Personal
1. Who has to file income tax return in Canada, and on what income?
A person who is considered a tax resident of Canada is subject to Canadian income tax on their worldwide income.
A person who is considered a tax resident of Canada is subject to Canadian income tax on their worldwide income.
2. Why should I file a tax return if I don’t have income or have to pay tax?
Even though you may not be required to file a tax return, it may be to your advantage to do so. You may be eligible to receive refundable tax credits and benefits that are only available if you filed your tax return.
Even though you may not be required to file a tax return, it may be to your advantage to do so. You may be eligible to receive refundable tax credits and benefits that are only available if you filed your tax return.
3. Do I need to file foreign income verification statement (T1135)?
All Canadian resident taxpayers are required to file a T1135 if they own specified foreign property costing more than $100,000 at any time during the year. Non-resident trusts deemed resident in Canada and partnerships where non-resident members' share of income or loss is less that 90% also must file this form. Individuals do not have to file T1135 the year they first become a resident of Canada.
It is important to note that shares or bonds of foreign companies or countries, even if held by a Canadian financial institution, are considered foreign investment property. However, foreign investment property does not include personal-use property or assets used only in active business.
All Canadian resident taxpayers are required to file a T1135 if they own specified foreign property costing more than $100,000 at any time during the year. Non-resident trusts deemed resident in Canada and partnerships where non-resident members' share of income or loss is less that 90% also must file this form. Individuals do not have to file T1135 the year they first become a resident of Canada.
It is important to note that shares or bonds of foreign companies or countries, even if held by a Canadian financial institution, are considered foreign investment property. However, foreign investment property does not include personal-use property or assets used only in active business.
Business
1. Should I incorporate?
Each situation is different and here are some of the advantage and disadvantages that may arise as a result of incorporating a business:
Advantages:
Disadvantages:
Each situation is different and here are some of the advantage and disadvantages that may arise as a result of incorporating a business:
Advantages:
- Capital Gains Exemption: Establishing a company may enhance the ability to claim the $835,714 life-time capital gains exemption on sale of the shares of the corporation;
- Estate Planning: Estate planning maybe possible by issuing shares to children or other family members thereby transferring all or a portion of the future growth in the corporation to them;
- Income Splitting: Income splitting may be available if the company is paying a reasonable salaries or dividends to family members that are employees or shareholders;
- Limited liability;
- Tax deferral: Tax can be deferred by retaining up to $500,000 of active business income in the corporation so that it will be taxed at the low small business rate; and
- Tax savings: Up to $500,000 of active business income is eligible for the Small Business Deduction (SBD) and enjoys a lower tax rate. Any income in excess of $500,000 or inactive business income has a much higher tax rate.
Disadvantages:
- Addition expenses: incorporation costs and the annual reporting requirements must be weighed against the advantages of incorporation;
- Corporate tax returns must be filed annually and taxes may be levied on corporation;
- Investment Income: Investment income does not qualify for the small business deduction and may be taxed at a high rate;
- Loss utilization: Business losses may be used to offset other personal income if the sole proprietor carries on business personally while corporation losses may not be deducted until income is earned in future years;
- Separate books and records for the corporation must be maintained.
2. What meals and entertainment costs can I deduct?
In general, you can deduct 50% of the food, beverages and entertainment cost incurred in order to earn business or property income. Sometimes, 100% of meals and entertainment are deductible. Some of the examples are:
In general, you can deduct 50% of the food, beverages and entertainment cost incurred in order to earn business or property income. Sometimes, 100% of meals and entertainment are deductible. Some of the examples are:
- Meals and entertainment billed back to the customer that are itemized on the invoice
- Meals and entertainment expenses for a company event that all employees from a particular location are invoiced (limited to 6 of these events per year). The cost will be 100% deductible even if clients are invited as well as all employees.
3. What motor vehicle expenses can be deducted?
When a motor vehicle is used for business purpose, some of the vehicle expenses can be deducted by a business. However, when a vehicle is used for both business and personal purposes, it is important to keep a trip log to identify the business use vs. personal use of each vehicle.
If a company-owned vehicle is used for personal purposes, a taxable benefit to the shareholder or employee is occurred and the benefit would need to be included to the shareholder or employee personal income.
All income tax implications should be reviewed when purchasing a vehicle in a company’s name.
When a motor vehicle is used for business purpose, some of the vehicle expenses can be deducted by a business. However, when a vehicle is used for both business and personal purposes, it is important to keep a trip log to identify the business use vs. personal use of each vehicle.
If a company-owned vehicle is used for personal purposes, a taxable benefit to the shareholder or employee is occurred and the benefit would need to be included to the shareholder or employee personal income.
All income tax implications should be reviewed when purchasing a vehicle in a company’s name.
Payroll
1. Do I need to pay EI premiums for shareholders or family members?
Under the Employment Act section 5(2)(b), “the employment of a person by a corporation if the person controls more than 40% of the voting shares of the corporation” is an excluded employment for EI purpose.
In addition, you may not need to pay EI premiums for employed family members. or any other situation where the employer and employer are not dealing with each other at arm’s length.
