Tax Tips, FAQ and Tax Rates

On March 26, 2009, the Ontario government announced in its annual budget that Ontario will eliminate its existing provincial sales tax (PST) and introduce a harmonized sales tax (HST) with the Federal GST.  This will take effect on July 1, 2010.  The HST rate in Ontario will be 13% of which 5% will represent the federal part and 8% will represent the provincial part.

On October 14, 2009, the Ontario Ministry of Finance released Information Notice No. 3, General Transitional Rules for Ontario HST.  Further details of how the HST will be implemented will be released in the coming months.  The complete policy and administrative details will be released by the end of March 2010.

Unlike the GST, many Ontario businesses pay PST on business expenses and assets with no ability to recover the tax.  This embedded PST forms part of the costs of the business.  Under a harmonized sales tax system, input tax credits (ITCs) will be available to recover the provincial component of the tax, which should result in lower costs – those savings can be passed on to consumers through lower prices.

Small Businesses

To compensate small businesses (generally, annual taxable revenue of less than $2 million) for the increased administrative burden of the change to HST, a credit will be allowed for the first reporting period after harmonization. 

Total taxable revenues in first full fiscal quarter commencing after June 30, 2010	Amount of transition credit
Up to and including $15,000	$300
Over $15,000 and up to and including $50,000	2% of taxable revenue for the quarter
Over $50,000 and up to and including $500,000	$1,000

 
Individuals

To compensate individuals, a sales-tax transition credit will be paid to individuals and families in three approximately equal instalments, in June and December 2010 and June 2011, totaling a maximum of $300 for single individuals and $1,000 for single parents and families.  The credits are reduced by 5% of income over a threshold of $80,000 per individual and $160,000 per family or single parent.  The credits phase out for an individual at an income level of $82,000 and for single parents and families at an income level of $166,700.  You must file your 2009 and 2010 income tax returns to qualify for the 2010 and 2011 payments, respectively.
 

Phase-in of ITCs for Larger Businesses

 Large businesses with annual taxable sales in excess of $10 million, and financial institutions, will be unable to claim ITCs for the Ontario portion of the HST for the first 5 years of the new system.  Full ITCs on these purchases will be phased in, in equal amounts, over a three-year period.  The restricted groups of expenses are as follows:

• Energy (except for energy used for farming or the production of goods for sale);
• Telecommunication services other than internet access or toll-free numbers;
• Road vehicles weighing less than 3,000 kg (and parts and certain services) and fuel to power those vehicles and
• Food, beverages and entertainment.

Preparing for HST

Businesses will need to think about certain items as harmonization approaches:

Conversion – invoices, sales receipts, purchase orders, expense reports, identification numbers, billing cycles, treatment of refunds over transition period, collecting HST from customers that were previously PST exempt, maintain information on percentage completion before and after implementation date

Budgeting and cash flow – ability to recover HST, collection and remittance of HST on a broader range of services and goods, payment of HST on business assets and expenses, implementation costs, importance of quick collection of receivables.  Small businesses may want to purchase items after June 30, 2010 while individuals and the MUSH (Municipalities, Universities and Colleges, School Boards, Hospitals) and Charities and Qualifying Non-Profit Organizations sectors may want to purchase goods and services before July 1, 2010.  Businesses may want to consider filing more frequently – note that an election must be filed before your fiscal year.

Contractual obligations, leasing and service agreements – ensure the implications are taken into account with contracts straddling the July 1, 2010 implementation date

Retail sector

HST will tax a much broader range of goods and services.  Businesses must also ensure that their systems will be equipped to distinguish between items which are fully taxable from those that are subject to the new point-of-sale rebate for the provincial portion of the HST for certain items:

• Print newspapers
• Qualifying prepared food and beverages ≤ $4
• Books
• Children’s clothing -  not costumes, sports protective clothing
• Children’s footwear – not skates, cleats, ski boots
• Children’s car seats and booster seats
• Diapers
• Feminine hygiene products

 
Public Service Bodies

Many supplies made by entities in the MUSH and Charities and Qualifying Non-Profit Organization sectors are exempt from GST/HST – no tax is collected on these supplies.  Consequently, these entities are unable to claim ITCs on most of their purchases.  To compensate these entities for the difference in tax content, these entities will be entitled to rebates of a portion of the Ontario portion of the HST.  The rate for municipalities, universities and colleges is 78%, for school boards is 93%, for hospitals is 87% and for charities and qualifying non-profit organizations is 82%.

