the year AND have Alberta taxable income of less than $500,000 when their deadline is extended to 3 months. Canadian-controlled private corporations in an associated group share the maximum business limit among them. Also, for taxation years beginning after March 31, 2001, capital taxes payable in other provinces are no longer deductible for the purposes of Alberta corporate income tax.
In simple terms the combined Federal/Alberta rate is 16.1% with the small business deduction to $400,000. Other rates and regulations apply for investment income and in other provinces.

How you are taxed - is described in a booklet from CRA. This informative booklet describes who is eligible for the Small Business Deduction and how different types of income attract different rates of tax. A Must read! Click here


CRA's Interest Rates on shareholder loans: BY QUARTER
6 Percent FIRST Quarter of 2008
6 Percent SECOND Quarter of 2008
6 Percent THIRD Quarter of 2008
5 Percent FOURTH Quarter of 2008
The Agency calculates the prescribed rates for a calendar quarter by establishing the average rate on 90-day Treasury bills sold during the first month of the preceding quarter. This figure is rounded up to the nearest percentage point. This is the rate paid to tax remitters on any overpayments.
Then, to determine the interest rate charged on UNPAID TAX, Canada Pension Plan contributions and Employment Insurance premiums the Agency ADDS two percentage points to that figure. So think 9% for the third quarter 2008. Better to pay them quickly.
The prescribed rate that applies to taxable benefits for employees and shareholders from interest-free and low-interest loans is 2 % lower than the quarterly rate shown.
Provincial Rates for - ALBERTA

Condo Corporations - May 29, 1995 CRA noted Condominium Corporations are exempt from tax on interest earned on operating or reserve funds and other incidental income.

GST Payment Late - A new penalty effective April 1, 2007 is equal to 1% of the amount unpaid or outstanding for the reporting period as of the return due date, plus 0.25% of the overdue amount times the number of complete months the return was overdue, to a maximum of 12 months. Also see info on new services being offered by GST starting April 10, 2007 BR>
CRA's Website (Click here) Private Health Services Plan (PHSP) - PHSP plans are available but rules apply as to who qualifies and how the plan is administered. The plan must be purchased/operated through a third party familiar with the provision of these types of services. Insurance companies will be pleased to provide further information. Be sure the information provided is cost effective for you and your Company before embarking on a PHSP.
Golf Fees continue to irk the CRA but 50% of those meals and business entertaining at golf courses can be deducted. The trick here is to separate these items into the meals and entertainment account when entering in your records. Meals and entertainment are added back (50%) when doing your tax return. Golf fees are added back at 100% but this is still preferred to paying for the golf with after tax earnings.

R & D CREDITS are now easier than ever to access. Hi Tech Companies and those involved in manufacturing should consider that the application process has been simplified and past bad experiences should be forgotten and a new look taken at this opportunity. See Guide Scientific Research and Experimental Development (SR&ED) Tax Incentive Program Free public information seminars ACROSS CANADA - provide a general overview of the program, explaining the program's eligibility criteria, what expenditures are eligible, and how to file a SR&ED claim. You can also visit these websites CATA OR - Geofuel Research Inc. - SRED INFO to read more on this subject.

GST - A service business wth taxable income not exceeding $ 200,000. (not accounting, financial, legal etc.) where input tax credits are limited should consider using the Quick Method of remitting GST. You are still eligible for a GST rebate on capital purchases. An election - Form GST 74 is required to be filed to use the Quick Method and once the election is made it cannot be revoked for at least one year. Contact GST for more information or go to their website for the booklet. Quick Method of Accounting for GST/HST .
REMITTING GST on taxable benefits - GST MUST be remitted on taxable benefits(i.e. automobile stand-by charges and operating expense and other shareholder benefits), unless the benefit is zero rated or tax exempt (i.e. interest on shareholder loans).Travel allowance to employees (i.e. a flat car allowance of $300/Mo) do not attract GST. The employee includes these in income and can claim expenses incurred and the GST rebate for GST paid on these expenses. Non-taxable reimbursements based on Km driven by the employee are eligible for an input tax credit to the Company at .0566 times the reimbursement.
In these case the GST input credit/ is supported by the calculations of benefits or reimbursements. In all other cases it is important to keep the proper invoices to support Input Tax Credits. ALL invoices MUST show the supplier's registration number, date purchased and amount of sale to be eligible for credit.
For Info on Interest & Penalties attached to GST returns See - Penalties and Interest
Involved in E-Commerce see CRA's info hereBulletin B-090
NOTE: Some Alberta Government agencies are GST exempt. To see which entities qualify for GST free status Click To Review
CRA has a service where you can check GST numbers on the internet - GST Registry

We suggest you ensure that by the third working day of January (due to various remitting schedules dictated by CRA), all employee deductions to December 31, 2008 be remittedto CRA. If management bonuses were declared or wages credited to shareholders' loans during the year ensure that the correct remittance has been made. Interest and late filing penalties will be imposed on all remittances received after your January due date. This is very important. "DO NOT PAY LATE". CRA has a guide that outlines your due date - See ** RC4001 Employers' Guide Remitting Payroll Deductions
Payroll Info (Deductions at Source) for 2008 NOTE: Payroll tables will be difficult to find this year so you may want to download them from CRA - T4032/T4008 Payroll Deductions Tables

2008* - FREE DEDUCTIONS AT SOURCE ON-LINE CALCULATOR Effective Jan 1, 2008

2008 Rates: