Blog Archives

Changes to the Canada Business Corporations Act

Changes to the Canada Business Corporation Act received Royal Assent on December 13, 2018.  These changes include a requirement for all corporations to maintain a register of individuals who have significant control over the corporation.  Corporations should ensure that they are compliant on or before June 13, 2019.

For more information on this new requirement please go to minute/second 8:49 in the January 2019 edition of “Life in the Tax Lane” by Video Tax News:  https://www.videotax.com/life-in-the-tax-lane/

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Canada Announces Enhanced Capital Cost Allowances

On November 21, 2018 the Minister of Finance, Bill Morneau, released the Fall Economic Statement.

This Statement included the Accelerated Investment Incentivewhich outlined a number of tax changes relating to the capital cost allowance (CCA) system (amortization of assets that may be claimed for income tax purposes).

The Accelerated Investment Incentive was introduced to allow business in Canada to deduct the cost of their investments more quickly – and therefore increasing the attractiveness of making capital investments to improve a business’ efficiency and/or to expand a business’ operations.  The intention of the Accelerated Investment Incentive is to enhance the ability of businesses in Canada to compete internationally and is a reaction to the U.S. Government’s Tax Cuts and Jobs Act of 2017.

Significant change #1 – First-year capital cost allowance

Prior to November 21, 2018, only one-half of the allowable CCA could be claimed in most asset classes in the year of acquisition. This was commonly known as the half-year rule.

From November 21, 2018 to December 31, 2023, the allowable CCA is in the year of acquisition is three times the ‘prior to November 21, 2018 rate’.

January 1, 2024 to December 31, 2027, the half-year rule does not apply in the year of acquisition.

January 1, 2028 and onward, the half-year rule is again applicable in the year of acquisition.

Please note:

  • For those CCA classes for which the half-year rule does not apply the provisions of the Accelerated Investment Incentive allow for the accelerated depreciation of these CCA classes as well.
  • After the year of acquisition, the CCA rate will return to the normal declining balance rate for the respective asset class.

Example:

Your business purchased $1,000 of equipment and you immediately began using the equipment in the business.  For income tax purposes the equipment is added to CCA class 8.  The depreciation rate of CCA class 8 is 20%.

Prior to November 21, 2018, your business would claim a $100 deduction for tax purposes in the year of acquisition ($1,000 times 20% times ½).

From November 21, 2018 to December 31, 2023, your business would claim a $300 deduction for tax purposes in the year of acquisition ($1,000 times 20% times ½ *3).

January 1, 2024 to December 31, 2027, your business would claim a $200 deduction for tax purposes in the year of acquisition ($1,000 times 20%).

January 1, 2028 and onward, your business would claim a $100 deduction for tax purposes in the year of acquisition ($1,000 times 20% times ½).

Significant change #2 – Manufacturing and processing machinery and equipment

From 2016 to November 21, 2018, a previous Ministry of Finance incentive allowed for the addition of manufacturing and processing machinery and equipment to be added to class 53 with an amortization rate of 50% per year on a declining balance basis and with the half-year rule applying in year of acquisition.

Under the Accelerated Investment Incentive:

From November 21, 2018 to December 31, 2023, the allowable CCA is in the year of acquisition is 100%.  The half-year rule does not apply.  Therefore, this allows for a full deduction in the year of acquisition.

2024 and 2025 calendar years, the allowable CCA in the year of acquisition is 75%.  The half-year rule does not apply.  For the remaining years this addition is depreciated at a rate of 50% per year on a declining balance basis in class 53.

2026 and 2027 calendar years, the allowable CCA in the year of acquisition is 55%.  The half-year rule does not apply.  For the remaining years this addition is depreciated at a rate of 30% per year on a declining balance basis in class 43.

2028 onward calendar years, the allowable CCA in the year of acquisition is 15% – as the half-year rule is reintroduced.  For the remaining years this addition is depreciated at a rate of 30% per year on a declining balance basis in class 43.

Please note:  Income Tax Folio S4-F15-C1, Manufacturing and Processing, includes the following discussion of the activities that constitute manufacturing and processing:

1.2 It may be said, however, that the manufacture of goods normally involves the creation of something (for example, making or assembling machines, clothing, soup) or the shaping, stamping, or forming of an object out of something (for example, making steel rails, wire nails, rubber balls, wood moulding). On the other hand, processing of goods usually refers to a technique of preparation, handling, or other activity designed to effect a physical or chemical change in an article or substance, other than natural growth. Examples of such activities are galvanizing iron, creosoting fence posts, dyeing cloth, dehydrating foods, and homogenizing and pasteurizing dairy products.

1.3 In Tenneco Canada Inc. v The Queen, [1991] 1 CTC 323, 91 DTC 5207, the Federal Court of Appeal indicated that the two tests for determining whether a taxpayer is engaged in processing are:

  • whether there is a change in the form, appearance, or other characteristics of the goods subject to the operation; and
  • whether the product becomes more marketable.

1.4 The activities of breaking bulk and repackaging for subsequent resale where there is a systematic procedure to make a product more marketable are generally considered to be processing. However, the filling of orders from bulk inventories is not viewed as processing where the activities involved are nothing more than counting or measuring and packaging.”

Canadian Industry Statistics: How do I Compare?

The Government of Canada provides analysis and detailed information on economic indicators using the most recent data from Statistics Canada on the website, www.ic.gc.ca/eic/site/sis-sic.nsf/eng/home.  This website can help small to medium sized businesses understand the dynamics of their industries.  Users can focus on a single industry over time or compare one industry against another.

Data is segregated based on the North American Industry Classification System (NAICS) code.  Within each specific NAICS code is detailed financial performance data.  Such data includes, for example, average gross margins, detailed breakdowns of expenses (e.g. repairs and maintenance, labour, professional and business fees) as a percentage of revenues, and certain financial ratios (e.g. current ratio, return on total assets).

Consider using this site to compare your costs as a percentage of revenues to other Canadian companies in your industry.

*** As published in the 2016 Fourth Quarter edition of Tax, Tips & Traps***

Disruption of Vancity banking services

Vancity business and personal account holders will experience significant service disruptions beginning 5pm on November 9, 2016 and continuing until mid-day on November 14, 2016.
It appears that you will not be able to:
– use online, mobile or telephone banking services,
– do any in branch transactions including sending or receiving wire transfers,
– make bill payments including CRA remittances,
– transfer funds using interac etransfers.
Business accounts linked with QuickBooks Online will need to be relinked with the software as all accounts will have new account numbers.  Please edit the sign in information in QuickBooks Online with the new account number when it has been assigned.
Vancity has or will be mailing a “banking system upgrade business guidebook” to its business clients.  This guidebook provides more information on the services effected.  For more information please visit Vancity’s website or your local branch.

Making your CRA payments

Making your Canada Revenue Agency (CRA) payments online is convenient and easy.  Payments may be made by: online banking, debit card or credit card.

Visit: Canada.ca/payments for more information.CRA online payments second