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FREQUENTLY ASKED QUESTIONS

Are you working for CRA or for me?  

The Canadian tax system is self-assessing. TaxWatch is absolutely only working for you. However, part of the advantage of TaxWatch is that it is familiar with how CRA often views your situation. It is important insight to have. All tax professionals are very careful to ensure the accuracy and support for the income and deductions included in your tax return. CRA can assess 3rd party penalties to tax preparers for lack of diligence or gross misconduct. Expect questions and requests for documents from your tax preparer. They are only trying to prepare for CRA scrutiny.    

 What if I cannot afford to pay all that past tax liability?  

There are collection protocols within CRA that will extend payment terms based on your financial situation. CRA may request details of your financial situation in order to evaluate how much you should reasonably afford to be able to pay. Each situation is unique. Payment commitments should never be more than what you really believe you can afford and will pay. CRA wants you to keep your current tax filings and liability up to date as well. One thing you should never do is make commitments that you already know you cannot keep.    

 What is the most important step to take when deciding what to do about late tax returns or claiming unreported income?  

The first and most important step is to determine your estimated tax liability and discuss possible penalties and interest that may be applied as well. You can still adopt filing positions to reduce your tax liability and remain compliant with the tax law, subject to having to defend your filing position. There are many factors to consider that affect your tax position. Some examples are: the determination of intention to earn income; treatment of expenditures and the timing and nature of funds received; allocations to different business partners or spouses; the correct treatment of funds paid by a corporation to its shareholders; matching expenditures to income; choice of year ends; timing of capital cost allowance (depreciation); and the timing of the claiming of losses to name just a few. Many factors contribute to legitimate tax minimization, which you are allowed to do.    

 How affordable are your fees?  

Our professional fees are certainly not high end and are reasonable because we only do what we both agree is worthwhile. Fees are based on a step-by-step process of service that allows you to manage the service arrangements and fee costs and know the exact fee for each accomplished step. The first step is to determine your tax liability and perhaps engage legal representation. That may involve bookkeeping, GST implications, a review of your financial history and discussions with legal counsel. That is one fixed fee, payable in advance. Proceeding to file returns and to deal with particularly involved situations or complex problems would be a separate fee. Filing of notices of objection or answering CRA questionnaires is a separate fee. Tax payment negotiations may involve another separate fee. In all instances the fees are fixed unless additional information comes to light that we were not advised of. Payment terms for fees can be arranged. For those who are corporations or are self-employed the fees are tax-deductible. Fees for preparation and completion of notices of objection and tax court appeals are also tax deductible. 

What is a Corporation?

A Corporation is a legal entity, often referred to as a ‘limited company’ or ‘company’, with an independent legal existence from its owner(s). A Corporation has the same powers as a natural person; a Corporation can enter into contracts (in the name of the Corporation), carry on business, buy and sell property, etc. Corporations are governed by the applicable federal or provincial legislation (Companies Act). 
 
 Who is a Corporation most useful for?
 
Any business not already incorporated (operating as a proprietorship, partnership), with a net annual income of $50,000**, including:
  • Established businesses or start-ups
  • Small businesses (any type of business activity)
  • Professionals with a practice (Physicians, Dentists, Lawyers, Accountants, Engineers, Real Estate Agents, Architects, etc.) whose licensing bodies allow Corporate ownership. 
  • Those who work part time for multiple clients on a contract basis.
Note-mortgage, banking, insurance, loan, trust companies, other financial institutions, cooperatives, and not-for-profit corporations are incorporated under different statutes.
**approx. /general amount only – other determining factors exist.
 
 Why a minimum of $50,000 annual income?
 
From a tax perspective, in our experience, this is the approximate threshold where the tax saving of a Corporation become most interesting. 

 
 Why incorporate? There are many benefits of incorporation; here are just some of the highlights:

General Benefits

Substantial tax savings and tax postponements (see Tax Benefits below). Corporations usually save and postpone tens of thousands of dollars of tax per year.

  • The owners (shareholders, directors) are not personally liable* for corporate income tax (unless they conspire to remove funds from the company to avoid corporate tax).

*Exceptions:  Trust funds (GST/HST, payroll), Noncompliance penalties (not filing tax returns).

  • The corporation is automatically deemed to be a business for profit.  Issues such as whether or not an undertaking [that could be deemed by Canada Revenue Agency (CRA) a personal non-business activity] is a business and therefore qualifies for use of expenses for business purposes do not usually exist.
  • Most any type of business activity (consulting, services, ventures for profit) can be transferred to a Corporation for tax favoured treatment and asset protection.
  • Liability for corporate acts and debt are usually limited to the Corporation.  Personally exposed liabilities can be transferred to corporations except those related to professional activities.  Note:  some legislation requires personal liability of directors for issues such as safety worker’s compensation, non-compliant acts, environment, fiduciary responsibility to Corporation.
  • A much higher degree of privacy and non-disclosure for private (non-public) corporations’ activities than for personal affairs.  Institutions must treat corporate and personal assets as separate holdings.
  • Flexibility for protection of assets, transferring or sales of assets to / from Corporations, estate planning, asset continuity and payments to family members.
  • Perpetual existence: Corporation continues on after the incapacity or death of the individual shareholders.

