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CPA expertise can help clients maximize this exemption and minimize taxes when it is time to sell property. When filing personal income tax returns, how to report a property sale can be confusing and expensive, dependent on value appreciation and the capital gains tax owed. Luckily, under Canada’s Income Tax Act (ITA), the sale of a residence can be exempted from this tax under the Principal Residence Exemption (PRE). CPAs will remember that in 2016 the CRA required the sale of principal residence to be reported on the seller’s income tax in order to qualify for the PRE and to tighten up eligibility requirements. With this in mind, there are several things Canadian property owners need to consider when filing for PRE, particularly if they own multiple properties. Here are four questions clients may ask you and how CPAs can adequately respond. 1. How long do I need to live in a residence to claim it as a principal residence and qualify for PRE? The CRA does not specify an exact duration of time an individual or their family members, including a spouse, common-law partner or children, must reside in a dwelling for it to qualify as a principal residence for a given year. The tax rules refer to the residence being “ordinarily inhabited” within the calendar year, which is a relatively low bar. A more significant issue is whether a property held for a short period will produce an income gain or a capital gain when sold. Clients should beware that the CRA will analyze evidence, such as length of time in the dwelling, sources of income and real estate buying patterns, to establish if the dwelling is indeed a principal residence or perhaps part of a business venture, such as real estate flipping. “If the CRA challenges your claim of exemption, they’re going to look at all the facts in the scenario, for example what was your intention of moving in and did something happen that forced you to sell the property?” 2. Can other properties, such as a cottage, be designated a principal residence and eligible for PRE? Most properties (home or cottage, for example) can be designated a principal residence – even those seasonal residences located outside of Canada, such as in the U.S. or Caribbean – as long as the owner or their family ordinarily inhabit it during each calendar year being claimed. Clients should be aware that only one property per year, per family (spouse or common-law partner and children under 18), can be designated a principal residence. Although it is becoming rare now, each spouse can designate a different property as a principal residence for years before 1982. Once sold, a property that isn’t deemed a principal residence will be subject to capital gains tax for the years it was not designated. A gain may also arise if the residence is designated for some, but not all, of the years of ownership. There is also a restriction on land size that qualifies for the PRE. Property that exceeds one-half hectare (roughly 1.2 acres) will generally not qualify for the exemption. For example, if the property is a farm, only one-half of a hectare of land plus the home would qualify for the exemption, while the remaining acreage would be subject to capital gains tax based on value appreciation. If the excess land is required for the use and enjoyment of the property, then the land that qualifies can be larger. However, CRA is very restrictive when applying this rule. When selling one of multiple properties owned, an owner can designate it as a principal residence for all or part of the years of ownership to take best advantage of the exemption and minimize the amount of capital gains tax paid. Generally speaking, it makes sense to designate the property that has the highest average gain per year of ownership. Clients should speak to a tax professional to assess how best to calculate this, experts say. 3. Can a property that generates income be deemed a principal residence and eligible for PRE? The mandatory income tax reporting of a principal residence sale was introduced by the CRA to limit when the exemption could be applied. Overall, it increased monitoring over foreign property ownership, “quick flips” or short holdings (on properties that may not qualify for principal residence status), properties that were not “ordinarily inhabited” every year by the owner, a well as serial builders who build and occupy a property before selling it. Therefore, property that is used mainly to generate income or that is considered inventory does not qualify for PRE. This includes property that is solely rented out on a long- or short-term basis, or one where the owner occupies one unit and rents out the others. Exceptions include renting out property for the short term, such as a cottage for a couple of weeks in the summer or a house as an Airbnb while on vacation, which an owner occupies otherwise; and if a family member (spouse or common-law partner or child) rents out the property. There are different rules in case you change your rental property to a principal residence. When you change your rental property to a principal residence, you can also elect to postpone reporting the disposition of your property until you actually sell it. This election can only be made, however, if you haven’t claimed any CCA on the property. If you make this election, you can designate the property as your principal residence for up to four years before you actually occupy it as your principal residence. Fortunately, this election need only be made by the filing due date of the return for the year in which you actually sell the property. “What penalties are incurred when the sale of a principal residence is not reported to the CRA? If an owner fails to report the selling of a principal residence, they could be subject to a late-filing penalty of $100 per month, up to