 
Construction and Real Estate Development

Currently, new housing is only subject to 5% GST with a GST rebate available of 36% of the tax paid on the first $350,000 of the purchase price (this is phased out for homes priced between $350,000 and $450,000).  Under harmonization, new homes will be subject to the 13% HST.  To ease the burden of the new tax, Ontario will provide a new housing rebate equal to 75% of the provincial portion of the HST up to a maximum of $24,000 for new homes purchased as primary residences across all price ranges.  The transitional rules are quite complex and vary depending on the type of property and the date that the agreement to rent or purchase was entered into.

Transition – Key Dates 

July 1, 2010 – implementation of the HST in Ontario

May 1, 2010 – HST has to be collected on amounts that are paid or become payable on or after May 1, 2010 for goods or services provided on or after July 1, 2010

October 14, 2009 – date of Ontario’s Notice regarding transitional rules.  Certain businesses and public service bodies may be required to self-assess the Ontario component of the HST on amounts payable after October 14, 2009 and before May 2010 for goods or services provided on or after July 1, 2010

October 31, 2010 – date on which any outstanding PST becomes payable under the transitional rules to ensure an efficient wind-down of the PST.  Watch out for the impact of this on returns and exchanges.

Sales – The HST will generally apply to any consideration that becomes due or is paid without having become due, on or after May 1, 2010 for a supply by way of sale of tangible personal property (i.e., goods) to the extent that the consideration is for TPP that is delivered and for which ownership is transferred, to the recipient of the supply on or after July 1, 2010.  The HST would not apply to a supply by way of sale of TPP if the TPP is delivered or ownership of the TPP is transferred to the recipient of the supply before July 2010 regardless of when the consideration for the supply becomes due or is paid without having become due.

Example A:

A customer orders and pays for a refrigerator on June 15, 2010 and it is delivered in July 2010.

GST is payable at 5% on June 15, 2010

PST is not payable

The Ontario portion of the HST is payable at 8% on July 1, 2010. 

Example B:

A customer orders and pays for a refrigerator on April 30, 2010 and it is delivered in July 2010.

GST is payable at 5% on April 30, 2010

PST is payable at 8% on April 30, 2010

The Ontario portion of the HST is not payable.

 Services - To determine whether GST or HST applies to services performed during the period that includes July 1, 2010, suppliers must consider:

• When the service is performed;
• When an amount for the service becomes due; and
• Whether an amount is paid without having become due.

Example C:

I provide an accounting service from January 2010 to June 2010, and issue an invoice for my service in August 2010.  The client pays me after receiving the invoice.

GST is payable at 5%

Since all of the service is performed before July 2010, the OHST does not apply to the consideration for this service.

Example D:

I provide a decorating service in June and July 2010.  60% of the service is performed in June 2010.  I issue an invoice for my service in August 2010.  The client pays me after receiving the invoice.

HST applies to the portion of the consideration that relates to the 40% of the service that is performed on or after July 1, 2010.

The OHST does not apply to the portion of the consideration that relates to the 60% of the service that is performed before July 2010.

The transitional rules are very complex and extensive; please see the GST/HST Notice (http://www.rev.gov.on.ca/en/notices/hst/pdf/03.pdf ) for further information and examples.

 

