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LP NEWSLETTER WINTER pub Powered By Docstoc
					                                                                                                        Member of DFK Canada Inc.
                                                                                                        and DFK International




                                   Winter 2005


                                                !     "          #         $ %        &      ''(            Inside this issue:

If CRA calls, it generally    CRA may send in a                      The goal is to resolve all the         )
means they are either         technical team to extract              issues prior to the CRA
planning a field audit or     your electronic accounting             proposed adjustment letter.
                                                                                                                              *       +
you owe them money.           records prior to starting the          After the letter has been                  ,        -
While CRA may be              field audit. This allows               issued, you can still
considered a partner in       them to prepare prior to               approach the CRA auditor,                      **
                                                                                                                     .            .
everything you do, they are   arriving. CRA has the right            CRA team leader, and/or            /
not calling to take you out   to this data; however, it is           manager.     Generally, tax
                                                                                                        ,
for a “Thank You” lunch!      your responsibility to                 district offices welcome           0                    12 *
                              maintain the prior years’              open,      professional
                              electronic data and software           communication.
                              to access it.
                                                                     If all else fails, the next step
                              CRA will plan out the audit            is to file a Notice of
                              prior to arriving; therefore,          Objection. Then, if that
                              you should ask the auditor             fails, you are off to the tax
                              to provide the known                   courts. Remember, there is
                              questions prior to their               a cost/benefit to everything
                              arrival, so you can be                 before you move to the next
                              prepared in advance.                   level.

                              You are required to answer             So, what do you do when
Many of our clients contact   the questions. However, if             CRA calls? Tell them to
us immediately after CRA      you are uncertain, you                 call LEVY PILOTTE!
calls, and we manage the      should indicate that you will
CRA audit for them,           get back to them. Don’t
including scheduling the      v o l u n t e er a n y e x t r a
field audit, providing CRA    information. You can ask
with the accounting           CRA for their audit working
records, and answering        papers at the end of the
their questions. You have     audit, so they can be
the right to schedule the     reviewed to ensure the
CRA visit at a convenient     information was interpreted                                                       Special points of
time for you.                 properly.
                                                                                                                interest:
                                                                                                                • Next personal tax
                                                                                                                  instalments:
                                                                                                                     - March 15, 2005
               ,                                                                 1                                   - June 15, 2005
                                   3          1 $      4               5                                        • 2004 RRSP
                                                                                                                  contribution deadline
                                                                                                                  is March 1st!
Winter 2005                                                                                                          Page 2




                                              $. ,     '      6    " , ,( ( " ( -


                     No matter what business you are in, there are many similar tax audit “hot spots.” Here are the
                     Top Ten:
                     1.   Automobile Expenses
                          No kilometre log book? Depending on the auditor, this means “zero” for some unreasonable
                          business usage. Keep a log book, or at least an appointment diary, to support your claims
                          for at least three years.

                     2.   Automobile Benefits
                          Using that company car for free? CRA will audit your T4 slip to see if you have an
                          automobile taxable benefit.

                     3.   Shareholder Loans
                          If you have not repaid the money you borrowed from your company within one year, CRA
                          will add the balance to your taxable income for the year you borrowed the funds. When you
                          eventually repay it, you will receive a tax deduction. This is a CRA auditor’s “bread and
                          butter.”
9    *       8   1
    **               4.   Meals & Entertainment
                          If you can’t prove why you took someone to dinner, a show, hockey game, etc., CRA will
                          disallow the deduction. So, include this information on all receipts.

                     5.   Employee or Self-employed Contractor?
                          Who cares? CRA does! Why? If the contractor is an employee, you may owe CPP, EI,
                          CNT, and Provincial Health Tax. If you are not sure, go to http://www.cra-arc.gc.ca/E/pub/
                          tg/rc4110/rc4110ed.html. If you are still unsure, call us.

                     6.   Related-Party Transfer Pricing
                          Costs charged to related companies or individuals must be reasonable. CRA will review
                          inter-corporate management fees, salaries paid to family members, etc.

                     7.   Travel Expenses
                          CRA could question you on why you went South on business. Make sure you document
                          your reasons for travel at the time.

                     8.   Foreign Reporting
                          The Department of Finance created complex foreign reporting rules, including transfer
                          pricing, controlled foreign affiliates, foreign affiliates, foreign trusts, or large foreign
                          investments over $100,000 Cdn. CRA is enforcing the rules and imposing high penalties for
                          non-compliance.

                     9.   Interest Expense
             7            Can the funds borrowed be traced to business or investment purposes? Make sure you have a
                          proper audit trail.
(        8
                     10. Personal Expenses
                          CRA will look for personal items in business expenses. Don’t try to write off that video
                          projector you bought for your home theatre!
Winter 2005                                                                                                    Page 3




     '$    . . ',       ,    0                .     (,        .'       /      0, ( % . . &


