Government of Canada to allow up to $400 for home office expenses

For the 2020 tax year, the Government of Canada introduced a temporary flat rate method to allow Canadians working from home this year due to Covid-19 to claim expenses of up to $400. Taxpayers will still be able to claim under the existing rules if they choose using the detailed method.

Eligibility

From the canada.ca website:

Each employee working from home who meets the eligibility criteria can use the temporary flat rate method to calculate their deduction for home office expenses.

To use this method to claim the home office expenses you paid, you must meet all of the following conditions:

  • You worked from home in 2020 due to the COVID-19 pandemic

  • You worked more than 50% of the time from home for a period of at least four consecutive weeks in 2020

  • You are only claiming home office expenses and are not claiming any other employment expenses

  • Your employer did not reimburse you for all of your home office expenses

You need to meet all of the above conditions to be eligible to use the Temporary flat rate method.

New eligible expenses

For the detailed method, the CRA has expanded the list of eligible expenses that can be claimed as work-space-in-the-home expenses to include reasonable home internet access fees. A comprehensive list of eligible home office expenses has also been created.

Business Owners: 2020 Tax Planning Tips for the End of the Year

It’s a great time to review your business finances now that we are nearing year-end. Your business may be affected by recent tax changes or new measures to help with financial losses due to COVID-19. Figuring out the tax ramifications of these new measures can be complicated, so please don’t hesitate to consult your accountant and us to determine how this may affect your business finances.

We’re assuming that your corporate year-end is December 31. If it’s not, then this information will be useful when your business year-end comes up.

Below, we have listed some of the critical areas to consider and provide you with some helpful guidelines to make sure that you cover all the essentials. We have divided our tax planning tips into four sections:

  • Year-end tax checklist

  • Remuneration

  • Business tax

  • Estate

Business Year-End Tax Checklist

Remuneration

  • Salary/dividend mix

  • Accruing your salary/bonus

  • Stock option plan

  • Tax-free amounts

  • Paying family members

  • COVID-19 wage subsidy measures for employers

Business Tax

  • Claiming the small business deduction

  • Shareholder loans

  • Passive investment income including eligible and ineligible dividends

  • Corporate reorganization

Estate

  • Will review

  • Succession plan

  • Lifetime capital gains exemption

Remuneration

What is your salary and dividend mix?

Individuals who own incorporated businesses can elect to receive their income as either salary or as dividends. Your choice will depend on your situation. Consider the following factors:

  • Your current and future cash flow needs

  • Your personal income level

  • The corporation’s income level

  • Tax on income splitting (TOSI) rules. When TOSI rules apply, be aware that dividends are taxed at the highest marginal tax rate.

  • Passive investment income rules

Also consider the difference between salary and dividends:

Salary

  • Can be used for RRSP contribution

  • Reduces corporate tax bill

  • Subject to payroll tax

  • Subject to CPP contribution

  • Subject to EI contribution

Dividend

  • Does not provide RRSP contribution

  • Does not reduce a corporate tax bill

  • No tax withholdings

  • No CPP contribution

  • No EI Insurance contribution

  • Depending on the province¹, receive up to $50,000 of eligible dividends at a low tax rate provided you have no other sources of income

¹The amount and tax rate will vary based on province/territory you live in.

It’s worth considering ensuring that you receive a salary high enough to take full advantage of the maximum RRSP annual contribution that you can make. For 2020, salaries of $154,611 will provide the maximum RRSP room of $27,830 for 2021.

Is it worth accruing your salary or bonus this year?

You could consider accruing your salary or bonus in the current year but delaying payment of it until the following year. If your company’s year-end is December 31, your corporation will benefit from a deduction for the year 2020. The source deductions are not required to be remitted until actual salary or bonus payment in 2021.

Stock Option Plan

If your compensation includes stock options, check if you will be affected by the stock option rules that went into effect on January 1, 2020. These new rules cap the amount of specific employee stock options eligible for the stock option deduction at $200,000 as of January 1, 2020. These rules will not affect you if a Canadian controlled private corporation grants your stock options.

