This Month:

• Paperwork Got You Down?
• “Soft” Loans for Your Children
• Wills and Executor
• Hiring Credit-Small Businesses

Paperwork got you down?

Get your 2011 T4′s prepared for free!

Let’s face it, payroll can be a hassle. It becomes even more of a hassle when you need to prepare the T4′s for your business. Many of our clients de-cided to make their lives less stressful by out-sourcing their payroll preparation to PayTrak Pay-roll Services. Now there is even more incentive for you to consider using our services too.

For any new client, who engages our service and has a payroll started before December 15th, we are offering to prepare your 2011 T4′s for free!

PayTrak offers a complete payroll service that is easy to use, flexible and gives you the option of paying your employees by cheque or direct deposit. And a Customer Service Representative is as-signed to your account so you always deal with the same person.

For more information, contact your Padgett Busi-ness Services representative,
call us at 1-877-316-2999 or visit us at www.paytrak.ca

“Soft” Loans for Your Children

Parents quite often make loans to their adult children to help them pur-chase a car, a home, or for other reasons. A loan is different from a gift. The parent can charge interest so that the loan will earn some investment income. The loan can be set up for blended pay-ments of principal and interest or to pay interest only. There is no require-ment for the parent to charge interest.

For a long term loan used to pur-chase a house, for example, it is quite possible that the loan will not be re-paid during the parent’s lifetime. The parent could provide in her or his will that any remaining balance of the loan will be forgiven or instead become part of the child’s inheritance. Such an ar-rangement does not cause any adverse tax consequences because the “debt forgiveness” rules in the Income Tax Act do not apply to the settlement of loans by inheritance or bequest.

Giving your child this type of “soft” loan is similar to giving them a part of their inheritance early, during your lifetime.

Wills and the Executor

A will specifies your instructions as to how your assets will be distributed on your death. In the will, you name an executor to act as your personal representative and to deal with all the tax, investment, administrative, and other duties involved in distributing and overseeing your assets as per your instructions.

Some people feel honoured to be named as the executor, in that it suggests respect and trust in their abilities. However, most people fail to realize how much responsibility is required, the amount of time and effort that the appointment often necessitates, and the family conflicts that might arise.

Here are some of the responsibilities of an executor:

• Pay the bills, obtain death certificates, make the funeral arrangements if required,
• Locate and list all the assets of the deceased,
• Arrange the probate of will if applicable,
• Take control of the assets and contact financial institutions to change the name on the accounts to “the estate of”,
• Ensure the applicable trust laws are complied with at all times,
• Manage the assets of the deceased as the trustee,
• Assess the tax situation and file any required returns,
• Prior to distributing assets to heirs, settle any outstanding debts.

Conflicts often arise between the executors and the heirs. The beneficiaries may be suspicious of the executor because he or she does not have enough knowledge or skills, is insensitive, is too hasty, shows favourtism, etc. Anyone who is appointed as an executor should be aware that these are common situations during emotional times.

An executor requires many skills. One of the most important is the ability to know when outside expertise is required. An executor frequently hires a lawyer, accountant or trust company for assistance. Sometimes, appointing an independent outside party, such as a trust company as the executor may be the best choice, especially when a family conflict can be expected.

Hiring Credit for Small Businesses

The 2011 federal budget created a hiring credit for small business (HCSB), a one-time credit intended to stimulate new employment and support small businesses. The HCSB provides small businesses relief from the employer’s share of employment insurance (EI) premiums paid in 2011. The credit does this by paying up to $1,000 based on increases in an employer’s EI premiums paid in 2011 compared to those paid in 2010.

The HCSB is for employers and business that pay the employer’s share of EI premiums to a payroll (RP) account.

If your total employer EI premiums in 2010 were $10,000 or less you may qualify provided your total premiums increased in 2011.

If you opened, closed or restructured your business in 2011 you may still qualify for the HCSB.

If your business is eligible, the CRA will automatically calculate the amount of the HCSB using the EI information from the T4 slips you filed with your 2010 and 2011 T4 information returns. The amount to be credited to your payroll account will be greater than $2 and not more than $1,000.

Padgett Business Services is dedicated to meeting the tax, government compliance, profit & financial reporting and payroll needs of businesses with fewer than 20 employees in the retail and service sector of the economy. This publication suggests general business planning concepts that may be appropriate in certain situations. It is designed to provide complete and accurate information to the reader. However, because of the complexities of the tax law and the necessity of determining whether the material discussed herein is appropriate to your business, it is important you seek advice from your Padgett office before implementing any of the concepts suggested in this newsletter.