Last month, one of our client, an existing businessperson who was thinking about buying a new business. Fortunately, they are very experienced and understood many of the issues they would face. Despite that, we advised them to  took the step of discussing the purchase with their lawyer and us before signing any documents. Read on to learn about some key matters you should take into account before making this substantial acquisition. It’s amazing how many calls we receive from clients who don’t have that foresight. Instead of getting advice when they first consider buying a business, they wait. Often, they have already signed a letter of intent or an agreement of purchase and sale by the time they contact me. Some are entirely new to business structures and operations, while others have worked in the corporate world for many years. Either way, there is often some information missing. Letter of intent or agreement of purchase and sale? Often, parties negotiating for the purchase and sale of a business enter into a letter of intent before signing a long form agreement of purchase and sale. Letters of intent are also referred to as “LOIs” or “memoranda of understanding.” A letter of intent is usually just that – an expression of intention rather than a binding contract. As a result, people often think there is no harm in signing one before consulting their advisors. The challenge is that once terms have been reduced to writing, it’s very difficult to get people to modify them. Even though the LOI may specifically say that it is not legally binding and is subject to the negotiation and signing of a long form agreement of purchase and sale, people will return to its terms time and time again. The negotiations will be much easier if the LOI reflects the basic outline of the deal. Consider these things first If you’re thinking of buying a business, you should first consider what structure your business should take. Will you complete the purchase personally, so that you directly own the business you are buying? Or, will you buy through an incorporated company? There are legal and tax considerations to both. If you decide to buy through a company, you need to consider who its shareholders will be. It is very easy to issue shares in a newly incorporated company; it has no value at the time of incorporation, and as a result, you can give shares to others without any tax implications. After the company completes the purchase, though, Canada Revenue Agency will take the position that the company has value and, therefore, issuing shares after the purchase will have tax consequences. If there will be more than one shareholder, I strongly encourage you to enter into a shareholders’ agreement. Many clients want to delay taking this step, to avoid either the time it takes to get its terms right or the expense associated with it. However, it’s too late to enter into one if the relationship between the shareholders has deteriorated to the point where they no longer want to be in business together. Shareholders’ agreements are like marriage contracts – if you can’t agree going into the relationship, you’ll be hard-pressed to agree when the relationship ends. What should you buy: shares or assets? One of the first questions I ask a client who is buying a business is whether they are buying shares or assets. This influences the nature of the agreement that must be drafted. Not knowing the answer to that question may put you at a disadvantage when you start negotiations. If you are purchasing shares, you are acquiring the company that operates the existing business. That includes all of that company’s assets and liabilities. Sellers often prefer a share deal because it may allow them to access the federal capital gains tax exemption. If they are eligible, that exemption allows the seller to receive upwards of $866,912 free of capital gains tax (this amount changes slightly each year). A share transaction means that the assets stay inside the company. You become the owner of the shares in the company, and the company remains the owner of the assets. This may mean that there is no tax payable on the transfer of the asset. For example, if you were purchasing land in Nova Scotia you would have to pay deed transfer tax. If, however, you buy a company which owns land, you do not have to pay this tax. The company remains the owner of the property, and the purchaser becomes the owner of the shares in that company. However, the tax value of the assets inside the company would remain unchanged. That could mean increased capital gains if you later decide that the company’s assets should be sold, rather than its shares. In addition, because you are acquiring the company, you must consider any liabilities it may have. Not all liabilities may show on the financial statements. For example, consider what happens if a lawsuit is brought against the company after you have bought its shares. Usually, the lawsuit will not name you personally, but you will probably become involved in the litigation in order to protect your investment. Determining all liabilities that may exist is next to impossible. As a result, you will have to rely on a well-drafted agreement to protect your interests. Should you worry about competition? Another thing to consider is whether the seller might set up to compete with your business after the closing. You may wish to include a non-competition agreement as part of your transaction. Sometimes purchasers arrange for the seller to stay on as a consultant or an employee after the sale. That allows the buyer to take advantage of the seller’s knowledge, and it can give the seller certain tax advantages as well. Get advice before you proceed Buying a business can be a great strategic move, but only if the transaction is well-structured. Businesspeople with advisors to turn to have an advantage

