2011 Automobile Deduction Limits and Expense Benefit Rates for Business

The automobile expense deduction limits and the prescribed rates for the automobile operating expense benefit will remain unchanged for 2011. Specifically:

  • The ceiling on the capital cost of passenger vehicles for capital cost allowance (CCA) purposes will remain at $30,000 (plus applicable federal and provincial sales taxes) for purchases after 2010. This ceiling restricts the cost of a vehicle on which CCA may be claimed for business purposes.
  • The maximum allowable interest deduction for amounts borrowed to purchase an automobile will remain at $300 per month for loans related to vehicles acquired after 2010.
  • The limit on deductible leasing costs will remain at $800 per month (plus applicable federal and provincial sales taxes) for leases entered into after 2010. This limit is one of two restrictions on the deduction of automobile lease payments. A separate restriction prorates deductible lease costs where the value of the vehicle exceeds the capital cost ceiling.
  • The limit on the deduction of tax-exempt allowances paid by employers to employees using their personal vehicle for business purposes for 2011 will remain at 52 cents per kilometre for the first 5,000 kilometres driven and 46 cents for each additional kilometre. For Yukon, the Northwest Territories and Nunavut, the tax-exempt allowance will remain at 56 cents for the first 5,000 kilometres driven and 50 cents for each additional kilometre.
  • The general prescribed rate used to determine the taxable benefit relating to the personal portion of automobile operating expenses paid by employers for 2011 will remain at 24 cents per kilometre. For taxpayers employed principally in selling or leasing automobiles, the prescribed rate will remain at 21 cents per kilometre. The additional benefit of having an employer-provided vehicle available for personal use (i.e., the automobile standby charge) is calculated separately and is also included in the employee’s income.

Employment Insurance 2011

 

Employment Insurance (EI) premiums will be increasing in 2011.  The maximum insurable earnings for 2011, applicable to all provinces and territories, will be $44,200 – up from $43,200 in 2010. The employee’s premium rate will be 1.78% for a maximum annual premium of $786.76 ($747.36 for 2010) for the country except for Quebec and 1.41% for a maximum annual premium of $623.22 for Quebec ($587.52 for 2010). Contributions for employers will remain at 1.4 times the amount of the employee’s premiums, for all provinces and territories, unless the employer qualifies for a reduced rate.

If it’s too good to be true….

Canada Revenue Agency issued the following warning to  taxpayers about donations to a gifting tax shelter.  For more information check out the following link:

http://www.cra-arc.gc.ca/nwsrm/lrts/2010/l101223-eng.html?=eml20101223

Warning: If you donate to a gifting tax shelter, expect to be audited

Each year, Canadian taxpayers participate in gifting arrangements that result in donation receipts worth three or four times the actual amount donated by the taxpayer. The Canada Revenue Agency (CRA) continues to warn Canadians against these gifting arrangements and audits those who participate.

To date, the CRA has denied over $4.5 billion in tax shelter gifting arrangement donations and reassessed over 130,000 taxpayers who have made donation claims through a gifting scheme.

For most claims, the CRA has denied the gift entirely. The CRA audits gifting arrangement tax shelters that provide donation receipts three or four times the out-of-pocket cost.

Decisions in recent court cases have concluded that the “donation” made by the taxpayer was not a gift or, where it was a gift, the amount did not exceed the out-of-pocket cost to the taxpayer. In the Maréchaux case, the Federal Court of Appeal upheld the Tax Court of Canada (TCC) decision that there was no gift given as a result of the defendant’s participation in a leveraged cash donation scheme. In the Lockie case, the TCC concluded that the gift in a buy-low-donate-high scheme was the amount paid by the taxpayer.

Tax shelter identification numbers

The CRA reminds taxpayers that tax shelter numbers are used for identification purposes only. Just because a tax shelter has an identification number does not mean that donations made to it will result in tax benefits.

Eligibility for the Disability Tax Credit and Registered Disability Savings Plan

On November 25th, 2010 the Honourable Jim Flaherty, Minister of Finance made the following statement,

“The Tax Court of Canada has recently held that existing income tax law would not allow an individual to appeal a determination concerning an individual’s eligibility for the Disability Tax Credit unless that determination affected the individual’s tax payable. As a result, individuals whose income is too low to pay tax are effectively barred from establishing an RDSP where their eligibility for the Disability Tax Credit has not been accepted by the Canada Revenue Agency. 

“Procedural issues of this nature should not be an impediment for individuals who wish to establish their right to the Disability Tax Credit and, as a result, also their right to open an RDSP. 

“To promote the fair and equitable treatment of Canadians, I intend to introduce legislative amendments at the earliest opportunity so that individuals can, in every case, appeal a determination concerning their eligibility for the Disability Tax Credit.”

It’s Harsh and Unfair but it’s the Law

Validating Supplier HST Registration Numbers

The outcome of a recent court case involving Computronic Computer Inc. [Comtronic Computer Inc. v. The Queen (2010 TCC 55)] serves as an important reminder that businesses should always validate the GST/ HST registration numbers of their suppliers in order  to prevent the disallowance of ITCs or input tax refunds based on invalid registration numbers.

