Year End 2018 Newsletter
Accounting
Human Resources Solutions
2018 Personal Taxes – What Should You Know?
What is new?
The income tax credits for attending a post-secondary education program have been further restricted. Only the federal tuition tax credit remains for the tuition cost component. The Federal education tax credit component that was based on the number of full-time or part-time months attending a post-secondary education program has been eliminated. Also eliminated were all Ontario tax credits for tuition.
Important reminders
1. Reporting the sale of your principal residence
Since the 2016 tax year, taxpayers selling their principal residence have been required to report dispositions of their principal residence and make a principal residence designation by completing specific forms on their personal tax returns.
Failure to report the sale of a principal residence may cause the sale to become taxable with no principal residence exemption being available. Late filing the designation is subject to a penalty of $100 per month, up to $8,000 or if the principal residence is owned by more than one taxpayer (as in spousal or common-law partners), the penalty is doubled.
CRA has recently indicated that they will be applying these penalties beginning with the 2018 tax year. Therefore, it is important that all property dispositions, including the disposition of principal residences, are reported on personal income tax returns.
2. Tax-Free Savings Account (TFSA)
According to the 2016 Census, 40.4% of households contributed to TFSAs. In addition, the TFSA was the preferred savings vehicle among households with a major income earner younger than 35 or older than 54.
The TFSA started in 2009. Taxpayer’s who have not made any prior contributions may have an individual contribution limit of $57,500 as of 2018 (increasing to $63,500 in 2019).
With the CRA targeting income splitting using private corporations, it is important to note that income splitting can be accomplished by using the TFSA. A high-rate taxpayer can make a contribution to another family member’s TFSA and make use of their TFSA contribution room. As the income inside a TFSA is tax-free, there is no attribution of income back to the contributor.
Also, if you are planning on making a withdrawal from your TFSA in the near future, you should consider making this withdrawal in the 2018 calendar year so you can make the contribution back in the 2019 calendar year.
Talk to your accountant to learn about other advantages and considerations on whether it may be more advantageous to make an RRSP contribution vs. TFSA.
3. Registered Retired Savings Account (RRSP)
Have you maximized your RRSP contributions? You have until March 1, 2019 to make your RRSP contribution for 2018.
If you turned 71 in 2018, you need to convert your RRSP into a RRIF. In this situation you only have until December 31, 2018 to make a contribution to your RRSP for 2018 (and not March 1, 2019 as above).
4. Personal Tax Checklist
We will again be emailing our clients the 2018 personal tax checklist prior to March 2019 to help you prepare the information we need on these and all the other items.
Tax on Split Income (“TOSI”) – As Applicable to Partnerships
Starting January 1, 2018, the TOSI rules were expanded to apply to adults as well as minors as a means of preventing the income splitting with family members that have lower income. If these TOSI rules apply the income would be subject to the highest tax rate, making these rules punitive.
One of the conditions for the TOSI rules to apply is that there must be a “related business”. In the context of a partnership, a “related business” exists where either of the two conditions is met:
1. A related person is at any time in the year actively involved on a regular and continuous basis in the activities of the partnership and is earning income from the business, or
2. A related person has an interest in the partnership, no matter how small of an interest. This condition does not require the related person to be actively involved in the partnership.
It is easy to see how broad “related business” is defined and how many partnerships would be subject to the TOSI rules. The primary exception to the application of TOSI is the Excluded Business Exemption.
The Excluded Business Exemption is available to partners of the partnership who are “actively engaged on a regular, continuous and substantial basis in the activities of the business” generally in either the taxation year in question or any 5 prior taxation years.
In corporate structures, there is also an Excluded Share Exemption (click here for our previous newsletter where we explain the Excluded Business and Excluded Share Exemptions). However, this particular exemption is not available to partnerships. As such in order for the TOSI rules to not apply, the partner of the partnership would have to meet the Excluded Business Exemption, one of the other specific and less common exemptions (not discussed in this article), or the allocation of the partnership income must be reasonable.
It is important to recognize that the new TOSI rules do apply to partnerships. If you operate through a partnership structure and allocate income to lower income partners directly or indirectly, your structure should be reviewed and potentially restructured.
Enhanced Capital Cost Allowance Rates - Update
Capital Cost Allowance (CCA) is the tax deduction allowed for the depreciation of assets used in business. On November 21, 2018 the Federal government proposed an increase in the rates of CCA that can be claimed in the first year for purchases of various equipment and buildings.
In general, these changes greatly increase the amount of CCA that can be claimed in the first year an asset is purchased. The table below provides a summary of the CCA rates that would apply for the first year of a new asset purchase before and after this announced change. There is no change in the rates that apply for the second and following years.
| Type of Equipment | Normal 1st Year CCA rate | With Proposed Changes |
|---|---|---|
| Manufacturing and Processing Equipment | 25% | 100% |
| Trucks, tractors and vehicles | 15% | 45% |
| Computer Equipment | 27.5% | 82.5% |
| Computer Software | 50% | 100% |
| Office equipment | 10% | 30% |
| Quota and Goodwill | 2.5% | 7.5% |
| Buildings (residential and used commercial) | 2% | 6% |
The proposed changes are applicable for assets acquired after November 20, 2018 and become available for use before 2028. The CCA rates for taxation years that begin after 2023 are less than those summarized in the chart above based on the proposed changes.
