March 2018 Newsletter

Under the Income Tax Act and Income Tax Regulations, there are several different “prescribed rates” of interest. The most commonly known ones are the interest rate on overdue tax payments (currently 5% compounded daily), and the rate that needs to be charged on certain loans (currently 1%). These rates are found in section 4301 of the Regulations, and are adjusted quarterly based on current Government of Canada Treasury Bill rates.

These 5% and 1% rates have not changed since July 2009, except for the last quarter of 2013 when they were each one percentage point higher.

Suppose you are (or your corporation is) ready to file your income tax return, or GST/HST return, by the filing deadline (which might be, say, April 30 or June 15). But you don’t have enough money to pay the balance. Should you file anyway?

Of course, we recommend that you always file on time. If you have tax to pay for the year, you’re legally required to file by the deadline, and you should do so. This article explains the consequences if you do not.

If you have a bank account, or a brokerage or other financial account in a country outside Canada, and you have not been reporting the account or income from it on your income tax returns, you need to know about the new “Common Reporting Standard” (CRS) rules.

The CRS represents an unprecedented level of cooperation among tax administrations worldwide. It was developed by the Organisation for Economic Cooperation and Development (OECD) for automatic information exchange between countries to reduce tax evasion, and took effect in July 2017.

The CRS works as follows. In each participating country, banks and other financial institutions must collect information about accounts owned by residents of other countries, following “due diligence” rules, and must report this information to the local tax authority.

If you own or manage a business, you occasionally end up in disputes with customers or suppliers over the terms of a contract or payment. Sometimes these disputes have to be referred to lawyers, and sometimes they end up in court.

Regardless of how far the dispute goes until it’s settled, are you aware of the GST of HST consequences of any settlement or damage award? Your lawyer might not be aware of this issue.

Scientific research not sufficiently documented

The Income Tax Act provides generous incentives for businesses to undertake scientific research and experimental development (SR&ED). For a Canadian controlled private corporation that is not large, these incentives include a 35% refundable tax credit, effectively subsidizing over 1/3 of the cost of the SR&ED, even for a business that pays no corporate income tax. Many provinces offer additional incentives.

The definition of SR&ED in the Income Tax Act is “systematic investigation or search that is carried out in a field of science or technology by means of experiment or analysis”, with further specification that the work must be “basic research”, “applied research” or “experimental development”, providing definitions for those terms, and then listing various inclusions and exclusions.