1. Consider paying reasonable salaries to family members before year end. Reasonable salaries can be deducted by you and taxable to them at possibly lower rates.
2. Businesses should purchase capital assets before year end. Assets purchased and in use before the business year end are eligible for one half of the usual capital cost allowance rate.
3. Owner-managers should consider their salary/dividend mix from their corporation. If you have drawn funds from your corporation throughout the year, you should determine whether these amounts should be characterized as salary or dividends before the year end. Ritchie Shortt & Tully LLP can help you with this decision.
4. Consider gifting funds or making interest-free loans to your spouse or an adult child to contribute to the Tax Free Savings Account.
5. Consider selling investments with accrued losses before the end of the year to offset any gains you have had during the year. Capital losses in excess of gains can be carried back three years and forward indefinitely.
6. Contribute to your RRSP before March 1, 2011 to make the contribution deductible for 2010. Also remember to make your required Home Buyer's repayment by March 1, 2011.
7. Charitable donations, medical expenses, political donations, child care expenses, investment counsel fees and professional dues should be paid before December 31 to be creditable or deductible in the 2010 year.
8. Contribute to Registered Education Savings Plans for your children before December 31. Rather than an annual RESP contribution limit there is now a lifetime contribution limit of $50,000. When you contribute money to any RESP, the federal government will deposit an additional amount - the Canada Education Savings Grant (CESG) - equal to 20% of your contribution up to certain limits. The maximum CESG each year is $500 (20% x $2,500 contribution). The lifetime CESG limit is $7,200.

If you have a child under age six, are you receiving the Universal Child Care Benefit (UCCB)?

The UCCB is worth $100 per child per month and is taxable in the hands of the lower-income spouse. However, recent changes to the law mean that you can invest the UCCB money in your child's name so that all the investment earnings are taxed in your child's hands. In 2007, everyone can earn up to $8,929 tax-free, so your child is not likely to owe tax on the earnings.

For information on how to apply for the UCCB, visit  www.universalchildcare.ca

 

As you are most likely aware, the government has initiated the Universal Child Care Benefit (UCCB) in their 2006 budget.  This benefit provides families with $100 per month, per child 6 years of age or younger.  The benefit will be paid to each family on the 20th of every month starting July 2006. Most people are not aware, however, that they may need to apply to receive the benefit. Click here to download the appropriate form and find out more information.

CRA now has a GST Registry on their website. The GST/HST Registry lets you validate the GST/HST number of a business, which helps to ensure that claims submitted for input tax credits only include GST/HST charged by suppliers who are registered for GST/HST. To get information to validate the GST/HST number of a business, you have to enter in the space provided the business name, the GST/HST number, and the date of the transaction in question. Click here to access the registry.

 

The following link to the CRA website provides links to access GST/HST forms and guides.  http://www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/menu-eng.html We can assist you with all of your GST/HST-related questions, including registration, calculating GST?HST payable or refundable, and filing requirements.

Your personal income tax installments are due on the following dates:

• March 15
• June 15
• September 15
• December 15

Generally, the balance of tax payable is due 2 months after the end of the taxation year. However, the tax is due 3 months after the end of the taxation year under certain conditions. Please visit www.ccra-adrc.gc.ca/E/pub/tg/t4012/t4012-03-e.html#P84_4667 for more information.

The following link to the CCRA website provides information for businesses including business registration, corporate income tax, payroll and GST. http://www.cra-arc.gc.ca/tx/bsnss/menu-eng.html

We've helped start many small businesses. Organization at the onset can help save you money in the long run.

The following link provides information for employers on whether your business needs to register or not as well as the steps required to register including a downloadable registration form. www.wsib.on.ca/wsib/wsibsite.nsf/public/EmployerRegisterWSIB

	2011	2010
Limit on cost of vehicle for capital cost allowance purposes	$30,000.00*	$30,000.00*
Limit on deductible monthly lease expense	$800.00*	$800.00*
Maximum allowable monthly interest deductions in respect of amounts borrowed to purchase an automobile -based on year of purchase	$300.00*	$300.00*
Deduction limit for tax-exempt allowances paid by employers to employees -on first 5,000 km -for each additional km	$0.52 per km $0.46 per km	$0.52 per km $0.46 per km
Benefit from employer -paid automobile operating expenses based on personal kilometers driven -general rate -rate for employees of automobile dealers	$0.24 per km $0.21 per km	$0.24 per km $0.21 per km
Portion of above in respect of GST/HST which must be remitted by employer who is a GST/HST registrant in Ontario	9%/6%**	6%/4.5%**

* plus GST/HST and PST

** The 4.5% rate in 2010 and the 6% rate in 2011 apply to a registrant that is a large business (as defined in subsection 236.01(1)).  The 6% rate for a large business will apply until calendar 2014, at which time it will increase as follows:  6.6% for 2015, 7.2% for 2016, 7.7% for 2017, 8.4% for 2018, and 9% thereafter.