CRA Audit Activity Update
Whereas in the prior year we had numerous clients receive requests from the CRA to support their claim for travel and automobile expenses, during the past year we had numerous clients receive requests to support their class 10 additions (which are typically additions of automobiles and other equipment). This makes it two years in a row that the CRA has had a review project targeting corporately owned automobiles and related automobile expenses. We would like to remind all our clients of the importance of maintaining a travel log for all travel using a corporate owned/leased vehicle.
Year End Payroll Filings
With winter here and the calendar year coming to a close, it is the time of year to ensure you are ready for completing the year end reporting requirements to your employees and Canada Revenue Agency. Below are a few helpful tips to ensure that your business’ T4 and T4A (self-employed) reporting are completed and filed accurately and efficiently.
- For your employees - Prior to December 31st review the source deductions that your company has paid to the CRA and compare that with the total of deductions from your employees pays. Make sure you include the employer portion of CPP and EI. Any differences should be included on the next available remittance up to and including the January 15th remittance.
- For self-employed individuals – ensure you properly report the type of earnings that were paid on the T4A. For example – Commission, Fees for Service, etc.
- Make sure you have calculated and reported all taxable benefits for your employees (such as life insurance, vehicle allowances and employer paid contributions to RRSPs) using the proper code on the T4. It is best practice to account for taxable benefits on each pay (at time of use), but prior to the final pay of the year is acceptable as well.
- Validate all employee information is correct including addresses and social insurance numbers.
- Make sure you are providing a T4 or a T4A for all individuals that you have paid greater than $500 during the year and/or taken source deductions
- File your T4 and or T4A utilizing electronic filing methods via a software package or the Government of Canada website, as you are provided with a confirmation number upon successful filing and not left dealing with potential postal delays. Deadline for filing – February 28, 2019.
- Provide a copy of the T4 to your employee or T4A to your self-employed individual no later than the last day of February.
For additional information and answers to your specific needs and requirements, contact a Ward and Uptigrove for detailed support or for detailed support visit Government of Canada T4 and T4A Guide.
ESA Changes from Bill 47
On Nov. 21, 2018, the Ontario government passed Bill 47, Making Ontario Open for Business Act, 2018 ("Bill 47"). Many of the new changes under Bill 47 will take effect on January 1, 2019. Many changes previously introduced by Bill 148 in November 2017 were either modified or repealed through Bill 47.
Of particular note is the elimination of Personal Emergency Leaves which are replaced with a three-day unpaid Sick Leave, a three-day unpaid Family Responsibility Leave, and a two-day unpaid Bereavement Leave. Minimum wage will be now be frozen at $14.00/hour until annual inflationary adjustments commence on October 1, 2020. Provisions related to On Call and Scheduling were repealed, however, the “three-hour rule” still applies. The increase of vacation entitlement after 5 years of service also remains intact.
Employers who have implemented the entitlements of Bill 148 may face challenges in rolling these back such as negative impact to employee relations and in extreme cases, constructive dismissal claims. Therefore, employers should be cautious and seek advice before reducing any changes that were implemented as a result of Bill 148, especially in terms of pay or benefits.
Ministry of Labour’s Safe at Work Strategy
Ministry of Labour consulted with stakeholders in October to gain feedback on current objectives, to identify emerging workplace risks, and to gain input regarding topics for initiatives in 2019/2020.
The Ministry of Labour asked a number of questions during the consultations regarding:
- Increasing senior management engagement in health and safety
- The changing and evolving workplace and work arrangements and how to manage worker health and safety and control hazards within these new circumstances: working from home, working alone or in remote locations, contract or piecework in non-traditional situations.
- Potentially collaborating and integrating initiatives with other Ministries; such as Ministry of Health, Education, and Transportation.
During the web-based consultation that Jennifer Goertzen, CRSP, our Health & Safety Specialist, attended in October, participants indicated they would like the Ministry of Labour to consider:
- More online resources and webinars
- More detailed and specific supervisor and business owner/manager health and safety awareness training; mandated and provided by the MOL
- Increased accountability for organization leaders; increased communication regarding these accountabilities
- Clear expectations and guidance regarding working alone policies and procedures
- Some type of quality assurance program to ensure consistency with all MOL inspectors and the application of the law
- Consistency across the system partners and collaboration of resources: IHSA, WSN, WSPS, PSHSA
- Statistics about the effectiveness the mandated awareness training; is it making a difference in the workplace
Stakeholders also wished that the consultation addressed workplace mental health and diversity, as prevalent topics.
The results of the consultation sessions will be reflected in the 2019/2020 initiatives. The Ministry announces their annual initiatives at the beginning of April.
