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On April 16th, 2024, the 2024 federal budget proposed to increase the capital gains inclusion rate from 50% to 66.67% for corporations and trusts and from 50% to 66.67% on capital gains in excess of $250,000 for individuals beginning on June 25th, 2024. (Chapter 8: Tax Fairness for Every Generation | Budget 2024, 2024).
A capital gain can occur through the disposition of capital property. The Government of Canada website defines capital property as “Depreciable property, and any property, which, if sold, would result in a capital gain or a capital loss. You usually buy it for investment purposes or to earn income. Capital property does not include the trading assets of a business, such as inventory” (Capital Gains – 2023, 2024). Some common examples of capital property are land, buildings, vehicles, equipment used for rental operations or business purposes, and second homes such as vacation properties or cottages.
A capital gain occurs when the proceeds received from the disposition of the disposed asset are greater than the adjusted cost base (cost of the asset plus any expenses incurred to acquire it). A capital gain is calculated by taking the proceeds of disposition less the assets adjusted cost base and any expenses that were incurred to sell the property.
At this time, the inclusion rate is 50%, meaning that only 50% of any capital gain is taxable to an individual, corporation or trust.
Prior to June 25, 2024, only 50% of a capital gain is included when calculating the corporation or trust’s net income for tax purposes. The 2024 budget proposes that as of June 25th, 2024, 66.67% of the capital gain will be included when calculating your net income effectively resulting in a higher taxable income and higher taxes on the sale of capital property. For example, if a corporation sold land that had originally cost the corporation $200,000 for $300,000, with the 50% inclusion rate, only $50,000 of this amount would be taxable (($300,000-$200,000)*50%). With the new proposed inclusion rate of 66.67%, $66,670 of the capital gain will be taxable.
For individuals, as of June 25th, 2024, the current 50% inclusion rate will increase to 66.67% for any capital gain in the year that exceeds the limit of $250,000. This means that if your capital gains realized in the year are under the $250,000 limit, the 50% inclusion rate will still apply; but for any amount over $250,000, the 66.67% inclusion rate applies. The legislation does not allow for the averaging of capital gains over multiple years to stay under the $250,000 threshold or any carry-over of any unused threshold.
It is important to note that, the principal residence exemption remains unchanged, meaning that capital gains that arise when selling your principal residence, such as your house, remain exempt from tax and are unchanged.
For individuals, common examples where capital gains could apply are the sale of a second house such as a cottage or rental property, vehicles, and investments.
With the proposed change to the capital gains inclusion rate for all capital gains realized after June 24th, 2024, from 50% to 66.67% for corporations and for capital gains over $250,000 for individuals, we recommend reviewing your investments to determine if you have any unrealized gains. For most individuals, it will be important to manage these gains from year to year to ensure that you can keep them under $250,000 to avoid additional tax. But for corporations and trusts with accrued unrealized capital gains, it may be prudent to speak with your investment broker and tax advisors to determine if triggering some of these gains before June 25, 2024, to minimize the impact on your taxes on the eventual sale makes sense for you.
Note that there is no provision at this time for a deemed disposition election to trigger gains before the new rate applies. The actual disposition must occur.
Capital gains reserves will enter into income on the first day of the taxation year, meaning those starting before June 25, 2024, will be subject to the 50% inclusion rate. Later years will follow the prevailing rate of 66.67%. If you have a capital gains reserve that you are bringing into income, it will be important for you to discuss with your tax advisor the implications of continuing it going forward or realizing the remaining amount in 2024.
Under current rules, if you receive a stock option benefit, the full amount of that benefit is taxed as employment income in the year it is received; however, the employee may claim a deduction of 1/2 the stock option benefits if they meet certain conditions. Under the proposed changes, the stock option deduction will change from 1/2 to only 1/3 of the stock option benefit for any options exercised after June 24, 2024, with the $250,000 limit applied to the combined total of stock option benefits and capital gains.
When a taxpayer incurs a business investment loss from the disposition of shares or debts from a small business corporation or the deemed disposition of bad debts or shares of a bankrupt small business corporation, they have been able, under the current rule, to deduct 50% of that loss against other income (such as employment, business and property income) and carry it back 3 years or forward 10 years. Beginning June 25, 2024, ABILs will be deductible at 66.67% even if the amount is carried back to a period prior to June 25, 2024.