Both the Registered Retirement Savings Plan (RRSP) and the Tax-Free Savings Account (TFSA) allow you to build savings in a tax-sheltered environment. So, what are the differences between the two – and when does it make sense to invest in one over the other? The purpose of the RRSP, as its name states, is for long-term savings for your retirement. The TFSA is a more flexible vehicle to save for more immediate goals, such as buying a new car or a house, or creating an emergency fund. And it may also be used to save for retirement. Who is eligible? The RRSP has no minimum age, but you must have “earned income” in the prior year to create contribution room. Earned income includes income from employment, self-employment and certain other sources, and is reduced by some employment-related expenses, and business and rental losses. The RRSP matures in the calendar year in which you turn 71. For the TFSA, you can begin contributing as of age 18, and there is no maximum age. How much can you contribute? With an RRSP, you can contribute up to 18% of your earned income in the preceding year, up to a maximum annual limit ($27,830 for 2021). Your contribution room is reduced when you have an employer-sponsored pension plan. The contribution for the year must be made by the 60th day of the following year – so, close to the end of March – and you can carry forward any unused contribution room indefinitely. Keep in mind that if you overcontribute to your RRSP by more than $2,000, there is a penalty of 1% per month. You can deduct up to the greater of your actual contributions and your contribution limit for the year from your taxable income, reducing the amount of tax you pay on other sources of income. TFSA contributions must be made by December 31 of the relevant year. Here are the annual contribution limits: 2009-12                $5,000 2013-14                $5,500 2015                      $10,000 2016-18                $5,500 2019-21                $6,000 Similar to RRSPs, unused TFSA contribution room can be carried forward. For example, if you turned 18 in 2018 and have never contributed to a TFSA, your limit in 2021 is $23,500 ($5,500 + $6,000 + $6,000 + $6,000). And as with an RRSP, you also face a 1% per month penalty if you go over your contribution limit. What if you want to withdraw from the fund? With an RRSP, you may be able to withdraw funds to buy your first home or finance a return to school without being liable for taxes right away. The Home Buyers Plan (HBP) allows you to withdraw up to $35,000 to help pay for your first home; you pay this money back into your RRSP through instalments over 15 years. Under the Lifelong Learning Plan (LLP), you can withdraw up to $10,000 in a calendar year, to a maximum total of $20,000, to finance full-time education or training for you, or for your spouse or common-law partner. These funds must be paid back through instalments over 10 years. Any unpaid instalments for either the HBP or LLP are added to your taxable income for that year. Any other withdrawals from your RRSP are also included in your taxable income in the year that you receive them, and you cannot re-contribute that amount once you have withdrawn it. Just as there was no tax deduction for TFSA contributions, you do not pay tax on TFSA withdrawals. You can recontribute the withdrawn funds to your TFSA in a subsequent year (just not the same year you withdrew it). The amount withdrawn gets added to your contribution room for future years. How does having a spouse help you get the most out of these plans? If you have a spouse or common-law partner, you can invest up to your contribution limit to a spousal RRSP. Generally, the amounts your spouse withdraws from these plans would be included in their taxable income, rather than in yours. Some restrictions apply. If there is a significant difference between the incomes of two spouses, the spousal RRSP can minimize the total tax that the family pays in retirement by splitting income between one spouse in a higher tax bracket and the other in a lower tax bracket. There are no spousal TFSAs. However, you can give money to your spouse for their own TFSA contribution and the income earned will not be subject to tax. When does it make sense to invest in one vs. the other? There are many factors that would affect whether investing in your RRSP rather than your TFSA may make sense, and these can be quite complex. Here are some general factors that you may consider helpful. Your tax bracket If you are in a higher tax bracket when you are making the contribution and expect to be in lower tax bracket when you will be withdrawing the funds, the RRSP can offer significant advantages. But if you are in a lower tax bracket when contributing, those benefits will not be as great – though you still benefit from deferring tax from the year you made the contribution to the year that you withdraw the funds. Your timeline for withdrawal The timeline for when you expect to need the funds is another important factor. When your RRSP matures in the year that you turn 71, you have two options for relief from being liable for taxes immediately: You may transfer the balance in the account to a Registered Retirement Income Fund (RRIF), or use it to purchase an eligible annuity. RRIF plans require that you withdraw a minimum amount each year, based on your age. It’s also worth noting that any RRSP or RRIF withdrawals or annuity payments are added to your taxable income and may trigger a 15% claw back of the Old Age Security for income above a certain amount ($79,845 in 2021). While the HBP and