Leadership Learning Program
This is our 21st time running this highly successful training program. The Leadership Learning Program is designed to give you and/or your employees the tools to lead and to supervise effectively. It covers leadership and self-awareness, productive time management, communicating for reduced conflict, coaching for engagement and developing high functioning teams.
We’ll be running this session again in spring 2019 as well:
- Five consecutive Thursdays April 4, 11, 18, 25, and May 2, 2019 from 8:30 am to 12:30 pm
- Early bird discount: $925.00 + HST if you sign up & pay before January 31, 2019
- $995 + HST per participant if you sign up after January 31, 2019
To register or get more information email us at hrresults@w-u.on.ca, call 519-291-3040
What Happens If You Die Without a Will?
Most of us know that having a will is important, but according to a survey conducted by CIBC in 2013, more than half of Canadians die without a will. If you die without a will in Canada it is referred to as dying in intestacy. When you die intestate, it is up to government legislation to handle your affairs.
Anyone who has assets, debts, or dependents should have a will. By not leaving a legal will behind, your family may not be cared for appropriately.
Below are some considerations for your estate if you do not have an up to date will:
- Depending on the province, common-law partners may not be entitled to the estate as per the rules of intestacy.
- When individuals die in intestacy, an application must be made to the courts in order to appoint an estate administrator.
- Most provinces recognize posthumous birth under their intestate rules. Any children conceived before death and born after death are considered to have been alive during the deceased’s lifetime.
- There is no opportunity to select guardians for any minor children.
- Due to the laws of intestacy, your spouse could end up with significantly less than intended.
- While everyone likes to think that their family would peacefully and fairly distribute their assets, this is usually not the case.
- There will be no outlined plan for dealing with any taxes or capital gains that may arise from your death.
- Estate litigation can be very expensive for your family.
- There will be no opportunity for charitable giving at your death.
- Even if you have a valid will it is possible to die in partial intestate. Dying in partial intestate means that for some reason your will does not deal with the whole estate or a segment of your will is considered invalid.
If an individual does not leave a will behind, then the estate is distributed according to regulations set forward by provincial legislation. Every province has its own legislation for their intestate rules. The distribution is dependent on a variety or marital/family situations.
Not having a will is risky business and there is virtually no benefit that comes from neglecting to have one created. The processes that go with dying intestate are complicated and may cause your family more grief than necessary when trying to cope with your death. No matter what stage of life you are in, it is never a bad time to contact your team of professionals and start developing a well thought out estate plan.
A Rising Interest Rate Environment: What Does it Mean for You?
The Bank of Canada has been consistently increasing its key lending rate and with each increase, many Canadian are finding them continually asking themselves: how does an increase in the interest rate affect me and my family?
Canadian families pay interest on outstanding debt and receive interest, dividends and capital gains on their investments. This means that each person’s situation will be affected differently, in accordance with their unique debts and investments.
For borrowers, the cost of capital is going up, and for lenders, their income is increasing. If you have more invested assets than you have in outstanding debt, consider yourself to be a ‘lender’. As a lender, the interest rate hike is good news. If you are a net-borrower, some of the bad news will be immediate, but most of the effects are likely to be delayed.
The most complicated implication will be the reaction by equity markets. As with most economic and financial changes, there will be winners and losers.
Depending on the investment vehicle, the effects of an interest rate increase can experience a time-lag, or be immediate. If you have investments or loans that have a floating or variable rate or are exposed to market fluctuations, you will see immediate effects. If you have a GIC or a mortgage with a fixed term, your rates will stay in effect until maturity or renewal, and be unaffected until then. The effect of increased interest rates on the stock market is not as uniform. For example, financial firms, such as banks and insurance companies, are typically more profitable when rates are higher. Firms that borrow to finance their production, like utilities with long-term bonds, will face higher costs that could lower profits.
If an investor’s portfolio is dominated by a small number of large stock holdings, they might experience some short-term volatility and risk, since profitability drives share price, all other things being equal. However, most investors who have some locked-in investments (GICs, bonds) and variable investments (stocks, ETFs, Mutual Funds), have domestic and international exposure, and diversification across multiple industry sectors will see that an interest change is a situation to monitor, and not a reason to act rashly or veer too far from existing financial plans. There is no need to undo years of planning and progress toward retirement plans; more so, each situation should be monitored and adapted if and when that is necessary.
To date, the increases have been small and interest rates continue to be low when compared to historical levels. Continued vigilance and the careful attention of your wealth advisor will continue to be the solution to these types of situations.
Staff Updates & Announcements
As we reflect on our 2018, our 60th year, we recognize another year of growth and progression for our staff.
We are proud to welcome new staff in almost every department!
In the Community
Once again this year, Ward & Uptigrove staff members have generously given to the FCC’s Drive Away Hunger food drive & United Way Perth-Huron’s annual fundraising campaign. To be able to dress up or down, employees have contributed food or cash in support of these great local causes.
Email Only Format
As almost all clients have email, our Newsletter will only be distributed digitally. We will no longer be mailing Newsletters, so please ensure we have your correct email address.