Tax-Free Amounts

If you own your corporation, pay yourself tax-free amounts if you can. Here are some ways to do so:

  • Pay yourself rent if the company occupies space in your home.

  • Pay yourself capital dividends if your company has a balance in its capital dividend account.

  • Return “paid-up capital” that you have invested in your company

Do you employ members of your family?

Employing and paying a salary to family members who work for your incorporated business is worth considering. You could receive a tax deduction against the salary you pay them, providing that the salary is “reasonable” with the work done. In 2020, the individual can earn up to $13,229 (increased for 2020 from $12,298) and pay no federal tax. This also provides the individual with RRSP contribution room, CPP and allows for child-care deductions. Bear in mind there are additional costs incurred when employing someone, such as payroll taxes and contributions to CPP.

COVID-19 wage subsidy measures for employers

To deal with the financial hardships introduced by COVID-19, the federal government introduced two wage subsidy measures:

  • The Canada Emergency Wage Subsidy (CEWS) program. With this, you can receive a subsidy of up to 85% of eligible remuneration that you paid between March 15 and December 19, 2020, if you had a decrease in revenue over this period. You must submit your application for the CEWS no later than January 31, 2021.

  • The Temporary Wage Subsidy (TWS) program. With this program, which reduces the amount of payroll deductions you needed to remit to the CRA, you can qualify for a subsidy equal to 10% of any remuneration that you paid between March 18, 2020, and June 19, 2020. You can claim up to a maximum of $1,375 per employee and $25,000 in total.

You can apply for both programs if you are eligible. If you qualify for the TWS but did not reduce your payroll remittances, you can still apply. The CRA will then either pay the subsidy amount to you or transfer it over to your next year’s remittance.

Business Tax

Claiming the Small Business Deduction

Are you able to claim a small business deduction? The federal small business tax rate decreased to 9% in 2019. It did not increase in 2020, nor is it expected to increase in 2021. From a provincial level, there will be changes in the following provinces:

Therefore, a small business deduction in 2020 is worth more than in 2021 for these provinces.

Should you repay any shareholder loans?

Borrowing funds from your corporation at a low or zero interest rate means that you are considered to have received a taxable benefit at the CRA’s 1% prescribed interest rate, less actual interest that you pay during the year or thirty days after the end of the year. You need to include the loan in your income tax return unless it is repaid within one year after the end of your corporation’s taxation year.

For example, if your company has a December 31 year-end and loaned you funds on November 1, 2020, you must repay the loan by December 31, 2021; otherwise, you will need to include the loan as taxable income on your 2020 personal tax return.

Passive investment income

If your corporation has a December year-end, then 2020 will be the second taxation year that the current passive investment income rules may apply to your company.

New measures were introduced in the 2018 federal budget relating to private businesses, which earn passive investment income in a corporation that also operates an active business.

There are two key parts to this:

  • Limiting access to dividend refunds. Essentially, a private company will be required to pay ineligible dividends to receive dividend refunds on some taxes. In the past, these could have been refunded when an eligible dividend was paid.

  • Limiting the small business deduction. This means that, for impacted companies, the small business deduction will be reduced at a rate of $5 for every $1 of investment income over $50,000. It is eliminated if investment income exceeds $150,000. Ontario and New Brunswick are not following these federal rules. Therefore, the provincial small business deduction is still available for income up to $500,000 annually.

Suppose your corporation earns both active business and passive investment income. In that case, you should contact your accountant and us directly to determine if there are any planning opportunities to minimize the new passive investment income rules’ impact. For example, you can consider a “buy and hold” strategy to help defer capital gains.

Think about when to pay dividends and dividend type

When choosing to pay dividends in 2020 or 2021, you should consider the following:

  • Difference between the yearly tax rate

  • Impact of tax on split income

  • Impact of passive investment income rules

Except for two provinces, Quebec and Alberta, the combined top marginal tax rates will not change from 2020 to 2021 at a provincial level. Therefore, it will not make a difference for most locations if you choose to pay in 2020 or 2021.