 Computronic operated a wholesale computer parts and computer assembly business.  The invoices from the suppliers had valid GST numbers, but the numbers belonged to third parties that did not appear on the invoice.  The Tax Court of Canada was compelled to follow the strict position taken by the Federal Court of Appeal in another case [Systematix Technology Consultants Inc. v. Canada (2007 FCA 226)] with the result that it disallowed the input tax credit even though the purchaser paid the GST in good faith.

Section 164 of the Excise Tax Act requires a purchaser to substantiate its input tax credit (ITC) claim by obtaining from the suppler the information prescribed in the Input Tax Credit Information (HST/GST) Regulations, including the name of the supplier and the GST registration number assigned to it.

 Clearly this is a harsh and unfair application of the law.  Nevertheless, it is the law.

 The upshot of all this is that businesses need to establish procedures to manage the risk related to GST/HST.  The registration numbers of  suppliers need to be verified when set up and on an ongoing basis.  Supplier invoices with GST/HST over a certain dollar figure should be verified on an individual basis.

CRA has set up an on-line GST/HST Registry  where business can validate the GST/HST number of a suppliers: http://www.cra-arc.gc.ca/esrvc-srvce/tx/bsnss/gsthstrgstry/menu-eng.html

 [This information is from the September 2010 edition of  "Tax Matters @EY'   http://www.ey.com/CA/en/Services/Tax/TaxMatters-Sept-2010  and from the July 2010 edition of  "Tax for the Owner -Manager"  Volume 10, Number 3 published by the Canadian Tax Foundation.]

Taxing the HST transition support payment for small business

Another sign that the government gives with one hand and takes with the other

I read the following at www.thehstblog.com:

A number of readers of the HST Blog have asked whether the Ontario HST Transition Support Payment for Small Businesses is subject to income tax. The answer is “yes” – sorry to be the bearer of bad news.  I was informed a number of months ago by a representative of the federal Department of Finance that the payment is subject to income tax and that the Ontario negotiators were/are aware of this interpretation.

So, please make sure that you make a record of the payment for 2010 income tax calculation purposes.  The reality is that th tax authorities will know about the payment to you – so, please do not forget it (even if it is really small).

Canada Pension Plan 2011

Canada Revenue Agency announces maximum pensionable earnings for 2011

The maximum pensionable earnings under the Canada Pension Plan (CPP) for 2011 will be $48,300—up from $47,200 in 2010. 

Contributors who earn more than $48,300 in 2011 are not required or permitted to make additional contributions to the CPP.

The basic exemption amount for 2011 remains $3,500. Individuals who earn less than that amount do not have to contribute to the CPP.

The employee and employer contribution rates for 2011 will remain unchanged at 4.95%, and the self-employed contribution rate will remain unchanged at 9.9%.

The maximum employer and employee contribution to the plan for 2011 will be $2,217.60, and the maximum self‑employed contribution will be $4,435.20. The maximums in 2010 were $2,163.15 and $4,326.30.


Attention Shoppers – For a Limited Time … Computers – 100% Write off

The CCA rate for computer equipment (including systems software) acquired after January 27, 2009, and before February 2011 was increased from 55% to 100% with no half-year rule. As a result, a full write-off can be claimed in the first tax year that CCA deductions are available.

To be eligible, the computer equipment purchased must be new and situated in Canada, and it must be used in a business carried on in Canada or used to earn income from property situated in Canada.

For more information on this and other tax relief measures go to cra.gc.ca/taxcuts.

 

The Snowball: Warren Buffet

Buffet

I recently read  “The Snowball: Warren Buffet and the business of life.”  It is an 838 page biography, along with another 91 pages of endnotes, of Warren Buffet – “the Oracle of Omaha.” 

In the event you have never heard of Warren Buffet his significance is that he started with nothing and went on to become the world’s wealthiest individual [worth over $60 billion] by investing in the stock market. 

The book is not only a biography on his life, but it is also, as would be expected, filled with the pearls of investing wisdom – foundational and inviolable principles that guided Buffett throughout his life. 

And there is one piece of advice that struck me as particularly profound that I would like to leave with you.  Its weight and significance comes from the fact that it is found on page 761 of an 838 page book – in the the 73rd year of his life.  Warren Buffett is addressing a group of students at Georgia Tech.   He was asked what had been his greatest success and greatest failure.  Here is his response:

“Basically, when you get to my age, you’ll really measure your success in life by how many of the people you want to have love you actually love you.

“I know people who have a lot of money, and they get testimonial dinners and they get hospital wings named after them.  But the truth is that nobody in the world loves them.  If you get to my age in life and nobody thinks well of you, I don’t care how big your bank account is, your life is a disaster. 

“That’s the ultimate test of how you have lived your life.  The trouble with love is that you can’t buy it.  You can buy sex.  You can buy testimonial dinners.  You can buy pamphlets that say how wonderful you are.  But the only way to get love is to be lovable.  It’s very irritating if you have a lot of money.  You’d like to think you could write a check: I’ll buy a million dollars’ worth of love.  But it doesn’t work that way.  The more you give love away, the more you get.” 

 

Property of Marino Vereecke Professional Corporation, CA