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New Bare Trust Reporting Requirement

Significant changes in trust filing requirements following the recent enactment of Bill C-32, the Fall Economic Statement Implementation Act, 2022.

Key Updates:

1. New Filing Mandate: Effective December 15, 2022, Bill C-32 has amended the Income Tax Act, expanding trust filing and reporting requirements. All Canadian resident express trusts, including those deemed resident, are now obliged to file a T3 Return if they do not meet the criteria of “listed trusts.” This includes trusts acting as agents for beneficiaries (bare trusts).

2. Bare Trusts: Previously exempt, bare trusts are now included in the new reporting rules. They must file a T3 Return unless specific exemptions apply. The term “bare trust” refers to an arrangement where a trustee acts as an agent for all beneficiaries concerning all trust property. Examples of bare trust arrangements include (not limited to):

Bank Accounts: Two spouses contribute, but only one is listed on the title; or accounts held “in trust for” a child.
Real Estate: Nominee corporations used to hold title; addition of a child to title for estate planning purposes; addition of a parent to title to qualify for a mortgage.
Corporate Assets: Legally owned by a shareholder.
Lawyers’ Specific Trust Accounts: (as mentioned regarding lawyers’ general trust accounts).

3. Filing Deadline Extension: Generally, trusts must file a T3 Return within 90 days of the taxation year end. For trusts ending on or after December 30, 2023, the filing deadline is extended until April 2, 2024.

4. Stricter Penalties: Recent amendments introduce tougher penalties for failing to submit a T3 Return, particularly for intentional omissions or actions amounting to gross negligence.

5. Late or Failure to File Penalties: Late or failure to file penalties apply for trusts with taxes owing, including a 5% penalty plus 1% for each complete month late (up to 12 months). For trusts without taxes owing, a separate penalty of $25.00/day, up to a maximum of $2,500.00, may be imposed.

6. Penalty Relief for Bare Trusts: The CRA will provide penalty relief to bare trusts missing the 2023 filing deadline, adopting an “education first” approach to compliance.

7. New Gross Negligence Penalty: For tax years ending on or after December 31, 2023, a new gross negligence penalty is introduced for trusts failing to file a T3 Return under circumstances of gross negligence. The penalty is the greater of $2,500.00 or 5% of the highest total fair market value of all trust property.

Please note that relief for bare trusts applies only to late or failure to file penalties and not to the new gross negligence penalties.

If you are uncertain about a trust relationship, don’t hesitate to reach out. Non-compliance penalties can be avoided with timely action.

Purchasing versus leasing a vehicle in a corporation

The decision to purchase or lease a vehicle in your corporation depends on various factors, including your business needs, financial situation, and tax considerations. Both options have their pros and cons, so it’s essential to evaluate your specific circumstances before making a choice. Here’s a breakdown of purchasing and leasing a vehicle in your corporation:

Purchasing a Vehicle:

Pros:

Ownership: When you purchase a vehicle, it becomes a corporate asset, and your business owns it outright. This can be advantageous if you plan to keep the vehicle for an extended period.
Depreciation Deductions: You can claim capital cost allowance (CCA) on the vehicle’s depreciation as a tax deduction over several years, which can reduce your taxable income.
No Mileage Restrictions: Unlike leasing, there are no mileage limits or excess mileage fees to worry about.

Cons:

Higher Initial Costs: Purchasing a vehicle typically requires a more substantial upfront cash outlay or a significant down payment if you’re financing it.
Maintenance Costs: You’re responsible for all maintenance and repair costs, which can be a financial burden.
Depreciation Risk: You may be exposed to the risk of the vehicle’s value depreciating significantly over time.

Leasing a Vehicle:

Pros:

Lower Initial Costs: Leasing usually requires a lower initial payment or down payment compared to purchasing.
Lower Monthly Payments: Lease payments are often lower than loan payments for the same vehicle.
Maintenance Included: Most lease agreements cover maintenance costs, which can save you money and provide peace of mind.
Potential Tax Deductions: Lease payments may be partially deductible as a business expense, subject to specific limits and conditions.

Cons:

No Ownership: With leasing, you don’t own the vehicle; you’re essentially renting it for a set period.
Mileage Restrictions: Lease agreements typically have mileage limits, and exceeding them can result in excess mileage fees.
No Capital Cost Allowance: You can’t claim depreciation deductions (CCA) on a leased vehicle.

Tax Considerations:

The tax implications of purchasing vs. leasing a vehicle for your corporation can be significant. Tax laws may change, and the impact can vary based on your specific situation, so it’s crucial to consult with a tax professional. They can help you determine the most tax-efficient option for your business.

Considerations:

If you need a vehicle for a long-term commitment and want to build equity, purchasing may be more suitable.
Leasing is a good option if you prefer lower monthly costs, want to drive a new vehicle every few years, and are comfortable with mileage restrictions.
Hybrid approaches, such as a lease-to-own agreement, can offer some of the benefits of both options.