In Quebec and Alberta, as there will be increases in the combined marginal tax rate, you will have potential tax savings available if you choose to pay dividends in 2020 rather than 2021.

When deciding to pay a dividend, you will need to decide whether to pay out eligible or ineligible dividends. Consider the following:

  • Dividend refund claim limits: Eligible refundable dividend tax on hand (ERDTOH) vs Ineligible Refundable dividend tax on hand (NRDTOH)

  • Personal marginal tax rate of eligible vs. ineligible dividends (see chart below)

Given the passive investment income rules, typically, it makes sense to pay eligible dividends to deplete the ERDTOH balance before paying ineligible dividends. (Please note that ineligible dividends can also trigger a refund from the ERDTOH account.)

Eligible dividends are taxed at a lower personal tax rate than ineligible dividends (based on top combined marginal tax rate). However, keep in mind that when ineligible dividends are paid out, they are subject to the small business deduction; therefore, the dividend gross-up is 15% while eligible dividends are subject to the general corporate tax rate, a dividend gross-up is 38%. It’s important to talk to a professional to determine what makes the most sense when selecting the type of dividend to pay out of your corporation.

Corporate Reorganization

It might be time to revisit your corporate structure, given recent changes to private corporation rules on income splitting and passive investment income to provide more control on dividend income distribution.

Before you issue dividends to other shareholders in your private company (this includes your spouse, children, or other relatives), review the TOSI rules’ impact with us or your tax and legal advisors.

Another reason to reassess your structure is to segregate investment assets from your operating company for asset protection. You don’t want to trigger TOSI, so make sure you structure this properly. If you are considering succession planning, this is the time to evaluate your corporate structure as well.

Another aspect of corporate reorganization can be loss consolidation – where you consolidate losses from within related corporate groups.

Estate

Ensure your will is up to date

If your estate plan includes an intention for your family members to inherit your business using a trust, ensure that this plan is still tax-effective; income tax changes from January 1, 2016 eliminated the taxation at graduated rates in testamentary trusts and now taxes these trusts at the top marginal personal income tax rate. Review your will to ensure that any private company shares that you intend to leave won’t be affected by the most recent TOSI rules.

Succession plan

Consider a succession plan to ensure your business is transferred to your children, key employees or outside party in a tax-efficient manner.

Lifetime Capital Gains Exemption

If you sell your qualified small business corporation shares, you can qualify for the lifetime capital gains exemption (In 2020, the exemption is $883,384), where the gain is entirely exempt from tax. The exemption is a cumulative lifetime exemption; therefore, you don’t have to claim the entire amount at once.

The issues we discussed above can be complicated. Contact your accountant and us if you have any questions. We can help.

Canada Emergency Wage Subsidy expanded to include more businesses!

On July 17th, Finance Minister Bill Morneau announced proposed changes to the Canada Emergency Wage Subsidy (CEWS) that will expand the number of businesses that qualify for the program.

The major changes he announced were:

“First, we’re proposing to extend this program through until December 19th.”

“Secondly, we know that it’s also critical that we have the businesses able to continue to hire people even as they get into the restart and we know that the requirements in businesses have a 30% reduction in revenue is not helpful in that regard.”

“businesses will get the wage subsidy if they’ve had any reduction in revenue so it’s going to go all the way down to businesses who even have a small amount of revenue reduction they’ll get the subsidy and it will be in proportion to the amount of the revenue reduction that they will get a subsidy.”

“Third, we’ve tailored the program so that it helps those organizations that are particularly hard hit. So for organizations with over a 50% reduction of revenue over the last few months they’ll actually get a top up, they’ll get up to 25% additional subsidy so that they can deal with this really challenging time for their businesses.”

“What that means for businesses, those that were already in the program that have that 30% revenue decline that will continue to be the case for July and August. For those businesses as I said that are particularly hard hit it will be even more. It will go up to 85% wage subsidy or $960 per person.”