Tax filing requirements in the United States are quite different than those of other countries around the world. This article will outline some of the common mistakes Canadians make when it comes to U.S. tax filing. Do you recognize yourself in any of these scenarios …? Not Filing a U.S. Tax Return When Required The United States is one of the few countries in the world that imposes taxes on citizenship as well as residency and source of income. Other countries typically tax based only on residency and source of income. If someone is a U.S. citizen or a U.S. green card holder (also known as a U.S. lawful permanent resident), they are required to file a U.S. resident return (Form 1040), even if they are living outside of the U.S. Their worldwide income is reported on Form 1040, and the use of mechanisms such as the foreign earned income exclusion or foreign tax credits will reduce or eliminate double taxation on the income reported in both countries. Being physically present in the United States can also trigger a U.S. tax filing requirement. The substantial presence test involves a calculation based on the past three years of physical presence in the United States. Generally, each day in the current year counts as a full day, each day in the first previous year counts as one-third of a day, and each day in the year before that counts as one-sixth of a day. If the calculated number of eligible days is 183 or more, then the individual meets the substantial presence test, is considered a U.S. tax resident and must file a U.S. tax return. Corporations or partnerships may also have U.S. filing requirements if they earn revenues from U.S. sources. Corporations must still file a Form 1120-F with a Treaty-Based Return Position Disclosure (Form 8833) if they are taking a treaty position that their business profits are only taxed in the country where it is permanently established. US Tax filing With Incorrect Forms Individuals meeting the U.S. substantial presence test are considered U.S. tax residents and by default would be required to report their worldwide income on a Form 1040 return. However, you can file as a U.S. non-resident and only be subject to U.S. tax on your U.S.-sourced income. If you meet the substantial presence test and are physically present 183 days or more in the current year alone, you must file a Form 1040NR return with a Form 8833 treaty position in order to be treated as a U.S. non-resident for tax purposes. Alternatively, if you meet the substantial presence test and are physically present less than 183 days in the current year alone, the Closer Connection Exception Statement (Form 8840) may be all that is required, unless you had income from U.S. sources, in which case you should attach the Form 8840 to a Form 1040NR. It should be noted that the treaty positions do not preclude the individual from other U.S. resident required tax filings such as the Reporting of Foreign Bank and Financial Accounts form (FBAR). Not only could there be a U.S. federal tax filing to complete, you may also need to complete various state tax filings. Each state has their own rules on individual filers, as well as different registration and reporting requirements for corporations or partnerships doing business in each particular state. Corporations or partnerships may also have U.S. payroll reporting, Form 1099 reporting, or Form 1042-S reporting to complete if they have U.S. employees or contractors. Unknown exposure to U.S. estate taxes Even though an individual may not be a U.S. citizen or green card holder or meet the U.S. substantial presence test, they may still have assets south of the border that expose them to U.S. estate tax liabilities. If you fit this description, know that the U.S. federal estate tax employs a graduated rate that can reach as high as 40%. There may also be additional state estate taxes. An obvious way you may have U.S. estate tax exposure would be if you own U.S. real estate. U.S. taxes will apply to the fair market value of this investment. A perhaps not-so-obvious area of U.S. estate tax exposure would be if you hold securities or stocks of U.S. companies inside a Canadian brokerage account. Canadian mutual funds that hold shares of U.S. companies would not be classified as “U.S. situs property,” but the direct stocks of those companies would. These investments would be subject to U.S. estate taxes on their fair market value, not just on the gain portion of the investments. U.S. non-residents can take a treaty position to claim a pro-rated unified credit exemption to gain some relief from U.S. estate taxes. This formula consists of U.S. situs property over worldwide assets multiplied by the unified credit exemption limit ($11,580,000 USD for 2020). To rely on this treaty position, you must arrange to have Forms 706-NA and 8833 filed nine months after the date of death of the estate owner (unless an extension was granted), even if no U.S. estate tax is due. Without this treaty position, you are entitled to a credit of $13,000 USD, which exempts $60,000 USD in value of U.S. situs property from your U.S. estate tax obligation. You can correct your mistakes To avoid the large penalties that could be assessed on late or incorrect filings, you can catch up and correct delinquent tax filings without fear of penalties. Voluntary disclosure programs and delinquent filing programs are available through some states and the Internal Revenue Service (IRS). However, you are advised to do so as soon as possible, as it has been mentioned that these programs may not be available in the future. If you have U.S. estate tax exposure, you can use one or more of these remedies: You could liquidate your U.S. situs property or limit the amount you purchase or gain in future. Utilize a trust structure to hold the U.S. situs property. Secure sufficient life insurance to