For 2024, the tax year will be split into two periods for applying different inclusion rates:
Taxpayers will need to net capital gains against capital losses for each period to determine the applicable inclusion rates.
If you would like us to review your investment portfolio or if you have further questions regarding the capital gains inclusion rate changes, please contact our office.
*The information contained in this post reflects the proposed change at the date posted and may or may not be relevant at future dates
Capital Gains – 2023. (2024, January 23). Canada.ca. Retrieved June 7, 2024, from https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4037/capital-gains.html
Chapter 8: Tax Fairness for Every Generation | Budget 2024. (2024, April 16). Canada.ca. Retrieved June 7, 2024, from https://budget.canada.ca/2024/report-rapport/chap8-en.html
How do you calculate capital gains and capital losses? (2024, January 23). Retrieved June 7, 2024, from https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-12700-capital-gains/completing-schedule-3/publicly-traded-shares-mutual-fund-units-deferral-eligible-small
Tax Fairness for Every Generation. (2024, April 16). Canada.ca. Retrieved June 7, 2024, from https://www.canada.ca/en/department-finance/news/2024/04/tax-fairness-for-every-generation.html
In our experience as an accounting firm based in Alberta, we have noticed that many of our clients are not fully aware that they can claim the provincial portion of the Harmonized Sales Tax (HST) as an Input Tax Credit (ITC) when HST is paid on goods.
This lack of awareness can lead to missed opportunities, especially when dealing with transactions involving provinces where HST is applicable. Understanding these nuances is crucial for businesses in Alberta to ensure that all GST/HST Input Tax Credits are claimed appropriately.
It is important note that HST and Provincial Sales Tax (PST) are not the same. The HST merges the federal Goods and Services Tax (GST) with PST, applied in provinces like Ontario and Nova Scotia, and administered federally by the Canada Revenue Agency (CRA). Conversely, the PST, separate from GST and known as QST in Quebec, is levied in provinces like British Columbia and Saskatchewan, with each province setting its rates and handling its administration. The primary difference lies in HST’s amalgamation and federal oversight, contrasting with PST’s independent provincial management.
Firstly, it’s important to know which provinces charge HST and their respective rates. As of now, the following provinces have HST:
| Province | HST Rate |
| New Brunswick | 15% |
| Newfoundland and Labrador | 15% |
| Nova Scotia | 15% |
| Ontario | 13% |
| Prince Edward Island | 15% |
For businesses in Alberta (which typically have GST at 5%) the tax implications can be complex, especially when transactions involve provinces that do.
A common scenario to consider is when goods are purchased from an HST province (New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, or Prince Edward Island) and delivered to Alberta. This situation should prompt a review of the source documentation to determine if HST (and not just GST) was paid on the invoice.
What type of sales tax (GST or HST) is charged is determined generally by the place of supply. The place of supply is determined on where legal delivery of the goods occur. When legal delivery of the good occurs is typically outlined in the terms of the agreement for the sale of goods.
A manufacturer in Ontario sells a good to a corporation in Alberta. Legal delivery of the good occurs in Ontario at the manufacturer’s premises as per the terms of the sales agreement. The corporation regularly purchases goods from the manufacturer and establishes freight terms with a common carrier for the regular transportation of goods from the manufacturer’s premises to Alberta whenever required. The corporation instructs the manufacturer to contact the carrier directly to advise the carrier whenever goods are ready for pick-up. The carrier invoices the corporation for any transportation service that is provided pursuant to their arrangement.
The good is delivered to the purchaser in Ontario. Therefore, the supply is made in Ontario and is subject to HST at a rate of 13% all of which can be claimed as an ITC.
A corporation in Ontario sells a good to a purchaser in Alberta. Based on the terms of delivery in the agreement for the supply of the good, legal delivery of the good to the purchaser occurs in Alberta.
Because legal delivery of the good to the purchaser occurs in Alberta, the supply is made in Alberta and is subject to GST at a rate of 5%.
*Note – the above place of supply rules do NOT apply to specified motor vehicles. Specified motor vehicles are generally all motor vehicles except racing cars and any prescribed motor vehicles.
For specified motor vehicles, the place of supply is determined by where the vehicle was registered (other than on a temporary basis).