                             Factors to consider before            (http://www.sdc.gc.ca/en/
                             deciding to collect CPP               isp/cpp/soc/proceed.shtml).
                             before 65:
                                                                   Shared Benefits
                             a)   Life Expectancy—The
                                  shorter yo ur life               If your spouse has a lower
                                  expectancy (e.g., due to         taxable income, consider
                                  terminal illness, etc.),         sharing your benefits with
Should I collect my CPP           the more beneficial it           them. The net result would
before 65? The answers to         would be to collect CPP          be lower tax on your CPP
many such questions can           prior to age 65.                 benefits.
be found on the Social
Develop ment Canad a         b) Financial Requirements             To share the CPP, both
(SDC) web site (http://         — Do you really need               spouses must be at least 60
www.sdc.gc.ca/en/isp/cpp/       the money?      If you             years of age. If only one
cpptoc.shtml).                  collect CPP early, your            spouse had contributed to
                                monthly benefit amount             CPP, each spouse would
Who can collect CPP?            would be reduced                   receive a portion of the           +*
                                accordingly.                       contributing spouse’s CPP      8                      8
To collect CPP, you must                                           retirement pension.                            .. *
have reached age 65, or      c)   Do you want to stop                                                             :;
have substantially ceased         paying CPP? — For an             On death, divorce, or 12-
employment. SDC defines           owner-managed                    month separation period, the
“sub stantially ceased            business, it may be              CPP sharing would end, and
employment” as earning            possible to substantially        each spouse would be
less than the current             cease employment for             entitled to his/her pension
monthly maximum CPP               two months. Once you             calculated as though the
retirement       pension          started working again,           benefits were never shared.
payment ($828.75 in 2004)         you would not have to
in the month before your          pay CPP.                         Taking CPP early, or
pension begins and in the                                          sharing your benefits with
month it begins.       For   The amount of your CPP                your spouse, should be
example, if you had wanted   benefit is based on your              reviewed as part of your
your pension to begin in     employment history. You               financial planning.
April 2004, your income      can obtain an estimate of
must have been less than     benefits prior to application
$828.75 in both March and    by filing a CPP Statement of
April.                       Contribution form with
                             SDC




                                                  .. 8
                    8                       *
                                                                                                           -
Winter 2005                                                                                                                                                           Page 4


   , ("                     " , (                                   −  Own Occupation                                 Audits have saved some clients
   0,          , '            9 2" .                                −  Residual/Partial Coverage                      millions of dollars that would have
                                                                    −  Waiting Period                                 been paid at time of death, as well
   Why should one consider completing                               −  Accumulated Days to                            as premium savings for coverage in
   an insurance audit?                                                 Satisfy Waiting Period                         excess of $20,000 annually.
                                                                    − Etc.
   A common problem exists in that after                      •     Determines if your business                       Our experience has demonstrated
   an insurance contract is delivered to                            should be paying for disability                   that an audit provides many values
   clients, they rarely bring it out to                             contracts and deducting the                       to the insured, owner, and
   complete a review.                                               premiums as a business                            beneficiary.
                                                                    expense.
   Here are some of the things that an                        •     Critical Illness policies are
   audit will provide:                                              underwritten by a number of
                                                                    insurers. Unfortunately, there is
   •   A thorough understanding of the                              no standardization of contract
       contractual obligations.                                     definitions (which is essential
   •   Confirms that the coverage you                               for clients’ peace of mind at                            While we understand the
       think that you have is actually in                           claim time), and analyzing                              issues, as accountants, we
       force.                                                       contracts requires the aid of a                        work closely with insurance
   •   Verifies that what is not required                           specialist.                                             professionals who focus on
       has been removed from the                                                                                           business and owner/manager
                                                              •     Verifies if your existing policy
       policy.                                                                                                                   insurance issues.
                                                                    qualifies for a reduction of
   •   Determines if there is a method                              premiums for such changes as:
       whereby the cash value of your                               − Having stopped smoking
       policy can be utilized to pay                                − Elimination of rating due to
       future premiums.                                                improved health
   •   Concludes whether the policy has                             − Personally, no longer
       been properly drawn-up, i.e.,                                   participating in hazardous
       owner, beneficiary, and premium                                 sports.
       payor. A taxable situation could
       be waiting around the corner.                          Who says that you can’t secure
   •   Disability contracts are difficult to                  better premiums for the same
       evaluate; however, the main                            coverage? Healthy clients qualify
       component under contractual                                                                                                        *           8           +
                                                              for “preferred” underwriting at
       obligation is “definitions” :                          reduced premiums.                                                                           )
                                                                                                                                                              8
                                                                                                                                              *                   )     .
                                                                                                                                                          7
    “Levy Pilotte LLP is an accounting firm that fully understands its clients'needs                                         3*               4
    both professionally and personally.                                                                                                           *
    Founded in the 1930s, it has accumulated an impressive amount of expertise
    through growth, as well as the contribution and knowledge of many talented
    chartered accountants from various business and cultural backgrounds.
    Levy Pilotte LLP is present in over 260 offices in 69 countries through its
    affiliation with DFK International.
    Building on its history of high standards, Levy Pilotte LLP remains a dynamic
    firm confidently looking towards the future. It prides itself on its commitment to
    professionalism, integrity and quality of services supplied in a youthful
    environment.
    Levy Pilotte LLP has the knowledge and expertise to assist you in strategically
    planning your future. Our services include auditing and accounting, income tax
    services as well as personal and corporate financial planning.
    It is all these strengths that have made Levy Pilotte LLP one of Québec'top 20
                                                                           s
    chartered accountant firms. “

         THE INFORMATION PROVIDED IN THIS PUBLICATION IS INTENDED FOR GENERAL PURPOSES ONLY. CARE HAS BEEN TAKEN TO ENSURE THE INFORMATION HEREIN IS ACCURATE;
          HOWEVER, NO REPRESENTATION IS MADE AS TO IS INTENDED FOR GENERAL PURPOSES ONLY. CARE HAS BEEN TAKEN TO ENSURE THE INFORMATION HEREIN IS ACCURATE;
        THE INFORMATION PROVIDED IN THIS PUBLICATION THE ACCURACY THEREOF. THE INFORMATION SHOULD NOT BE RELIED UPON TO REPLACE SPECIFIC PROFESSIONAL ADVICE.
         HOWEVER, NO REPRESENTATION IS MADE AS TO THE ACCURACY THEREOF. THE INFORMATION SHOULD NOT BE RELIED UPON TO REPLACE SPECIFIC PROFESSIONAL ADVICE.

				
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