“For those businesses less hard hit but still hit they will be able to get into the program. The program will continue but as we restart, the program will be tailored to help businesses appropriately in that restart.”

The new rules will be retroactive to July 5th but require parliamentary approval.

Canada Emergency Wage Subsidy extended into December!

On July 13th, Prime Minister Justin Trudeau announced the extension of the Canada Emergency Wage Subsidy (CEWS) until December. The Prime Minster stated:

“You’ve seen me come out to talk with Canadians about what we’re doing to help you and your family, your employer, your local businesses deal with this Pandemic.

We’re going to continue to do that vital work.

This week we’ll be announcing an extension to the wage subsidy program until December to give greater certainty and support to businesses as we restart the economy.”

More details will be released during the week.

CERB Extended | Business Owners who did not qualify previously – expanded CEBA starts June 19th

CERB Extended 2 more months

Great news for Canadians out of work and looking for work. The CERB will be extended another 8 weeks for a total of up to 24 weeks.

As the country begins to restart the economy, the Federal government will be making changes to the program to encourage Canadians receiving the benefit to get people back on the job. From Prime Minister Justin Trudeau’s website:

“The Government of Canada introduced the CERB to immediately help workers affected by the COVID-19 pandemic, so they could continue to put food on the table and pay their bills during this challenging time. As we begin to restart the economy and get people back on the job, Canadians receiving the benefit should be actively seeking work opportunities or planning to return to work, provided they are able and it is reasonable to do so.

That is why the government will also make changes to the CERB attestation, which will encourage Canadians receiving the benefit to find employment and consult Job Bank, Canada’s national employment service that offers tools to help with job searches.”

More small businesses can apply for CEBA $40,000 no-interest loans

Applications for the expanded Canada Emergency Business Account (CEBA) will be accepted as of Friday, June 19th, 2020. Small businesses that are:

“… owner-operated small businesses that had been ineligible for the program due to their lack of payroll, sole proprietors receiving business income directly, as well as family-owned corporations remunerating in the form of dividends rather than payroll will become eligible this week.”

Apply online at the financial institution your business banks with:

There are restrictions on the funds can be used. From their website https://ceba-cuec.ca/:

“The funds from this loan shall only be used by the Borrower to pay non-deferrable operating expenses of the Borrower including, without limitation, payroll, rent, utilities, insurance, property tax and regularly scheduled debt service, and may not be used to fund any payments or expenses such as prepayment/refinancing of existing indebtedness, payments of dividends, distributions and increases in management compensation.”

Small Businesses! Applications for Canada Emergency Commercial Rent Assistance starts May 25th

Lower rent by 75% for small businesses that have been affected by COVID-19

The Application portal for the Canada Emergency Commercial Rent Assistance (CECRA) opens at 8:00am EST on May 25th. The description from the CMHC website:

“Canada Emergency Commercial Rent Assistance (CECRA) for small businesses provides relief for small businesses experiencing financial hardship due to COVID-19. It offers unsecured, forgivable loans to eligible commercial property owners to:

  • reduce the rent owed by their impacted small business tenants

  • meet operating expenses on commercial properties

Property owners must offer a minimum of a 75% rent reduction for the months of April, May and June 2020.”

Application Dates

Due to expected high volumes of applications, the application dates will be as follows:

  • Monday – Property owners who are located in Atlantic Canada, BC, Alberta and Quebec, with up to 10 tenants who are eligible for the program

  • Tuesday – Property owners who are located in Manitoba, Saskatchewan, Ontario and the Territories, with up to 10 tenants who are eligible for the program

  • Wednesday – All other property owners in Manitoba, Saskatchewan, Ontario and the Territories

  • Thursday – All other property owners in Atlantic Canada, BC, Alberta and Quebec

  • Friday – All

Eligibility

From the CMHC website:

“To qualify for CECRA for small businesses, the commercial property owner must:

  • own commercial real property* which is occupied by one or more impacted small business tenants

  • enter (or have already entered) into a legally binding rent reduction agreement for the period of April, May and June 2020, reducing an impacted small business tenant’s rent by at least 75%

  • ensure the rent reduction agreement with each impacted tenant includes:

    • a moratorium on eviction for the period during which the property owner agrees to apply the loan proceeds, and  

    • a declaration of rental revenue included in the attestation

The commercial property owner is not and is not controlled by an individual holding federal or provincial political office.