Click on:  http://www.fin.gc.ca/n10/10-134-eng.asp

 

The Canada Revenue Agency (CRA) recently released revised guides and circulars regarding record-keeping, retention and destruction of records and electronic record keeping.  (RC4409, IC 78-10RY and IC 05-1)  Click on   http://www.cra-arc.gc.ca/tx/bsnss/tpcs/kprc/menu-eng.html to read these documents.

Checklist of information in printable pdf format,  that we will require to prepare your tax returns. If applicable to your situation, also included is a worksheet to detail your business and professional activities.(Excel format T1 Checklist for clients 2010 web.xls)

We will also need to know if you owned specified foreign property in excess of $100,000 CDN.  Form T1135, Foreign Income Verification Statement on CRA's website. To help you determine if you need to disclose your foreign holdings, please refer to pages 2 to 4 of the form to review the types of specified foreign property that must be included.

We send our clients the following letter and attachments. If you have misplaced your copy or have just become a client of Ritchie Shortt & Tully LLP,a copy of the letter and attachment is available here:  T1Client Letter or 2010 personal income tax questionnaire.  These are required for your personal tax return.  

Ontario Children's Activity Tax Credit

The Children's Activity Tax Credit is a new, permanent refundable tax credit for parents to help with the cost of enrolling their children in eligible extracurricular activities that encourage them to be healthy and active.  The maximum value of the credit is $50 per child under the age of 16 and $100 for a child with a disability under age 18.  Check for a list of frequently asked questions and eligible activities.

 

2010 Federal and Ontario Combined Corporate Income Tax Rates

*Ontario decreased the small business corporate tax rate from 5.5% to 4.5%, effective July 1, 2010.

**26.667% of investment income is eligible for refund at a rate of $1 for every $3 of dividends paid.

***The general federal corporate tax rate was decreased from 19% to 18%, effective January 1, 2010.  The general Ontario corporate tax rate was decreased from 14% to 12% effective July 1, 2010.

Note that the general corporate tax rate will be reduced from 31% in 2010 to 25% by July 1, 2013.

2011 Employment Insurance Rates
Employment Insurance (EI) rates for 2011 have increased to 1.78% of earnings for employees (from 1.73% in 2010) as has the maximum annual premium of $786.76 (from $747.36 in 2010). The rate for employers is 1.4 times the employee rate or 2.492%. The maximum insurable earnings for 2011 increased to $44,200 from $43,200 in 2010.

2011 Canada Pension Plan Rates
The maximum pensionable earnings under the Canada Pension Plan (CPP) for 2011 will be $48,300 - up from $47,200 in 2010. Contributors who earn more than $48,300 in 2011 are not required or permitted to make additional contributions to the CPP.

The basic exemption amount for 2011 remains $3,500. Individuals who earn less than that amount do not need to contribute to the CPP.

The employee and employer contribution rates for 2011 will remain unchanged at 4.95%, and the self-employed contribution rate will remain unchanged at 9.9%.

The maximum employer and employee contribution to the plan for 2011 will be $2,217.60, and the maximum self-employed contribution will be $4,435.20. The maximums in 2010 were $2,163.15 and $4,326.30.

Prescribed Interest Rates For First Quarter 2011
The CRA announced December 8th, the prescribed interest rates for the first calendar quarter of 2011:

• The interest rate charged on overdue taxes, Canada Pension Plan contributions, and Employment Insurance premiums will be 5%.
• The interest rate paid on overpayments will be 3%.
• The interest rate used to calculate taxable benefits for employees and shareholders from interest-free and low-interest loans will be 1%.

For more information please see the news release.

2011 RRSP and Pension Limits

The RRSP contribution limit increases to $22,450 in 2011.  The RRSP contribution limit was $22,000 in 2010. Please see the news release.

Please note: this material is general in nature and should not be relied upon to replace the requirement for specific professional advice.

2010 Employment Insurance Rates
Employment Insurance (EI) rates for 2010 remain unchanged at 1.73% of earnings for employees as does the maximum annual premium of $747.36. The rate for employers is 1.4 times the employee rate or 2.422%. The maximum insurable earnings for 2010 increased to $43,200 from $42,300 in 2009.