2. Employee or self-employed?
Factors that need to be considered, whether the worker is an employee or a self-employed individual, are: control, tools and equipment, subcontracting work or hiring assistants, financial risk, responsibility for investment and management, and opportunity for profit.
If a worker or payer is not sure of the worker’s employment status, they can request a ruling to have the status determined. You can get the form, CPT1, Request for a Ruling as to the Status of a Worker under the Canada Pension Plan and/or the Employment Insurance Act, at www.cra.gc.ca/forms or by calling 1-800-959-2221.
3. Do I need to pay vacation pay?
In British Columbia, vacation pay must be at least 4% (approx. 2 weeks pay) of the employee’s total earnings from the previous year and increased to 6% (approx. 3 weeks pay) after five consecutive years of employment. A person who is employed for less than one year and more than five calendar days is not entitled to take a vacation but must be paid 4% vacation pay on termination of employment.
4. What are the statutory holidays in British Columbia? Do I need to pay?
There are currently 10 statutory holidays in BC and they are New Years Day, Family Day, Good Friday, Victoria Day, Canada Day, B.C. Day, Labour Day, National Day for Truth and Reconciliation, Thanksgiving Day, Remembrance Day and Christmas Day. To qualify for statutory holiday pay, employees must have been employed for at least 30 calendar days and worked on at least 15 of the 30 days before the statutory holiday. Qualified employees who are given a day off must be paid an average day’s pay, if they worked on the statutory holiday, they must be paid time-and-a-half for the first 12 hours worked and double-time after 12 hours plus an average day’s pay.
5. What is the minimum wage in British Columbia?
June 1, 2019 – $13.85 per hour; June 1, 2020 – $14.60 per hour; June 1, 2021 – $15.20 per hour; June 1, 2022 - $15.65 per hour; June 1, 2023 - $16.75 per hour; June 1, 2024 - $17.40 per hour.
Under the Employment Act section 5(2)(b), “the employment of a person by a corporation if the person controls more than 40% of the voting shares of the corporation” is an excluded employment for EI purpose.
In addition, you may not need to pay EI premiums for employed family members. or any other situation where the employer and employer are not dealing with each other at arm’s length.
2. Employee or self-employed?
Factors that need to be considered, whether the worker is an employee or a self-employed individual, are: control, tools and equipment, subcontracting work or hiring assistants, financial risk, responsibility for investment and management, and opportunity for profit.
If a worker or payer is not sure of the worker’s employment status, they can request a ruling to have the status determined. You can get the form, CPT1, Request for a Ruling as to the Status of a Worker under the Canada Pension Plan and/or the Employment Insurance Act, at www.cra.gc.ca/forms or by calling 1-800-959-2221.
3. Do I need to pay vacation pay?
In British Columbia, vacation pay must be at least 4% (approx. 2 weeks pay) of the employee’s total earnings from the previous year and increased to 6% (approx. 3 weeks pay) after five consecutive years of employment. A person who is employed for less than one year and more than five calendar days is not entitled to take a vacation but must be paid 4% vacation pay on termination of employment.
4. What are the statutory holidays in British Columbia? Do I need to pay?
There are currently 10 statutory holidays in BC and they are New Years Day, Family Day, Good Friday, Victoria Day, Canada Day, B.C. Day, Labour Day, National Day for Truth and Reconciliation, Thanksgiving Day, Remembrance Day and Christmas Day. To qualify for statutory holiday pay, employees must have been employed for at least 30 calendar days and worked on at least 15 of the 30 days before the statutory holiday. Qualified employees who are given a day off must be paid an average day’s pay, if they worked on the statutory holiday, they must be paid time-and-a-half for the first 12 hours worked and double-time after 12 hours plus an average day’s pay.
5. What is the minimum wage in British Columbia?
June 1, 2019 – $13.85 per hour; June 1, 2020 – $14.60 per hour; June 1, 2021 – $15.20 per hour; June 1, 2022 - $15.65 per hour; June 1, 2023 - $16.75 per hour; June 1, 2024 - $17.40 per hour.
GST/HST
1. Do I need to register for a GST/HST account?
Any individual, business, association, partnership, company, corporation or organization that engaged in commercial activity in Canada with annual sales and revenues of GST/HST taxable goods and services of more than $30,000 are required to register for GST/HST.
2. How do I register to collect GST/HST?
You can register online at http://www.cra-arc.gc.ca/tx/bsnss/tpcs/bn-ne/bro-ide/menu-eng.html, by phone with Canada Revenue Agency at 1-800-959-5525 or by completing form RC1, Request for a Business Number (BN) https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/rc1.html and mail or fax it to your tax center.
Any individual, business, association, partnership, company, corporation or organization that engaged in commercial activity in Canada with annual sales and revenues of GST/HST taxable goods and services of more than $30,000 are required to register for GST/HST.
2. How do I register to collect GST/HST?
You can register online at http://www.cra-arc.gc.ca/tx/bsnss/tpcs/bn-ne/bro-ide/menu-eng.html, by phone with Canada Revenue Agency at 1-800-959-5525 or by completing form RC1, Request for a Business Number (BN) https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/rc1.html and mail or fax it to your tax center.