This Month:

• Benefits of Outsourcing Payroll
• Corporate Directors Liability
• Business Investment Loss-Denied
• CRA’s Priority
• Online Advertising Income
• Owner-Managed Business-Creditor Proofing

We will prepare your business’ 2011 T4′s for free!

Let’s face it, payroll can be a hassle. It becomes even more of a hassle when you need to prepare the T4′s for your business. Many of our clients decided to make their lives less stressful by outsourcing their payroll preparation to PayTrak Payroll Services. Now there is even more incentive for you to consider using our services too.

For any new client, who engages our service and has a payroll started before December 15th, we are offering to prepare your 2011 T4′s for free!

PayTrak offers a complete payroll service that is easy to use, flexible and gives you the option of paying your employees by cheque or direct deposit. And a Customer Service Representative is assigned to your account so you always deal with the same person.

For more information, contact your Padgett Business Services representative,
call us at 1-877-316-2999 or visit us at www.paytrak.ca

Corporate Directors Liability

If a corporation (including a for -profit or non-profit corporation) fails to deduct, withhold, remit or pay amounts held in trust for the Receiver General for Canada (CPP, EI, income tax and GST/HST), the directors of the corporation at the time may be held personally liable along with the corporation to pay the amount due. This amount includes penalties and interest.

Where the directors take appropriate steps to ensure the corporation makes the necessary deductions or remittances, Canada Revenue Agency will not hold the directors personally responsible.

Business Investment Loss-Denied

In a Tax Court of Canada case, a mother had guaranteed the business loans for her son’s corporation. Unfortunately, the corporation failed and subsequently the mother paid off the loans. The mother claimed business investment losses for the amounts repaid.

Her only motivation for the guarantee was to assist her son’s business. She did not charge a guarantee fee and thus there was no possibility of investment income.

The Tax Court disallowed the business investment losses for the mother because she did not make the loan guarantees to earn income.

CRA’s Priority

In a recent Federal Court of Appeal case, the Court found that the Crown has priority over secured creditors regarding deductions at source that were withheld but not remitted to the Canada Revenue Agency (CRA)

The property is deemed to be held in Trust. The secured creditor is obligated to remit to the Receiver General the proceeds that arose from property received, to the extent of the unpaid balance owed to the CRA.

On-line Advertising Income

If you have a website or a blog and you charge for advertising, links, or reviews, you must report the income on your Canadian income tax returns. Send invoices to your clients and customers. If your invoices exceed $30,000 in the last four consecutive calendar quarters, you must register for HST/GST. Once you are registered, you must charge HST/GST to your Canadian customers and clients. Foreign customers or clients are not charged HST/GST.

Owner-Managed Business-Creditor Proofing

Every business owner should be concerned about creditor proofing his assets. Here are several suggestions to consider:

1) Transfer assets out of the company:

• Place capital assets in a separate holding corporation so that subsequent legal claims that arise in the operating company do not affect these assets.
• Lease the assets in the holding corporation back to the operating company. It may be easier to sell the operating company in the future.
• Protect cash assets from potential claims. Pay tax-free dividends from the operating company to the holding company regularly.
• Establish a retirement compensation arrangement (RCA). This removes funds from the corporation as a tax-deductible expense and places the cash into a creditor-protected Trust.

2) Secure the business owner’s assets:

• Secure the shareholder loans by establishing a general security arrangement to provide the shareholder priority over all unsecured creditors.
• Transfer assets to the lower risk spouse on a roll-over basis for tax purposes. If there were a future marriage breakup, this type of property would usually be equally divided between the spouses under the provincial family legislation, regardless of who owns title.
• An estate freeze would transfer the future growth of the assets to other family members.
• Transfer the assets into a Discretionary Family Trust to protect them from creditors. A Discretionary Family Trust permits the transferor to retain control over the assets. This would produce a taxable disposition unless the transfer is to a qualifying Spousal Trust or a Joint Partner Trust or an Alter ego trust.

