Monthly Archives: July 2013

global

G20 tackles multinational tax evasion – the world’s tax controversy

If you’ve been reading our tax blog, you’ll remember that we posted about Apple Inc.’s tax controversy and drew your attention to a couple of the potential charges they were having to defend to the CRA. If you recall, the big issue was about their tax strategy and the way they were conducting certain parts of their business overseas in order to pay less tax.

They’re obviously not the only ones who saw an opportunity to save some money overseas and took it, but with Apple’s tax controversy bringing these multinationals into the spotlight, public anger has been brewing. Last week’s G20 Finance Ministers and Central Bank Governors’ meeting in Moscow responded to these companies by vowing to make it more difficult to spread their profits offshore.

Multinationals are forced to pay more taxes

Angela Charlton reported for Global News about the G20 meeting and put a special focus on ambiguous tax laws for online economy.

“Stashing profits offshore may soon get tougher for companies, thanks to an ambitious plan released Friday by the finance chiefs of leading world economies aimed at forcing multinationals to pay more taxes.

Low tax payments by major global companies — including Google, Amazon, Facebook and Starbucks — have sparked public anger in Europe recently, as governments are struggling with high debts, low growth and austerity measures that are hitting ordinary taxpayers.

‘National tax laws have not kept pace with the globalization of corporations and the digital economy, leaving gaps that can be exploited by multinational corporations to artificially reduce their taxes,’ the Organization for Economic Cooperation and Development said in announcing the new tax plan Friday. It was unveiled at a meeting of the Group of 20 finance ministers in Moscow.

The Paris-based OECD says that the new 15-point plan includes ways to close loopholes and allow countries to tax profits held in offshore subsidiaries. If it is adopted, the measures would be implemented over the next two years and target such practices as deducting the same expense more than once, in more than one country.

The plan also has a special focus on the online economy, where commerce flows across borders constantly and it’s harder to tie revenue and profit to a single country.

U.S. Treasury Secretary Jacob Lew hailed the plan as a ‘major step toward addressing tax avoidance by multinational firms.’ In a statement out of Washington, he said, ‘We must address the persistent issue of ‘stateless income,’ which undermines confidence in our tax system at all levels.’

The plan’s designers insist it isn’t anti-business, and is in part aimed at making things more consistent for companies and governments.” Read the entire Global article here.

If you’re interested in reading more about the G20 meeting, check out Finance Canada’s release!

 

 

test tube science

SR&ED: Cash in on research and development!

Canada is known around the world as one of the biggest supporters of Scientific Research and Experimental Development, primarily through it’s SR&ED tax incentive program. Every year, the SR&ED program hands over $4 billion worth of investment tax credits (ITC) to over 18,000 Canadian corporations, sole proprietorships, partnerships and trusts.

That’s a lot of money up for grabs!

The point of the SR&ED program is to encourage Canadian businesses to pour their efforts into scientific and technological advancement in order to move their business forward which, in turn, helps Canada become a leader in these industries.

A Quick history lesson

The idea of the government providing support for research goes way back to the 1940s, when the federal government first introduced tax deductions for research and development. Since then, the SR&ED program has helped to fund countless projects, continually uncovering new information by way of scientific research and experimental development.

So, how does the SR&ED program work?

The SR&ED program gives tax credits to Canadian businesses that are performing research to uncover new information.

“Any business that is involved in basic or applied research, or in advancing technology in order to improve or develop new materials, devices, products or processes may be eligible under the SR&ED program.” (CRA)

Full descriptions of basic research, applied research, and experimental development, can be found on the CRA website.

The Canadian government then provides refundable tax credits for a certain percentage of eligible expenses from this research and development.

How much money are we talking about?

Canadian-controlled private corporations can receive a tax credit for 35% of their qualifying expenditures up to the first $3 million. After that, they receive 20%. If you’re another kind of Canadian corporation, proprietorship, partnership or trust, you can receive 20% back.

Refundable tax credit

Unlike some tax credits, the SR&ED program is refundable, which means that if your business ends up without a profit, you can get a cash refund for your research efforts.

How do I apply?

The SR&ED program’s major draw is that it doesn’t require approval before the research and development can begin. If your expenses qualify and your research meets the requirements, you can claim this tax credit when you file your taxes.

Don’t go at it alone!

If you have any questions about the SR&ED program, we highly recommend that you obtain the services of a tax specialist. The forms and guidelines are quite detailed and require some knowledge of the program to complete. Many people hold off on their research and development until they speak with a tax specialist to determine whether the expenses they are planning to incur will fall under the SR&ED category.

As always, we’re happy to help with the SR&ED program or with any other tax services you may need. AP Tax Group is a full service Toronto based accounting firm specializing in US and Canadian tax.

mountain climber

Is your hobby a business?

A common question we receive is: Can I claim business expenses for my hobby?

While it’s tempting to call your hobby a business because of all of those great business expense tax write-offs, the process is a little trickier than simply filing certain tax forms.

Why does it matter?

The main benefit of considering your hobby as a for-profit-endeavour is that the CRA will allow you to claim business-related expenses and if these expenses are more than your business income, you can claim a loss. Anything from your mortgage to your car insurance might qualify as a business expense and a loss can reduce the taxes you pay from other income sources.

Proving Your Hobby is a Business

Because of this potential tax advantage, people try to push their luck and call their personal hobby a business to get a tax break, but never intend to actually make a profit.

You can probably guess that the CRA doesn’t look too kindly on this.

4 Things the CRA might look at to determine for-profit status:

  1. Your past profit and loss experience – Losses will attract attention, as most businesses claiming a loss for more than two years would probably shut down or make serious changes. The CRA will be looking at your past claims to determine whether or not you’re trying to use your hobby just to get a tax break.
  2. Your training or expertise – If you say that you’re starting a business that requires a certain certificate or level of education, the CRA might want to see that you’ve completed this training.
  3. How you’re planning to succeed – Many businesses experience losses, especially when they are in the building stages. This is completely fine as long as the CRA can see what you’re planning to do to make a profit – your intended course of action.
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  4. Whether expecting a profit is reasonable – As we mentioned before, a business claiming multiple years of losses is a red flag. The CRA needs to see that your business has the potential to make money. In other words, if you’re saying that you are renting properties, but never charging enough rent to cover your costs, you might have a problem.

Currently, we are seeing a huge rise in entrepreneurship, as many people want to create their own jobs out of their existing passions. This is great for many reasons, but we want to ensure that you’re covered for tax time.

Our number one tip for people turning their hobby into a business is to keep spectacular records. When your hobbies make money, you need to start treating them like a business and reap the rewards of all of the deductions that can come along with them!

If you need any help determining whether or not your hobby can be classified as a business, contact us. For Americans living in Canada, there are extra IRS considerations when filing your taxes as a business. We specialize both US and Canadian taxes and would be happy to assist you.