This is from CRA NEWSWIRE December 30, 2021 INTERNATIONAL INCOME TAX ISSUES: CRA AND COVID-19 Section VII of this page has been updated to extend the administrative relief that was provided to Canadian-resident cross-border workers in respect of their 2020 income tax obligations to also apply to 2021. This update does not contain any further extensions of relief. The CRA will continue to monitor the status of COVID-19 related travel restrictions and their potential effect on taxpayers. Further government action may be taken in the future if it is deemed necessary. Guidance on international income tax issues raised by the COVID-19 crisis The COVID-19 crisis has resulted in the imposition of safety measures by governments around the world, including the Canadian government, to protect the health of their citizens. Similarly, businesses have imposed safety measures to protect their employees. These measures include travel restrictions. The travel restrictions have resulted in certain taxpayers and their representatives expressing concerns about a number of potential Canadian income tax issues. This document describes each potential issue considered by the Canada Revenue Agency (the CRA) thus far, and outlines the agency’s approach to address the issue. Some of these income tax issues will arise from the travel restrictions instituted by another country and not those of Canada. As well, in some situations, particular travel restrictions could have effect past the date on which the restrictions are officially lifted. Therefore, the CRA will consider whether a particular tax issue has arisen as the result of the travel restrictions, on a case by case basis. Except for subsection III. D. (sending international waivers, and notifications for certificates of compliance), the relief measures described in sections I-VI of this guidance are applicable from March 16 until September 30, 2020 (the initial relief period). The additional relief measures contained in the supplemental guidance in section VII apply for the periods described in that section. The administrative approach taken by the CRA in addressing these issues is intended to help taxpayers during this time of crisis. The approach does not represent any interpretive position or intention to establish any broader policy by the CRA. Nor does it represent any change in Canada’s ongoing commitment to fight international tax evasion and avoidance. Any taxpayer that engages in tax evasion or avoidance schemes that try to exploit the crisis or the temporary measures discussed below can expect the CRA to use all its compliance tools to protect the integrity of Canada’s tax system. I. Income tax residency A. Individuals In general, an individual’s residence for Canadian tax purposes is a common-law factual determination based on the individual’s residential ties to Canada. In addition, an individual who temporarily stays (is physically present) in Canada for a period of, or periods that total 183 days or more in a tax year will be deemed to be resident in Canada throughout the year. Potential Issue Individuals visiting Canada when the travel restrictions were imposed may not have been able to return to their country of tax residence as they intended and instead had to stay in Canada. Could this extended stay in Canada result in the individual being resident in Canada for Canadian tax purposes? Agency position If an individual stayed in Canada only because of the travel restrictions, that factor alone will not cause the CRA to consider the common-law factual test of residency to be met. Also, as an administrative matter and in light of the extraordinary circumstances, the CRA will not consider the days during which an individual is present in Canada and is unable to return to their country of residence solely as a result of the travel restrictions to count towards the 183-day limit for deemed residency. This will be the CRA position where, among other things, the individual is usually a resident of another country and intends to return, and does in fact return, to their country of residence as soon as they are able to. In this regard, in determining a taxpayer’s eligibility for relief under this (or another) section of this guidance, we will generally view the Canadian government’s recommendation to Canadians to return to Canada as a travel restriction. This would include a scenario where an individual would have been permitted under the laws of their country of residence to remain in (or return to) that country. B. Corporations Under the Canadian income tax system, corporations that have been established under foreign law are nevertheless considered resident in Canada if their central management and control is located in Canada. One of the key factors typically considered in applying this common-law concept is the jurisdiction in which the meetings of the board of directors take place. Potential Issue A corporation that, before the implementation of the travel restrictions, was tax resident in a foreign jurisdiction may have one or more directors present in Canada. The travel restrictions might have resulted in these directors being unable to travel to the foreign jurisdiction to attend board meetings. If directors of such a corporation participate in board meetings while physically present in Canada, will the CRA consider the corporation’s central management and control to be in Canada, such that it is resident in Canada for Canadian tax purposes and therefore a dual resident (that is, a resident of Canada and a resident of the foreign jurisdiction)? Agency Position Some of Canada’s income tax treaties will address the situation of the dual residency of a corporation by determining the corporation to be resident in the country under whose laws it was created. For example, if the corporation is an entity created under the laws of the United States as a C-corporation or S-corporation, the CRA expects that the corporate residency tiebreaker rule contained in Article IV of the Canada-United States income tax treaty will address this issue. Other tax treaties contain a residency tiebreaker rule that looks to the corporation’s place of effective management, among other factors. For corporations covered by such income tax treaties, in light of the extraordinary