Padgett Business Services is dedicated to meeting the tax, government compliance, profit & financial reporting and payroll needs of businesses with fewer than 20 employees in the retail and service sector of the economy. This publication suggests general business planning concepts that may be appropriate in certain situations. It is designed to provide complete and accurate information to the reader. However, because of the complexities of the tax law and the necessity of determining whether the material discussed herein is appropriate to your business, it is important you seek advice from your Padgett office before implementing any of the concepts suggested in this newsletter.

This Month:

• Balancing the Books isn’t always easy
• Personal Tax Returns
• Should You Incorporate?
• Disability Income Insurance
• Director & Personal Liability

Balancing the books isn’t always easy.

Business owners understand the importance of keeping records up-to-date. Unfortunately, paperwork has a habit
of piling up – quickly!

PADGETT BUSINESS SERVICES offers a solution – PADGETT CONNECT

PADGETT CONNECT is an easy-to-use business software applications package that is customized for your business. You don’t need to be a computer whiz or an accountant to use this product. New users can start entering their records within a ½ hour of installation on their computer.

The package contains the following:

• PADGETT CHEQUEBOOK – Makes bookkeeping simple
• PADGETT INVOICING – Tracks and reports sales, customers and products
• PADGETT PAYROLL – Makes paying your employes a breeze and keeps you in control

For more information on PADGETT CONNECT, visit us at www.padgettconnect.ca or contact your Padgett representative.

Personal Tax Returns Processed by CRA

Canadians file more than 26 million individual income tax and benefit returns each year, and all are electronically analyzed. Based on this analysis, CRA selects certain returns for review because they are high-risk. Other returns are selected based on a random sample used to measure non-compliance for all taxpayers. CRA has four main review programs:

• Pre-assessment Review Program
• Processing Review Program
• Matching Program
• RRSP Excess Contribution Review Program

Applying the Pre-assessment Review Program, the CRA electronically analyzes returns to identify situations that represent a higher risk of tax loss.

After a notice of assessment is issued, returns go through the Processing Review Program where they are reviewed to make sure that certain claimed deductions and credits are accurate and are supported by appropriate documentation.

The Matching Program makes sure that information slips filed by a third party, such as an employer or a bank, correspond to the information the taxpayer reported. All returns are matched to third-party information slips.

Through the RRSP Excess Contribution Review Program, the CRA identifies taxpayers with potential registered retirement savings plan (RRSP) excess contributions and communicates with them to review their situation.

Should You Incorporate Your Business?

If you own a business, you may have wondered if you should incorporate. Historically the income tax system in Canada has benefited incorporated Canadian small businesses. Although the income and deduction calculations are almost identical to an unincorporated business, the major differences are in the corporate taxation structure and tax planning opportunities. When developing the tax plan for your business, you and your advisor should look for opportunities in the following areas:

• Income splitting with family members;
• Tax deferral to the future;
• Estate planning for you and your family;
• Utilization of the capitalgains exemption; and
• Planning your retirement, including disposing of your business.

Since personal and corporate tax as well as family law issues can make this issue complex, please contact our office to discuss your situation.

Disability Income Insurance

CRA recently noted that where a proprietor purchased a Disability Income Policy, the premium is a non-deductible personal expense. But the receipt of the disability benefits is tax-free.

If a corporation acquires a Policy for the employees, the premiums are generally deductible. If the employee receives the disability benefits they are included in the employee’s income. However, if the individual received the benefit because she or he is a shareholder, the premium paid by the corporation would be included in the individual’s income, under Subsection 15(1). The premium would not be deductible by the corporation. However, any disability benefits received by the shareholder would be tax-free.

Director & Personal Liability

In a recent Tax Alert titled “Abuse of Source Deductions and GST/HST Amounts Held in Trust” CRA warned that businesses must hold source deductions and GST/HST amounts in trust for the government. Penalties and interest and possibly personal liability for the directors will be the result if this is not done.

Federal legislation allows CRA to collect unpaid amounts through garnishments, assessments of the directors, seizure and sale of the assets of the debtor corporation, an assessed director or a sole proprietor, and any other means of recovery.

Taxpayers who have not complied with this requirement may make a voluntary disclosure to CRA. The taxpayer will not be penalized or prosecuted if valid disclosures are made before CRA begins any compliance action against the taxpayer.

Taxpayers may only be required to pay the in trust amounts owing plus interest.