If HST is paid by a registrant business or individual in Alberta and it was incurred for commercial goods used in a commercial sense, then the HST (including the provincial portion) can be claimed as an Input Tax Credit (ITC). This is a significant aspect for businesses as it allows for the recovery of HST paid on business-related purchases.
-Always review source documentation for transactions involving provinces with HST to determine tax implications.
-Generally, where the good is legally delivered is the place of supply and that is the relevant GST/HST tax rate that should be used.
-If you are a GST/HST registrant and have paid HST on a business-related item you can claim the full amount of HST (including the provincial portion) on your GST return.
For any further questions or clarifications, please contact our office at 780-532-4641 or e-mail office@fulcrumgroup.ca
As a shareholder of your corporation, your shareholder’s loan is an important account that indicates how much the company owes to you or how much you owe to the company. It is important to know how the shareholder’s loan works and how it can affect your personal taxes. You should ensure that you are aware of what transactions impact your shareholder’s loan balance and where the balance is at the end of every year.
When an owner takes cash out of the company, it is considered to be an owner withdrawal and is money that is owed back to the company if not repaid. If, as a shareholder, you use company funds to make a personal purchase, the purchase price is considered a withdrawal of company funds for personal use and is also owed back to the company.
Sometimes the company will not have enough cash to operate. If this is the case, the shareholder may lend money to the company. These amounts are owed back to the shareholder and can be repaid at any time. There are no personal tax consequences to repaying them. The contributions can also offset any personal withdrawals of company funds. If, as a shareholder, you were to contribute or sell equipment to the company without receiving any reimbursement directly, it would also be considered a contribution.
If at the end of your fiscal year, your shareholder’s loan is overdrawn, the overdrawn amount must be repaid by the end of the following year. If you intend to repay the overdrawn amount by the end of the following year, no additional steps may be necessary. Alternatively, if you choose not to or are unable to repay the overdrawn amount, a dividend can be issued to clear up the shareholder’s loan balance. These dividends are reported on a T5 slip and are included as taxable income on your personal tax return in the year they are declared.
If the overdrawn shareholder’s loan is not repaid by the end of the following year and dividends are not recorded, CRA could consider this to be personal income and require an adjustment to your personal tax return for the year in which the amount became overdrawn. If, in later years, you repay any portion of the overdrawn amount, you can record a deduction equal to the amount repaid to offset your income in that year. This scenario can often result in significant tax in the year of income inclusion and include additional interest and penalties, so it is best to avoid this scenario if possible.
Something to be aware of is that you cannot repay an overdrawn shareholder’s loan at your year-end date and then take the money back out the following day. CRA will consider this to not be repaid and taxation can still occur. For example, if you have a December 31st year-end and repay the overdrawn amount on December 31st but then take it back out again on January 1st, CRA will likely consider it to not have been repaid.
If you feel like you may be running into a shareholder’s loan issue, or would like to learn more about how it works, please contact us to discuss how it may impact you.
Did you know that CRA will be raising its interest rates as of July 1, 2022? Much like the Bank of Canada and most financial institutions, CRA will be increasing it’s prescribed interest rates this coming year.
After holding interest rates steady for several years and even decreasing rates in the third quarter of 2020, CRA will be increasing most prescribed interest rates in the third quarter of 2022 by 1%.
These changes will apply to amounts owing both to and from CRA. Updated rates can be found in the column to the far right below on various types of balances with CRA:
| First quarter (January to March 2022) |
Second quarter
(April to June 2022) |
Third quarter
(July to September 2022) |
|
| Charged on overdue taxes, CPP contributions, EI premiums | 5% | 5% | 6% |
| Paid on corporate taxpayer overpayments | 1% | 1% | 2% |
| Paid on non-corporate taxpayer overpayments | 3% | 3% | 4% |
| Used to calculate employee taxable benefits and shareholder loans | 1% | 1% | 2% |
For more information, contact our office.
Are you considering purchasing a rental property or converting your existing property into a rental property?
You should always have a signed rental agreement in place with your tenants outlining the terms of the lease including but not limited to:
When setting the rental price, consider the additional costs that you may have with the property and who is responsible for these costs (these should all be outlined in the rental/lease agreement discussed above) to ensure that your monthly rent is sufficient to meet your costs. Things to consider include:
Another consideration is whether to require your tenants to get renters insurance and provide proof of insurance to you to ensure all parties are covered in case of any issues
It is important that you keep good records of all income and expenses related to your rental property as you will need these when it comes time to file your taxes in the spring. For tax purposes, any income that you receive from your rental property is considered to be taxable income. You are able to reduce this amount by any eligible expenses that you incur on the property. Expenses include things like:
GST is not required to be recorded on any income or expenses in relation to Residential property rental income. It is required for commercial property rental; however.