 Tax Benefits

Assuming proper setup and administration has been performed (part of the unique Turnkey Incorporation Service provided by TaxWatch Canada LLP), the tax benefits can be:

  • Low Corporate tax rates (generally 15% or lower – depending on provincial tax rates – of net income under 500K annually).
  • Income splitting via payment of dividends for multiple classes of shares owned by the business operator and any other person as decided by the directors. These dividends can usually and repeatedly reduce personal tax on withdrawals from Corporations for personal use. 
  • No CPP (an annual cost to self-employed proprietorships reaching up to $4,800.00) if corporate earnings are paid to shareholders as dividends.
  • More favoured timing regarding everything from deadlines for tax returns to taxation on withdrawals (use of profits) from the Corporation for personal use.
  • Allowances that are treated in a tax preferential manner (some tax-free) can be paid by the Corporation to shareholders/officers (that reduce the effective Corporate and personal tax burdens).
  • Usually there is a deferral of tax (still at the lower corporate rates) of up to 1.5 years for income included in newly established Corporations compared to the timing of taxes payable personally.
  • Special one-time benefit.  Tax-free withdrawals from the Corporation (e.g. Goodwill or other assets transferred from an existing business to a new Corporation). Essentially, the Corporation buys the business assets (including what could be a substantial amount of goodwill) from you at amounts you choose. You receive from the Corporation, in exchange for the assets you transfer to the Corporation, some shares and a promissory note issued to you. Please be careful about the price exceeding either undepreciated carrying value and fair market value and the tax elections required. More details in the Guide. 
  • CRA Treatment: Corporations are recognized by CRA as a tax favoured and quite compliant arena. Tax audits are less frequent probably because the tax rates (and therefore tax recovery amounts) are low. 

 Why Can’t I Just Incorporate my Own Business?

You can. There are tax compliance risks if asset (such as existing capital assets and contracts which have value) transfers create capital gains personally. Documentation for transfers of assets must be complete (a simple process), and many other subtleties exist (such as the need for a complete minute book). 

 Why should I Choose TaxWatch Canada's Incorporation Service?

While many businesses offering incorporation services pride themselves on offering a quick & easy solution, TaxWatch Canada LLP’s service, albeit an extended process, is comprehensive and provides exceptional value to your bottom line. Our tax perspective provides maximum tax savings to increase wealth and take advantage of the many benefits of incorporation.

 What is the Cost for the Turn Key Incorporation Service?

Your complimentary initial review will include an immediate quote only after we ensure we can help you and a new Corporation is going to produce substantial positive outcomes.  Historically, upfront fees (which include out of pocket payments to institutions of around $600 or more) are from $1,800.00 for a new business and increase as the complexity of transferring existing business assets gets more involved. But that is where the benefits really shine. Many times other professionals - your choice who to use - are engaged to prepare agreements, provide 2nd opinions or valuations. 

 How do I get started? 

Just contact us. Ask plenty of questions. 

 
What do I need to send to you?
The package you receive from us clearly lists all the required items.
  
Why can’t I simply ask my own accountant to file for my ABIL loss claims?
You should consider asking your accountant to do this, but it has been our experience that the probability of a successful outcome increases when a specialized service is recognized as being required. TaxWatch works well with many other accountants and legal reps because they are sometimes engaged in providing the information needed and are insightful and helpful. There is also the timing and comparable cost factor to be considered.
 
 How much will all this cost me?
After completion of our free evaluation (which includes an estimate of your refund, if any) you will be provided with your options which include our fee. Fees are based on complexities of the claim. The fees of TaxWatch Canada are always fixed unless special circumstances arise.
 
 As a result of successfully filing a loss claim in a particular year, will CRA attempt to review other parts of my tax return for that year?
No. CRA generally restricts adjustments of prior tax years to a separate group within CRA - not an audit group. If you have a notice of objection outstanding for the year of a loss claim, you may not receive the tax reduction related to your loss claim until your objection is resolved.  
  
How can I find out whether or not any capital gains deductions were reported on any of my previous income tax returns?
You can call CRA for this information and request a print-out (RC143) of your previous filing history. Alternatively, we can do this for you once we have your signed consent (which is filed with CRA) to discuss your income tax matters with CRA.
 
 What if I have previously claimed a capital gains deduction? Will my claim be allowed?
It depends. These deductions canceled over ten years ago but, if claimed, still affect ABILS. Generally, the amount of the loss that can be deducted will be restricted by the capital gains deduction previously reported. The loss will be reduced by the amount of the previous capital gains deductions and only the amount in excess of the previous deduction, if available, will be eligible for an ABIL deduction. Other restrictions, if applicable to your situation, may reduce or restrict your claim.
 
How long will I have to wait before I receive my refund?
You can expect to wait for about 16 weeks and perhaps longer if the expected refund is substantial. CRA will send questionnaires if the claim is over a certain threshold. TaxWatch will respond to any CRA request.
 
 What if my claim for losses is denied by CRA?
If we disagree with CRA’s determination, or the facts CRA relied upon to deny your request, we will appeal the decision on your behalf.
 
 Can I deduct interest expenses I incurred to finance the investment which is now non recoverable or lost and the subject of my loss claim? Deductibility of interest paid will mostly depend on the particular facts of your situation.
 
If my investment turned out to have been a scam, is it easier to make a claim for my loss?
Unfortunately, no. The claim will be processed just like any other claim and would be subject to scrutiny and due process by CRA. In many cases a capital loss will be allowed even if the ABIL claim is denied.
 
 I have incomplete documentation regarding my investment loss. What should I do?
So long as you can provide the right critical documentation and supporting evidence, you may still claim your loss. A missing document or two will not necessarily result in CRA denying an otherwise legitimate loss claim. In most cases, we are able to determine if what you have is likely to be acceptable.
 


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