Padgett Business Services is dedicated to meeting the tax, government compliance, profit & financial reporting and payroll needs of businesses with fewer than 20 employees in the retail and service sector of the economy. This publication suggests general business planning concepts that may be appropriate in certain situations. It is designed to provide complete and accurate information to the reader. However, because of the complexities of the tax law and the necessity of determining whether the material discussed herein is appropriate to your business, it is important you seek advice from your Padgett office before implementing any of the concepts suggested in this newsletter.

This Month:

Back to School Edition

• Record keeping got you down?
• Do you have to file a tax return?
• Common Deductions and Tax Credits for Students
• Non-refundable Tax Credits

RECORD KEEPING GETTING YOU DOWN?

Business owners understand the importance of keeping records up-to-date. Unfortunately, paperwork has a habit
of piling up – quickly!

PADGETT BUSINESS SERVICES offers a solution – PADGETT CONNECT

PADGETT CONNECT is an easy-to-use business software applications package that is customized for your business. You don’t need to be a computer whiz or an accountant to use this product. New users can start entering their records within a ½ hour of installation on their computer.

The package contains the following:

• PADGETT CHEQUEBOOK – Makes bookkeeping simple
• PADGETT INVOICING – Tracks and reports sales, customers and products
• PADGETT PAYROLL – Makes paying your employes a breeze and keeps you in control

For more information on PADGETT CONNECT, visit us at www.padgettconnect.ca or contact your Padgett representative.

DO YOU HAVE TO FILE A TAX RETURN?

A tax return must be filed if you have to pay income taxes. A tax return must also be filed if you have not repaid all amounts withdrawn from your RRSP under the Home Buyers’ Plan or the Lifelong Learning Plan. Other situations may warrant the filing of a tax return. They are:

• You want to claim a refund;
• You want to apply for the GST/HST credit;
• You want to carry forward the unused part of your tuition and education amounts;
• You received income for which you contribute to an RRSP. To keep your RRSP deduction limit up to date, you must file a return; and
• You or your spouse wants to begin or continue receiving Canada Child Tax Benefit payments.

COMMON DEDUCTIONS AND TAX CREDITS FOR STUDENTS

The most common deductions that apply to students are moving expenses and child care expenses.

Moving Expenses

You can deduct moving expenses if you move to attend courses as a full-time student or if you moved to start a new job, including summer employment, or to start a business. Your new home must be at least 40 kilometers closer to the new school or place of work than the previous home. Moving expenses can only be deducted against awards, employment or self employment income.

Child-Care Expenses

Parents who are full-time students, or single parents who study full-time, can deduct childcare expenses on their tax returns. Part-time students may qualify for partial deductions.

NON-REFUNDABLE TAX CREDITS

The most common post-secondary nonrefundable tax credits that apply to students are interest paid on student loans and the tuition, education and textbook amounts.

Interest on Student Loans

To be eligible for the credit, interest must, in fact, have been paid. The interest must be on a loan made under the Canada Student Loans Act, the Canada Student Financial Assistance Act or a law of the province, which governs the granting of financial assistance to students at the post-secondary level. Personal or family loans will not qualify. Credits that are not needed to offset income taxes are available for carry forward for up to five years.

You can only claim interest you have not previously claimed and you cannot claim interest that relates to a judgment obtained after you failed to pay back a student loan.

Education, Tuition and Textbook Tax Credit

You can claim the education credit for each whole or partial month in which you were enrolled in a qualifying education program. Part time students can qualify at reduced rates. Disabled part-timers can receive the full credit.

In addition to obtaining a tax credit for tuition fees paid, this tax credit also covers mandatory fees such as student services, library and lab charges, athletics, computer services, exams, certificates and diplomas. Post-secondary students can claim a textbook tax credit of $65 per month for full-time and $20 per month for part-time studies.

Transferable Credits

The student has the option of also transferring this credit to a parent, spouse, common law partner or grandparent if it is not fully absorbed on his or her income tax return. But if the student carries them forward, the transferability will be lost. The amount of education, tuition and textbook tax credits that can be transferred is limited to a maximum amount of $5,000 (or $850 in tax credits) per year.

Padgett Business Services is dedicated to meeting the tax, government compliance, profit & financial reporting and payroll needs of businesses with fewer than 20 employees in the retail and service sector of the economy. This publication suggests general business planning concepts that may be appropriate in certain situations. It is designed to provide complete and accurate information to the reader. However, because of the complexities of the tax law and the necessity of determining whether the material discussed herein is appropriate to your business, it is important you seek advice from your Padgett office before implementing any of the concepts suggested in this newsletter.