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Canadian eBay sellers must declare all income for tax purposes or there will be consequences

As a result of a recent Federal Court of Canada decision, eBay Canada has provided the Canada Revenue Agency (CRA) with the names of eBay sellers as well as their contact information and sales records.

 

Beginning in fall 2009, the CRA will use this information to determine if eBay sellers properly reported the income they earned from sales made on eBay. The CRA will then contact the sellers to ensure that they have filed all required returns and accurately reported all income. If necessary, the CRA will conduct an in‑depth audit to ensure that the sellers are tax compliant.

 

If the CRA determines that a seller did not report his or her income, it will take any necessary action. In addition to paying any outstanding taxes plus interest, consequences may include penalties, as well as legal actions which could result in fines and other imposed sanctions.

 

To avoid paying these fines and penalties, taxpayers who have failed to file income tax returns for past years or who have not reported all their income can voluntarily correct their tax situation. The CRA has a Voluntary Disclosures Program (VDP) that allows taxpayers to take the initiative to correct or disclose any information without being penalized or prosecuted. To qualify for the program, your disclosure must be voluntary, in other words you must make a full disclosure before the CRA starts any audit or other compliance action.

 

If you have been earning income through eBay and have not reported that income to the CRA, you are at risk. Take action now and contact a tax professional to help you identify what steps to take to minimize your problem before the CRA comes after you.

 

 

Do you need to update your will?

For many people, once they make a Will, they put it away and forget about it. Your Will is an important document that is essential to achieving your estate planning goals. Your Will provides instructions on what to do with your estate (all your property and debts) after your death. It is therefore important that you review your estate plan and update your Will on a regular basis to reflect your current goal and personal situation. As a general guideline, you should consider updating your Will every time there is a significant change in your personal situation.

Below is a checklist of some of the more common situations which necessitates updating your will:

·         Review of the Will by a lawyer has not occurred in the past 5 years

·         You want to change one or more of the beneficiaries in your Will

·         You want to change the amounts you’ll give to one or more beneficiaries

·         You want to change the type of property you’ll give to one or more beneficiaries

·         Your marital status has changed

·         There has been a birth or adoption of children or grandchildren

·         There has been a significant change in the value of your estate

·         There has been a significant change in a business situation

·         You want to change or delete a guardian, an executor, or a trustee

·         You've moved to another province

·         There has been a change in the form of property ownership

·         You've acquired property in another province or country

·         There have been significant tax law changes

Because a Will is revocable, it is possible to revise it a number of times before you pass away and you can do so by either preparing a Codicil or by preparing an entirely new Will. A Codicil is a document that amends an existing Will. It must be properly prepared and executed according to the same formalities like a Will. It is a more convenient to revise your Will, if the changes to the Will are relatively simple and minor. Most codicils are only one or two pages long, and are not as costly as having the entire Will revised. However, if you want major revisions to your Will, it is easier to draft an entirely new Will and revoke the old one than to use a Codicil.

If it has been more than 5 years since you last reviewed your Will and if your personal situation has changed, contact an experienced lawyer to assist you in revising your Will to reflect your current estate goals.

Take advantage of the Home Renovation Tax Credit

 

The HRTC is a time-limited, non-refundable tax credit of up to $1,350 that can be claimed for eligible expenditures made for renovations and alterations of an enduring nature to a dwelling eligible to be a principal residence which may include a house, condominium, cottage, and the land that forms part of it. Canadian homeowners who are thinking about renovating their kitchen, replacing their furnace or installing new windows or a new fence, for example, could really benefit from this credit.

 

The HRTC can be claimed on the 2009 income tax and benefit return for eligible expenditures that total more than $1,000, and up to $10,000, which are made between January 28, 2009 and January 31, 2010. To claim the HRTC, Canadians should ensure they keep supporting documents such as receipts to support their claim.

 

For more information about the Home Renovation Tax Credit, go to actionplan.gc.caorcra.gc.ca/hrtc.

Ask yourself these questions before seeking help with your tax problem

When you’re disputing with the CRA, you need to make sure that you have chosen the right professional who specializes in your type of tax problem to assist you. There are many types of issues. For instance, an individual’s tax problem differs substantially from a corporation’s tax problem. It is therefore important that you understand your tax situation before seeking appropriate help.

Below are a few questions to consider when determining the type of help you need:

·                      Are you looking at personal income tax issues such as undeclared income or reassessments or business tax problems such as unpaid payroll taxes or sales taxes?

·                      Are you facing estate tax issues, does your issue involve a farm, a trust or charity?

·                      Are you dealing with just federal or with provincial taxes too?

·                      Does the CRA know about the issue yet or have you just discovered it?

·                      Did the CRA contact you but you’ve ignored it hoping they would go away?

·                      Are your records in disarray?

·                      Has the CRA demanded an audit?

·                      Has the CRA garnished your wages, put in liens or seized any property?

To find the best qualified professional for you, it is crucial to determine the type of tax problem you are facing before you do anything else. Once you determine the type of problem you have, you will have a much better way of filtering out the tax professionals whose services do not match your needs and which ones that do.