2010 Canada Pension Plan Rates
The maximum pensionable earnings under the Canada Pension Plan (CPP) for 2010 will be $47,200 - up from $46,300 in 2009. Contributors who earn more than $47,200 in 2010 are not required or permitted to make additional contributions to the CPP.

The basic exemption amount for 2010 remains $3,500. Individuals who earn less than that amount do not need to contribute to the CPP.

The employee and employer contribution rates for 2010 will remain unchanged at 4.95%, and the self-employed contribution rate will remain unchanged at 9.9%.

The maximum employer and employee contribution to the plan for 2010 will be $2,163.15, and the maximum self-employed contribution will be $4,326.30. The maximums in 2009 were $2,118.60 and $4,237.20.

Prescribed Interest Rates For First Quarter 2010
The CRA announced December 3rd, the prescribed interest rates for the first calendar quarter of 2010:

• The interest rate charged on overdue taxes, Canada Pension Plan contributions, and Employment Insurance premiums will be 5%.
• The interest rate paid on overpayments will be 3%.
• The interest rate used to calculate taxable benefits for employees and shareholders from interest-free and low-interest loans will be 1%.

For more information please see the news release.

2010 RRSP and Pension Limits

The RRSP contribution limit increases in 2010 to $22,000. Please see the news release.

•  Automobiles - The automotive rates for 2009 are $0.52 per kilometre for the first 5,000 km and $0.46 per kilometre for each additional kilometre in excess of 5,000 kilometres. The taxable operating benefit for company-owned vehicles is $0.24 per kilometre per personal use kilometre. See FAQ for details on allowed automobile amounts.
• CRA prescribed interest rates for the first quarter of 2009 are 2% for calculating taxable benefits, 4% on refunds of income tax overpayments and 6% on payments of overdue accounts.
• Maximum Employment Insurance premiums for 2009 are: employee $731.79; employer $1,024.51 for a total of $1,756.30 ($1,706.47 in 2008).
• Maximum Canada Pension Plan pensionable earnings for 2009 are $46,300 with an exemption of $3,500, leaving a maximum contributory earnings of $42,800 at 4.95% equalling $2,118.60. The employer (or self-employed person) matches this amount for a total of $4,237.20 ($4,098.60 in 2008).
• Effective March 31, 2009, the general minimum wage will increase from $8.75 to $9.50 per hour. The minimum wage for students under 18 who do not work more than 28 hours a week will rise from $8.20 per hour to $8.90 per hour. For more information on minimum wage, including the upcoming increases to the rates, visit the Ontario Ministry of Labour website.

 

Here are the highlights of the October 30, 2007 Economic Statement's Tax Reductions:

• The general federal corporate tax rate will be reduced from 22.12% in 2007 to 15% by 2012
• The small business tax rate will be reduced to 11% effective January 1, 2008 instead of 2009 as previously proposed
• The GST rate will be reduced to 5% effective January 1, 2008
• The lowest personal income tax rate will be reduced retroactively to January 1, 2007
• The basic personal amount tax credit for 2007 will be increased to $9,600 and to $10,100 in 2009
• The employer and employee Employment Insurance (EI) contributions will be reduced in 2008
• The national debt will be reduced by $10 billion this fiscal year

To read full details on the Department of Finance Canada's website, please click here.

 

• Automobiles - The automotive rates for 2007 are $0.50 per kilometre for the first 5,000 km and $0.44 per kilometre for each additional kilometre in excess of 5,000 kilometres. The taxable operating benefit for company-owned vehicles is $0.22 per kilometre per personal use kilometre. See FAQ for details on allowed automobile amounts.

• CRA prescribed interest rates for the fourth quarter of 2007 are 5% for calculating taxable benefits, 7% on refunds of income tax overpayments and 9% on payments of overdue accounts.

• Maximum Employment Insurance premiums for 2007 are: employee $720.00; employer $1,008.00 for a total of $1,728.00 ($1,750.32 in 2006).

