Oct 2009

             Leckie & Associates

 

Home Renovation Tax Credit (HRTC)

 

The HRTC is a family based tax credit that can be claimed for work done or goods bought, on a principal place of residence, for an individual and their spouse/common-law partner. This credit is 15% based on all eligible expenditures for the 2009 tax year, (January, 27, 2009 – February 1, 2010), resulting in a maximum credit of $1350.

 

Eligible expenditures must be an integral part of the residence, be permanent in nature, and be between $1,000 and $10,000 in total. They must be supported by documentation such as agreements, invoices, and receipts.  However, these do not have to be submitted with your tax return, but kept safe, should they ever be requested by the CRA in the future. You will find that retail establishments such as Canadian Tire, Rona, Totem, and Home Depot have HRTC envelopes for this purpose.

 

All documentation should clearly have the following:

 

-         The Vendor/Contractor – Including their business address, GST/HST registration number if applicable

-         Details of the work/services provided - Including quantities

-         Dates when work was performed or goods were delivered

-         Proof of payment

 

Examples of eligible expenses include:

 

-         Kitchen, bathroom, basement renovations

-         New carpets/flooring

-         New driveway/re-surfacing an existing driveway

-         New boilers, water heaters, furnaces

-         Building an addition such as a garage, deck, shed or fence

 

Examples of ineligible expenses include:

 

-         Furniture

-         Appliances

-         Tools

-         Carpet cleaning and routine repairs & maintenance

 

For more information please see the Canada Revenue Agency website.

 

 

 

 

 Staying Onside with Installments

 

It seems like more and more, people are having to deal with installments.  We have personal income tax installments, GST installments, corporate tax installments, payroll remittances and so on.  Every time we turn around there is another cheque being written to Canada Customs and Revenue Agency (CCRA).  More often CCRA is penalizing people for late remittance, non-remittance, failure to deduct and failure to remit.  Installment interest is now calculated on virtually every notice of assessment issued.

 

There is no way around installments.  CCRA wants everyone to “pay as you go” and they have put the laws in place to ensure that those that do not are penalized.  With interest and penalties paid to CCRA being non-deductible it makes little sense not to comply. 

 

We have put together the following to try and help make sense out of the, sometimes confusing, stream of cheques to CCRA.

 

Personal Income Taxes

 

If you have income that is not subject to the withholding system you should determine if you are required to make installments. 

 

You have to make installments if the tax owing before installments for 2008 is going to be greater than $2,000 and there was tax owing before installments of greater than $2,000 in either of 2006 or 2007.  If you do not know if you will be over $2,000 in 2008 but were over in either of 2006 or 2007 it is likely in your best interest to make installments.

 

Personal income tax installments are due quarterly on the 15th of March, June, September and December.  Of course, any remaining balance owing is due by April 30th of the following year.

 

There are three methods of calculating your installment requirement.  You can use whichever method is most beneficial.

 

Method I

 

The March and June installments are based on 25% of the tax owing in 2007.  September and December installments are based on 50% of the tax owing in 2008 less the installments already made.

 

Example:  You owed $4,000 in tax in 2006 and $3,000 in 2007.  The March and June installments would be $1,000.  7($4,000 x 25%) and the September and December installments would be $500 ($3,000 - $1,000 - $1,000) x 50%.  Total installments would be $3,000.

 

Method II

 

Each installment is based on 25% of the 2007 tax owing.

 

Example:  Using the same example as above each quarterly installment would be $750.  Total installments equal $3,000.

 

Method III

 

The installments are based on 25% of the tax that you will owe in 2008.  The problem with this method is that if you estimate too low you may end up being charged installment interest.

 

Example:  Using the same example as above and assuming you estimate your tax owing to be $2,000 in 2008.  Each installment would be $500.  If your tax ended up being $5,000 you would be charged interest on the amount that your installments were under the next best alternative.

 

Corporate Income Tax

 

Corporate income tax installments are payable by all corporations that had taxes payable in excess of $1,000 in the current or preceding fiscal year.  The three calculation methods are very similar to the personal income tax method with the exception that the payments are made monthly instead of quarterly.

 

Installments are due by the last day of each month in the company’s fiscal year. Any remaining balance owing must be paid within three months of the corporation’s year-end to avoid arrears interest.

 

The three methods are as follows:

 

Method I

 

The first and second month’s installments are based on 1/12th of the tax owing in the second preceding year.  The final ten month’s installments are based on 1/10th of the tax owing in immediately preceding year after deducting the first two installments.

 

Example:  You owed $4,000 in tax in 2006 and $3,000 in 2007.  The first and second month’s installments would be $333.  ($4,000 / 12) and the final ten months installments would be $233 ($3,000 - $333 - $333) / 10.  Total installments would be $3,000.

 

Method II

 

Each installment is based on 1/12th of the tax owing in the immediately preceding year.

 

Example:  Using the same example as above each installment would be $250.  Total installments equal $3,000.

 

Method III

 

The installments are based on 1/12th of the tax that you will owe in 2008.  The problem with this method is that if you estimate too low you may end up being charged installment interest.

 

Example:  Using the same example as above and assuming you estimate your tax owing to be $2,400 in 2008.  Each installment would be $200.  If your tax ended up being $5,000 you would be charged interest on the amount that your installments were under the next best alternative.

 

Manitoba, Saskatchewan and B.C. all have their taxes collected by CCRA.  The provincial portion of the corporate income tax is therefore just incorporated into the above calculations.  Alberta administers their own corporate income tax and therefore collects their own installments.  The deciding factor in Alberta is whether or not your company is a Qualified Small Business Corporation.  If it is, then there is no installment requirement.  If it is not, then the federal rules discussed above apply.

 

There are interest-offset rules for both personal and corporate installments.  This means that if you are ten days late with one payment you can make it up by being ten days early with another payment.

 

Payroll Remittances

 

The important things to remember about these installments are, do them right and do them on time. 

 

Most employers have to remit these by the fifteenth of the month following the payment of the net wages.  Accelerated remitters may have to make remittances twice a month or even weekly based on the volume of withholdings.

 

There is a 10% penalty immediately on any late remittance as well as interest for overdue amounts.  An additional 10% penalty can be assessed for failing to deduct the proper amounts.  Again, these penalties are non-deductible and therefore very punitive.

 

These remittances must tie in with your T4’s at the end of the year so it is very important that you keep track and document all of your payroll and remittance transactions properly.

 

We encourage our corporate clients to include the shareholders in the monthly payroll if they are drawing funds from the company throughout the year.  This will help avoid any penalties and potential taxable benefits from being incurred.

 

GST

 

GST installments are required for smaller entities that are allowed to file their GST annually.

 

Annual filers make installments on the last day of each fiscal quarter based on either a) the estimated GST liability or b) ¼ of the previous year’s total GST liability.

 

Again, interest is charged whenever these payments are late or insufficient.

 

Conclusion

 

As you can see, the installment requirements for all of the necessary taxes are quite cumbersome. 

 

Remittances, installments and payments are due in a variety of different fashions and on a variety of different days.

 

The cost for non-compliance is heavy and should be avoided if at all possible.

 

We encourage all of our clients to maintain their installment and remittance accounts in a current state.

 

Our staff is always available to assist you in the clarifying of these rules and to help you organize your installment calendar.