The Supreme Court Rules on Interest Deductibility Scheme

On January 8, 2009, the Supreme Court of Canada released its judgment in Earl Lipson, et al. v. Her Majesty the Queen, upholding the Federal Court of Appeal's decision by a 4-3 majority. Given the amount of interest and uncertainty generated by the lower courts decision in Lipson and other general anti-avoidance rule (GAAR) related decisions, the Supreme Court failed use this case and an opportunity to provide some consistency and predictability on the application of GAAR and more specifically on the use of interest deductibility for tax planning.

Opportunities

First, some background. In Canada, on death, the Income Tax Act assumes the deceased sold all of his or her assets in the seconds preceding death and repurchased them at their fair market value. Assuming that one has taxable assets which have appreciated over time this ‘deemed disposition’ of assets can result in a significant tax liability. Unless the deceased has engaged in some planning the executors of the estate are often forced to sell the assets to pay the tax bill. If there is something particular that the deceased wanted to pass on (say a cottage) then one would have to make certain that there was enough cash in the estate to pay the taxes in order to avoid the sale of assets to raise cash.

One way to help is to lower the tax bill by donating capital items in the will (see one of my presentations on the subject here). If done properly one would create an overwhelming amount of tax credits. These credits would be used to offset the tax owing on the deemed disposition of assets at death. Thus lowering the tax bill and hopefully keeping the assets from being sold to pay the bill.

While not done by will there is a good example of this by a 92 year old artist in England who is selling his assets and donating them to charity click here. While the English system works a bit differently and this may be a tax wise move there, in Canada it would likely be best if this gentlemen donated his work to charity and let the charity sell it. At any rate, the idea is there - when you get to a certain point in your life and realize that your heirs are only interested in certain specific items you own at least give away your assets to one who wants them but in a manner which best benefits your estate.

Back from the Dead

When the last Parliament rose before the 2006 election, Bill C-21 was left to die on the order paper. For those with shorter memories, Bill C-21 was the proposed law to create a new Canada Not-For-Profit Corporations Act. It was to replace the relevant portions of the Canada Corporations Act, which was originally passed in 1917. While Bill C-21 absorbed a lot of criticism from the sector, it was a step forward in an area of the law which badly needed an update. Fortunately, the bill was resurrected as Bill C-62 when it passed first reading on June 13, 2008,

If this bill should pass third reading and receive royal ascent it will affect every federally incorporated non-share capital corporation in the country. However, there is no need for panic in the sector. The bill will need to pass third reading and receive royal assent before being passed into law. Given that the Harper government has set an election date for October 2009 and it is entirely possible that the government will fall before then there may not be enough time for the bill to receive the necessary commentary from all the interested parties before Parliament becomes distracted with election issues.

It remains to be seen whether this ghost of Bill C-21 will be here to stay or whether it will, again, be several years before the sector finally sees some movement.

Greater Access to Tax Information for Business Owners

Did you know that the Canada Revenue Agency (“CRA”) has made recent enhancements to the My Business Account?

Proposed Guidelines for Sport and Charitable Registration

On May 15, 2008, the Canada Revenue Agency’s Charities Directorate ("Directorate") released a consultation proposal regarding a policy on sport and charitable registration under the Income Tax Act. The Directorate has stated that the purpose of policy is to clarify ways in which organizations carrying out activities that include sport can qualify for charitable registration.  The policy identifies two potential ways in which organizations involved in sport activities may be registered as a charity. The first is if the activity pursued furthers the organization’s charitable purpose(s) and that sport is a reasonable means to achieve those purposes. The second is if the sports activities pursued are incidental in nature, meaning that only a small portion of the organization’s total resources’ are devoted to the sport activity in question. 

When to compensate a director of a charity for their services

Generally directors of corporations that are registered charities are not to be compensated for sitting on the board or for doing any work for the charity. This rule does not apply to non-registered charities, not for profit corporations, trusts and associations. The principle behind this rule is transparency. It should be clear to donors that board members are serving on the board for reasons of an altruistic nature and not for personal gain.

      

The avoidance of conflict of interest, whether real or perceived is part of the directors fiduciary obligations to the organization. Typically, the most a director receives from the charity is reimbursement of reasonable out-of–pocket expenses, which usually governed by the by-laws of the charity. If there are professionals sitting on the board, i.e., lawyers and accountants, the lawyers should not be giving legal advice and certainly should not be charging the charity for their time. As well, law firms cannot charge for legal services provided to a charity if one of their partners is on the board of the charity.  Similarly, accountants and their firms cannot do an audit of the charity and or charge the charity for accounting services. The charity must retain outside lawyers and accountants to provide objective advice and services.

   

Aside from reimbursements of reasonable out of pocket expenses there are some instances where a director may be compensated by the charity. If the corporation is a federally registered charity, it is regulated by the Canada Revenue Agency’s Charities Directorate. According to a conversation with an agent at the Directorate, a registered charity may pay its directors an honorarium of up to $500.00 for services rendered, or for incurring other expenses that are associated with the normal operation of the charity. If the honorarium is more than $500.00, the charity must issue a T4 slip for the director. It should be noted that the agent was unable to provide a written guideline or a policy supporting the application of this rule.

   

If the charity is incorporated in Ontario, it is regulated by the Public Guardian and Trustee. At common law, a director of an Ontario charity must not receive any direct or indirect remuneration or benefit from the charity unless a court approval is first obtained. In appropriate circumstances, payment for services other than as a director may be allowed by court order or by an order made under section 13 of the Charities Accounting Act where it is in the charity's best interest to do so.