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These 10-minute podcasts are a rapid-fire discussion of select recent developments in the wonderful world of Canadian tax presented by the Video Tax News Team. For more information go to www.videotax.com.
The following presentation has been prepared
by the Video Tax News team for Canadian tax
and financial professionals. Program recorded
January 28th, 2025.
Enjoy.
Welcome to the February edition of Life in the Tax Lane.
We got Joe back. Joe and Hugh are matching again.
So all things are right in the world.
Hey, I feel like an oddball. We got to
Say February 2025.
We got binge watchers out there.
Oh, thank you. That is very true.
And it's not just our parents.
Well, I got to say February.
We've got the snow possibly melting in some places.
So I'm getting excited about sort of like getting out of
that deep freeze, but I'm a little uncertain to as
to when it will actually happen.
Caitlin, speaking of uncertainty.
Yes, let's talk about all of these tax proposals
that have been introduced
but have not yet received Royal Ascent.
So the big concept, the big question we're getting is
how do we file our tax returns based on these proposals,
especially as Parliament is prorogued until March 24th.
so first off, as we've alluded to previously,
the proposed increase to the capital gains inclusion rate
to two thirds.
Well, CRA has said that they are going
to administer the proposals
as if they have been enacted, meaning
that they're going to be updating their forms
to reflect a two thirds inclusion rate.
So what does that mean for filers, you or I
or our corporations that are filing these tax returns?
Well, we have an option. This is a self-assessing system.
So we can choose
to file our tax returns based upon the proposals,
the two third inclusion rate consistent
with CRA's administrative position,
or we can choose to file our tax returns based on the
existing legislation at that 50% inclusion rate.
Now, those options aren't risk free.
I mean, for example, if you're filing on the 50% inclusion
rate, paying taxes associated with
that 50% inclusion rate, if the proposals eventually pass
and your tax liability increases when they pass, boom,
you're going to have non-deductible.
There's that risk of non-deductible interest
that you're going to have to pay on that tax liability.
I mean, if you file on the two thirds inclusion rate in
accordance with CRA's admin policy
and the rules don't, the proposals don't pass,
well then congratulations.
If you paid the associated tax liability on time,
you would've just advanced our the federal government
an interest free loan, which you're going to have to ask
for them to return to you.
so a few factors we need
to be keeping in mind when determining
what filing position we want to take.
That's right now, go ahead. Yeah, yeah.
Now I was going to say the other set of proposals
that we have out there, these are proposals
that haven't made it into notice of ways and means motion
and CRA's historical practice would be
that if it didn't hit a notice of ways
and means motion it isn't enacted.
We are not going to administer the act on those proposals.
However, recently we have heard
and seen announcements coming from the CRA
that they would administer provisions that have not
yet been included in a notice of ways a means motion.
So for example, as it's going to hit our personal tax returns,
that proposal to extend the charitable donations deadline
to February 28th,
whereby you could still claim those donations on your
2024 tax returns.
CRA says, yep, go right on ahead.
We will administer those rules as proposed.
So what we're seeing is what may appear to be
a kind of a newer position by the CRA as to them kind
of picking and choosing which proposals they would
administer. Joe or Hugh.
Any thoughts there? It's a dynamic area. Yeah,
I think, I think we got to be clear that just
because they're doing it for, for that one,
they're not necessarily doing it for all the other ones.
In fact, we can assume that they're not,
unless they actually specifically make a comment saying
that so we got to be careful
that we don't get too comfortable with them.
Hugh, any thoughts from you,
Joe? I think that's dead
on.
And the other challenge we're going to have is
as a tax preparer, I got to use e-filing.
How will the system handle this?
They would have to accept me filing using current law.
That doesn't mean they have to make it easy
and for a lot of individuals, they're going to end up
with exactly the same tax liability either way.
So why not take the path of least resistance?
Yeah, that's right. Now let's move on
to the second topic here.
And that is 2024 and 2025 development.
