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.