To facilitate cross-border tax transparency, various Government authorities in close cooperation developed the Standard for Automatic Exchange of Financial Account Information in Tax Matters. This standard intends to equip tax authorities with an effective tool to tackle offshore tax evasion by providing a greater level of information on their residents’ wealth held abroad.
The Standard has now moved to the implementation and application phase with the first exchanges having taken place in September 2017. There are over 100 jurisdictions representing all the major international financial centres that have committed to commence automatic exchange of information in 2017 or 2018.
In order to maximize efficiency and minimize costs the Standard builds on the automated and standardized solutions that jurisdictions previously developed for the purposes of the intergovernmental operationalization of the U.S. laws commonly known as FATCA.
For more information visit OECD website
Enhanced financial account information reporting
Before 2016, if you sold your property, and it was your principal residence for every year you owned it, you did not have to report the sale to claim the principal residence exemption.
On December 14, 2017, Parliament passed Bill C-63 which contained the proposed changes to the capital gains rules as they affect the disposition of a principal residence by an individual or trust that were introduced on October 3, 2016. The changes are meant to close loopholes surrounding the capital gains exemption on the sale of a principal residence. Some of the new rules apply to dispositions after September 15, 2016, after October 2, 2016 and some apply after 2016.
Canada Revenue Agency (CRA) announced an administrative change to its reporting requirements for the sale of a principal residence. For dispositions in 2017 and later years, in addition to reporting the sale and designating your principal residence on Schedule 3, you also have to complete Form T2091(IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust). Complete only page 1 of Form T2091 if the property you sold was your principal residence for all the years, or for all but one year, that you owned it.
Refer to Form T2019 here
For the sale of a principal residence in 2016 and subsequent years, CRA will only allow the principal residence exemption if you report the disposition and designation of your principal residence on your income tax return. If you forget to make this designation in the year of the disposition, it is very important to amend your income tax return for that year. However, CRA may accept a late designation in certain circumstances, but a penalty may apply. If only a part of your home qualifies as your principal residence and you used the other part to earn or produce income, you have to split the selling price and the adjusted cost base between the part you used for your principal residence and the part you used for other purposes (for example, rental or business)
Income sprinkling (income splitting) is a technique that can be used by high-income individuals to reduce their tax liabilities by allocating their income to lower income family members.
The CRA implemented new rules called Tax on Split Income (TOSI), which came into effect for the 2018 tax year. The expanded the existing tax on split income to restrict income sprinkling involving adult individuals.
The rules state that adult family members will be subject to tax at the highest marginal tax rate of 33% on their split income, which generally includes certain taxable dividends from a private company, taxable capital gains and income from partnerships or trusts. The motive of the CRA is to ensure that the income splitting benefits are not being received by individuals who are not actively involved in a family business.
Please refer to the following links for more detailed guidance on the TOSI rules:
1) The excluded business exception- This is only applicable for family members who are over 18 years of age or older and they must be regularly engaged in the operations of the business. This threshold will be met if the family member works at least 20 hours a week in the business during the current year. 2) The excluded shares exception- This applies for capital gains on the sale of excluded shares held by family members who are 25 years of age or older. Four conditions must be met in order for shares to be considered excluded shares. 3) The reasonable return exception- This applies for family members who are 25 years of age or older. Income earned from the business will not be subject to TOSI rules if the amount received represents a reasonable return for their contribution to the business.
Beware of tax fraud schemes. If you get a call or email that sounds like a scam, it probably is.
Many taxpayers have encountered individuals impersonating tax officials- in person, over the telephone and via email. Usually tax department initiates contacts through regular postal mail. In some circumstances they may visit or make phone calls. Even then, taxpayers will receive several letters and notices.
It is imperative that you are always vigilant with your personal and financial information. Please be aware that there are always criminals trying to get information that they can use to steal your identity or commit fraud to steal money from you or your financial institution.
Canada Anti Fraud Centre
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