CRA just released an item, which has a good summary
of the things that we're going
to be seeing in the near future.
And just to mention a couple of the things on there.
First of all, they mentioned trust returns in respect
of bare trusts. You don't need to file those for the 2024 year.
Also, the CPP enhancement
we've got the final year of the phase in of this.
So we're seeing a bit of a jump for 2025, but then
after that, we're only going to see indexation,
type enhancements.
So this is kind of the last big year there.
Also, don't forget short term rental income
having a disallowance of the deductions
if you are not on side from a regulatory perspective,
you don't have your business license
or whatever else in place by the end of December of
2024 disallowance of those expenses.
So a number of good reminders in there.
I'd definitely check out the link
and take a look at that release.
As a firm, are we prepared for all of these big changes?
Well, Joe, I find every year
as the personal tax season grinds to an end,
I've got someone who didn't get assessed like they were
supposed to get assessed, and we have until April 30th, 2025
to object to 2023 personal tax returns.
Normally the default is we get 90 days from an assessment.
If we don't file that objection, we can go
and pretty please ask CRA to give us an extension up
to one year after that due date to file an objection.
And we had the Federal Court
of appeal comment on something
that I think we've noticed when we look at cases in the
recent past that the tax court is hearing literally hundreds
of cases every year from people who missed that deadline
because they were still dealing informally
with CRA providing more information.
It's all going to get fixed and it didn't get fixed.
And the Federal Court of Appeal notes
that their hands are tied, these deadlines are fixed
and firm and those appeal rights have been lost.
So I know I've said for years, if you're pushing up
to the objection deadline, file the objection
so you're not reliant on CRA generosity
to get your return fixed up properly.
Mm-hmm. Some great important tips there.
Another item we wanted to mention,
it was buried deep in the fall economic statement
and didn't get a whole lot of press,
but I could see this one hitting the books regardless
of whichever party is leading the government,
you know, in the coming years.
And it's the whole concept that CRA would be able,
you'd have to get draft legislation
but the proposal that CRA would be able
to automatically file personal tax returns
for lower income Canadians.
And the concept here is a lot of lower income Canadians
are entitled to benefits, but
unless they file their tax return, they're not going
to get those benefits.
So they got to get the tax return in.
So let's get CRA to automatically file these tax returns
where the individual can review those returns,
maybe modify or opt out from this system.
So interesting development here.
Lots of countries automatically file
tax returns for the individual.
So it's not a new concept,
but it's a new kind of idea here
that we're talking about in the fall economic statement.
The fall economic statement also proposed the idea
of exploring options for CRA to potentially file returns
for more middle income taxpayers as well.
So less certainty there,
but it's an interesting trend that we're seeing
and we'll see if it comes to fruition.
Thanks, Caitlin. Now the next topic I wanted
to mention is a donation by a spouse.
So you've got a spouse
and they've made a donation sometime
within the last five years.
It hasn't been claimed yet. Guess what?
You can actually claim that amount.
But what happens if your spouse's donation was made
before they became your spouse?
You got into that spousal relationship.
Can you still make the claim?
The short answer from CRA is yes,
you do have a possibility there. Hugh, what do you have?
Well, Joe, unfortunate short answer from CRA
to a recent question was, oops,
I clicked the wrong link on my email,
or I got sucked into someone claiming
to be a relative in dire need of financial assistance
and now I'm out of pocket from one of these personal scams.
Is there any tax relief for that?
And CRA had to give the right answer.
Nothing in the act lets you deduct losses due to fraud
unless they are somehow linked
to an income earning source like business or investments.
And unfortunately, none of these would be the loss
of your personal cash generates no tax relief.
So a good reason
or even more reason to be wary of responding
to those really high pressure emails or even phone calls.
Well, that's about all the time we have today.
just wanted to, if you have a chance
and you'd like to attend our personal tax update seminars,
we definitely have them going on.
They are so much fun,
just like the fun you're having today. Thanks again.
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