CECRA will not apply to any federal-, provincial-, or municipal-owned properties, where the government is the landlord of the small business tenant.

Exceptions

  • Where there is a long-term lease to a First Nation, or Indigenous organization or government, the First Nation or Indigenous organization or government is eligible for CECRA for small businesses as a property owner.

  • Where there are long-term commercial leases with third parties to operate the property (for example, airports), the third party is eligible as the property owner.

  • Also eligible are post-secondary institutions, hospitals, and pension funds, as well as crown corporations with limited appropriations designated as eligible under CECRA for small businesses.

NOTE: Small businesses that opened on or after March 1, 2020 are not eligible.

* We define commercial Real Property as a commercial property with small business tenants. Commercial properties with a residential component and multi-unit residential mixed-use properties would equally be eligible with respect to their small business tenants.

NOTE: Properties with or without a mortgage are eligible under CECRA for small businesses.

What is an impacted small business tenant?

Impacted small business tenants are businesses — including non-profit and charitable organizations — that:

  • pay no more than $50,000 in monthly gross rent per location (as defined by a valid and enforceable lease agreement)

  • generate no more than $20 million in gross annual revenues, calculated on a consolidated basis (at the ultimate parent level)

  • have experienced at least a 70% decline in pre-COVID-19 revenues **

NOTE: Eligible small business tenants who are in sub-tenancy arrangements are also eligible, if these lease structures meet program criteria.

** Small businesses can compare revenues in April, May and June of 2020 to that of the same period in 2019 to measure revenue losses. They can also use an average of their revenues earned in January and February of 2020.

For Full Details and to apply:

Expanded eligibility for CEBA $40,000 interest-free loan

“If you are the sole owner-operator of a business, if your business relies on contractors, or if you have a family-owned business and you pay employees through dividends, you will now qualify.” – PM Justin Trudeau

Eligibility

The Prime Minister outlined the expanded eligibility for the Canada Emergency Business Account and highlighted companies such as hair salon owners, independent gym owners with contracted trainers and local physio businesses will now be eligible.  

The eligible amounts are being expanded to include businesses with 2019 total payroll between $20,000 – $1.5 million.

How do I apply?

Prior to applying, please make sure you have this information readily available:

  • Canada Revenue Agency Business Number (BN 15 digits)

  • 2019 T4 Summary of Remuneration Paid (T4SUM)

Apply online at the financial institution your business banks with:

There are restrictions on the funds can be used. From their website https://ceba-cuec.ca/:

“The funds from this loan shall only be used by the Borrower to pay non-deferrable operating expenses of the Borrower including, without limitation, payroll, rent, utilities, insurance, property tax and regularly scheduled debt service, and may not be used to fund any payments or expenses such as prepayment/refinancing of existing indebtedness, payments of dividends, distributions and increases in management compensation.”

Extended! Canada Emergency Wage Subsidy extended beyond June

On May 8th, Prime Minister Justin Trudeau announced that they will extend the Canada Emergency Wage Subsidy (CEWS) beyond June. This measure gives qualifying employers up to $847 per employee each week so they can keep people on the payroll.

Eligibility

To be eligible to receive the wage subsidy, the Government of Canada website states you must:

  • be an eligible employer. Eligible employers include:

    • individuals (including trusts)

    • taxable corporations

    • persons that are exempt from corporate tax (Part I of the Income Tax Act), other than public institutions:

      • non-profit organizations

      • agricultural organizations

      • boards of trade

      • chambers of commerce

      • non-profit corporations for scientific research and experimental development

      • labour organizations or societies

      • benevolent or fraternal benefit societies or orders

    • registered charities

    • partnerships consisting of eligible employers

    Public institutions are not eligible for the subsidy. This includes municipalities and local governments, Crown corporations, public universities, colleges, schools and hospitals.