In summary, the decision to purchase or lease a vehicle for your corporation should be based on your business needs, financial situation, and tax objectives.

This post has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only and is not a substitute for professional advice. Please contact Chander Professional Corporation to discuss these matters in the context of your circumstances.

Bookkeeping tips and tricks

Bookkeeping is a critical aspect of financial management for businesses and individuals. It involves accurately recording, organizing, and maintaining financial transactions and records. Here are some tips and tricks to help you manage your bookkeeping effectively:

Stay Organized:
- Keep all financial documents, such as receipts, invoices, and bank statements, organized and in one place. Consider using digital tools for document management.
Use Accounting Software:
- Invest in accounting software like QuickBooks, Xero, or FreshBooks to streamline bookkeeping processes. These tools can automate many tasks and reduce errors.
Regular Data Entry:
- Make it a habit to enter financial data into your accounting software regularly, whether it’s daily, weekly, or monthly. Consistency is key to accurate bookkeeping.
Separate Personal and Business Finances:
- Maintain separate bank accounts and credit cards for personal and business expenses. This simplifies record-keeping and tax reporting.
Categorize Transactions:
- Categorize expenses and income correctly. Use categories that make sense for your business or personal financial situation.
Reconcile Accounts:
- Regularly reconcile your bank and credit card accounts with your accounting software to ensure that all transactions are accurately recorded.
Track Invoices and Payments:
- Keep track of invoices sent, payments received, and outstanding payments. Send reminders for overdue invoices promptly.
Maintain Backup Copies:
- Create backup copies of your financial data and store them securely. Regularly back up your accounting software data.
Track Mileage and Expenses:
- If you have a business that involves travel, track mileage and related expenses for potential tax deductions.
Set Aside Taxes:
- Save a portion of your income or revenue for taxes. This prevents surprises when tax time comes around.
Stay Informed About Tax Deductions:
- Be aware of tax deductions and credits that apply to your situation. Keeping track of eligible deductions can reduce your tax liability.
Seek Professional Advice:
- Consider working with a Chartered Professional Accountant (CPA) , especially for complex financial situations. They can offer guidance and ensure compliance with tax laws.
Create a Financial Calendar:
- Develop a financial calendar that outlines important dates, such as tax filing deadlines, invoice due dates, and when to run financial reports.
Regularly Review Financial Statements:
- Review financial statements like income statements and balance sheets. These reports provide insights into your financial health.
Budgeting:
- Create a budget for your business or personal finances. Sticking to a budget helps control expenses and manage cash flow effectively.
Invest in Training:
- If you’re handling bookkeeping for a business, consider taking courses or attending workshops to enhance your bookkeeping skills and knowledge.

Effective bookkeeping is crucial for making informed financial decisions, meeting tax obligations, and ensuring the financial health of your business or personal finances. You can maintain accurate and well-organized financial records by following these tips and tricks.

Important personal tax dates for 2023

March 1, 2023	2022 RRSP contribution deadline
March 15, 2023	First 2023 tax instalment due
April 30, 2023	Personal tax filing deadline and balance due
June 15, 2023	Self-employed taxes due for individuals and spouses or partners
June 15, 2023	Second 2023 tax instalment due
September 15, 2023	Third 2023 tax instalment due
December 15, 2023	Final 2023 tax instalment due

GST/HST for annual Dec 31 filer
April 30, 2023	Payment due date
June 15, 2023	Filing deadline
April 30, 2023	First 2023 GST/HST instalment due
July 31, 2023	Second 2023 GST/HST instalment due
October 31, 2023	Third 2023 GST/HST instalment due
January 31, 2024	Final 2023 GST/HST instalment due

Common business expenses

From time to time, I get calls from small business owners with the question; Harv what am I allowed to deduct for my business? A simple mantra I keep is that an expense that relates to your business generating revenue will generally be deductible.

Depending on the type of business you operate, typical expenses are:

Rent, repairs, and utilities paid where you operate your business. If you own the building, you can deduct mortgage interest paid if any;
Telephone – You can deduct costs related to business use of cell phones;
Membership dues;
Advertising paid to promote your business including google and social media ad campaigns;
Business Insurance for general liability and building;
Office supplies such as paper, toner, notepad, etc;
Automobile expenses – Business-related travel is deductible only. Going to and from your place of business and your primary residence is not considered business travel;
Meals and entertainment – Although you incur 100% of the expense, CRA only allows a 50% deduction on amounts that are reasonable. Note, these expenses should relate to business-related lunches and dinners;
Fees paid to accountants, lawyers, bookkeepers, or other professionals – Legal fees incurred when you purchase a capital property are not deductible;
Salaries and subcontractor fees paid;
Interest on money borrowed to fund business operations is also deductible, however, it is always prudent to keep a clear trail of where the funds came from and the amount of interest paid.