Another thing to consider is the treatment of the home before or after it is a rental property.
Every time you change the use of a property, you are considered to have sold the property at its fair market value and have immediately reacquired the property for the same amount. This is could mean a deemed disposition of a principal residence if you had previously lived in the home yourself. If it was your principal residence prior to converting it to a rental, it is possible that you will have no immediate tax consequences, depending on your situation.
If you are considering renting the property out for only a short time and then living in it again at a later date, there is a tax election that can be filed to reduce any tax consequences later. If you find yourself in this scenario, contact our office for more information and steps to take to ensure that you are in the best tax position possible.
Businesses face many challenges, and one of those challenges is keeping company finances up-to-date and accurate. With accurate and up-to-date books, you will know exactly what is going on with your business and this real-time information can help you make better decisions.
Bookkeeping software is a solution that can help keep up-to-date financial records for your business, but there are many options out there and it may be difficult selecting the one that is right for your business.
As a small-business owner, it is crucial to get the most value for the money that is spent. One such software solution that provides this value is Xero coupled with HubDoc.
Xero is cloud-based accounting software accessible on any web browser, at any time which features the following solutions:
This is the part of Xero where you would enter bills that are sent to you for payment. Xero tracks the due dates of these, and reports can be prepared for outstanding bills. You are also able to upload a pdf of the bill and attach it directly to the entry, so it is accessible at any time.
Xero allows you to send professional invoices and quotes to clients with customized logos. You can also integrate applications like Square which feature payment services and are attached directly to the invoice. This ease of use will help you get paid faster. You can also send statements to clients.
Xero allows you to link your bank accounts and credit card accounts directly to the software. This is automatically importing bank transactions into the software. Rules can be set up that will allow you to quickly code these transactions into the books.
Xero allows you to create rules that are applied to bank and credit card transactions that are imported into the software from either the bank feed or manual imports. You can set conditions in the rules which will automatically pick up transactions and assign them to the proper account. This saves a great deal of time as manual data entry is eliminated.
Many different reports can be created to suit your business needs. There are many standard report templates, and each report can be custom-tailored to your needs.
Xero integrates seamlessly with over 1,000 third-party applications through the Xero App Store. These applications tackle many different aspects of business such as scheduling, project management, payroll, payment services, human resources, e-commerce, and many more.
User profiles can be easily set up and set with unique permissions that will allow them to do as much or as little as you want. For instance, you as a business owner would be able to invite a salesperson to just be able to create invoices or set up accounts payable so they can just enter bills.
Xero offers analytics that allows you to better manage the financial health of the business. With the short-term cash flow projection, you can project your bank balance, see the impact of invoices and bills, and know which invoices are the most urgent. Xero also gives you a quick business snapshot that tracks income and expense, trends for different timeframes, and allows you to gain insights from reports.
Xero constantly takes feedback from clients and consistently updates their products based on customer feedback. You will always have access to the most recent version of Xero without the hassle of installing software updates.
One other solution that Xero offers is HubDoc, which is an online cloud-based document storage platform.
HubDoc is a cloud-based document repository that allows you to:
HubDoc can allow you to get rid of that shoebox or banker’s box of documentation and allows you to access any document easily online at any time. HubDoc also attaches receipts directly to Xero transactions, so they are there in case you need them.
Xero and HubDoc are powerful tools that can help businesses prosper by saving time and costs. Fulcrum Group offers services that utilize Xero and HubDoc. We can offer full-cycle bookkeeping services for a fixed price, or help you get set up and offer support along the way.
For more information, please contact our office.
When it comes to closing your business, you want to be sure that you have met all legal requirements and that all information returns have been filed, to avoid any future surprises. Some things to consider include:
Phone: 780-532-4641
Fax: 780-532-4947
Toll Free: 1-800-422-6093
Email: office@fulcrumgroup.ca
#102, 9919 – 99 Avenue
Grande Prairie, AB
T8V 0R6