• Maximum Canada Pension Plan pensionable earnings for 2007 are $43,700 with an exemption of $3,500, leaving a maximum contributory earnings of $40,200 at 4.95% equalling $1,989.90. The employer (or self-employed person) matches this amount for a total of $3,979.80 ($3,821.40 in 2006).

• Effective February 1, 2007, the general minimum wage increased from $7.75 to $8.00 per hour. The minimum wage for students under 18 who do not work more than 28 hours a week rose from $7.25 per hour to $7.50 per hour. The minimum wage for liquor servers rose from $6.75 per hour to $6.95 per hour. For more information on minimum wage visit the Ontario Ministry of Labour website.

 

The Canada Revenue Agency recently announced that the maximum pensionable earnings under the Canada Pension Plan (CPP) for 2007 will be $43,700, up from $42,100 in 2006. The new ceiling was calculated according to a CPP legislated formula that takes into account the growth in average weekly wages and salaries in Canada.

Contributors who earn more than $43,700 in 2007 are not required or permitted to make additional contributions to the CPP. 

The basic exemption amount for 2007 remains $3,500. Individuals who earn less than that amount do not need to contribute to the CPP.

The employee and employer contribution rates for 2007 will remain unchanged at 4.95%, and the self-employed contribution rate will remain unchanged at 9.9%. The maximum employee and employer contributions to the plan for 2007 will be $1,989.90, and the maximum self-employed contribution will be $3,979.80. The maximums in 2006 were $1,910.70 and $3,821.40.

On May 2, 2006, changes that may affect you or your business were announced in the federal budget. Click here for the highlights.

Ontario Health Premium - On May 18, 2004, the Minister of Finance for Ontario announced changes to the Ontario tax for 2004. The Ontario Health Premium will be payable on annual taxable income in excess of $20,000. The Ontario Health Premium is not related to the Employer Health Tax for Ontario. Effective July 1, 2004, the Ontario Health Premium is calculated as follows:

Health Premium Payable (per individual)

Click here to access Frequently Asked Questions regarding the Ontario Health Premium on the CRA website

Unless otherwise noted the changes are effective March 22, 2004. 

• Fines and Penalties - The Budget proposes that, with exceptions, all fines or penalties imposed by federal, provincial or municipal governments in Canada or by a foreign country are not deductible. This includes any fines or penalties imposed by any person with a statutory authority to levy a fine or penalty. Penalty interest imposed under the Excise Act, the Air Travelers Security Charge Act and the GST/HST portions of the Excise Tax Act will continue to be deductible.

• Capital Cost Allowance on Computer Equipment - The Budget proposes that the CCA rate for “general purpose electronic data processing and system software” (computer equipment) increase from 30% to 45%. The separate class election provisions for rapidly depreciating electronic equipment will not be available for this new class. As an interim measure, taxpayers may elect to include acquisitions of computer equipment before 2005 in class 10 (30%) and still be eligible for the separate class election.

• Small Business Deduction - For 2005 and subsequent years, the Small Business Deduction available to Canadian Controlled Private Corporations (CCPCs) has a new proposed business limit of $300,000. Taxpayers with taxation years that are not calendar years will be required to pro-rate the increase to the limit.

• Carry-forward Periods for Business Losses - For losses and credits that arise in taxation years ending after March 22, 2004, non-capital losses will now be eligible for a ten year carry-forward period. This is an increase from the current seven year carry-forward period.

• Taxpayer-Request Adjustments - Generally, the Income Tax Act (ITA) prevents the Minister from assessing tax after the “normal reassessment period”, which is three or four years after the day of mailing an original Notice of Assessment. However, the ITA provides the Minister with discretion with respect to any year since 1985 to:

-          accept late, amended or cancelled elections from any taxpayer, 

-          waive or cancel interest for any taxpayer, 

-          reassess returns to refund taxes beyond the normal reassessment period for individuals and testamentary trusts to correct any error or omission on their return. 

The Budget proposes that the discretion will now only apply to requests that are in respect of a taxation year that    ended in the previous ten calendar years. This amendment is to be effective in 2005. Therefore, taxpayers have the remainder of 2004 to review their records and make any requests for earlier years. 

Please contact us to determine how these measures may affect you or your business.