  • have experienced an eligible reduction in revenue.

  • have had a CRA payroll account on March 15, 2020

Online Calculator

The Canada Revenue Agency launched an online calculator to help businesses determine the amount they can expect from the wage subsidy program.  

Apply for Canada Emergency Wage Subsidy starting April 27th | Calculate your subsidy

Apply for CEWS starting April 27th

On April 21st, Prime Minister Justin Trudeau announced that the Canada Revenue Agency will accept applications for the Canada Emergency Wage Subsidy (CEWS) starting Monday, April 27th. This new measure gives qualifying employers up to $847 per employee each week so they can keep people on the payroll.

To be eligible to receive the wage subsidy, the Government of Canada website states you must:

  • be an eligible employer. Eligible employers include:

    • individuals (including trusts)

    • taxable corporations

    • persons that are exempt from corporate tax (Part I of the Income Tax Act), other than public institutions:

      • non-profit organizations

      • agricultural organizations

      • boards of trade

      • chambers of commerce

      • non-profit corporations for scientific research and experimental development

      • labour organizations or societies

      • benevolent or fraternal benefit societies or orders

    • registered charities

    • partnerships consisting of eligible employers

    Public institutions are not eligible for the subsidy. This includes municipalities and local governments, Crown corporations, public universities, colleges, schools and hospitals.

  • have experienced an eligible reduction in revenue.

  • have had a CRA payroll account on March 15, 2020

Online Calculator

The Canada Revenue Agency launched an online calculator to help businesses determine the amount they can expect from the wage subsidy program.  

BC: Reduces commercial property tax for businesses by average of 25%, help local governments

The province of British Columbia is providing additional support to businesses by reducing most commercial property tax bills by an average of 25%. In addition, the provincial government introduced new measures to support local governments facing revenue shortfalls.

“We know that B.C. communities and businesses are suffering from the economic impacts of COVID-19,” said Carole James, Minister of Finance. “That is why our B.C. COVID-19 Action Plan is focused on the health and safety of British Columbians, direct support for people and businesses and economic recovery for our province. We are providing further support by making additional temporary property tax changes to provide provincewide relief for business and local governments to help weather the pandemic, continue to deliver the services people count on and be part of our province’s economic recovery.”

– Minister of Finance, Carol James

From the BC government website:

“The Province is taking significant new steps to support B.C. businesses, non-profits and other organizations through the COVID-19 pandemic by:

  • further reducing the school property tax rate for commercial properties to achieve an average 25% reduction in the total property tax bill for most businesses, providing up to $700 million in relief. This enhances the 50% reduction to the provincial school property tax rate that was originally announced for classes 4, 5, and 6 as part of B.C.’s COVID-19 Action Plan.

  • Postponing the date that late payment penalties apply for commercial properties in classes 4,5,6,7 and 8 to Oct. 1, 2020, to give businesses and landlords more time to pay their reduced property tax, without penalty.

Responding to key concerns from local governments, the Province is addressing cash flow and revenue shortfalls with new measures that provide additional support:

  • authorizing local governments to borrow, interest-free, from their existing capital reserves to help pay for operating expenses, such as employee salaries.

  • delaying provincial school tax remittances until the end of the year. This will provide significant relief to local governments facing cash flow issues.

  • providing local governments greater flexibility to carry debt for an additional year.

  • These measures will provide local governments with the resources to meet their operational costs and required remittances to regional districts, regional hospital districts, TransLink and transit authorities, BC Assessment, the Municipal Finance Authority and other taxing authorities. This will ensure that other minor taxing authorities can count on receiving the full amount they bill to municipalities and the Province’s surveyor of taxes before Aug. 1, 2020.”