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Thought Leadership

Taxation on Cryptocurrencies

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As you know, it is time to start preparing for the filing of your 2021 personal income tax returns. For some of you, this tax season may look different for one specific reason: cryptocurrencies.

Given that cryptocurrency adoption increased exponentially over the last year, we wanted to reach out to those of you with cryptocurrency income to provide some guidance.

Please note that as of February 2022, in-depth guidance has yet to be provided by CRA on many forms of cryptocurrency transactions. Understanding this, CRA’s stance on the tax treatment of cryptocurrency transactions may evolve over time.

General Cryptocurrency Trading 

In general, cryptocurrency trading can be considered either a source of business income or capital investment depending on your situation. CRA has yet to provide clear situational guidelines on where the line between capital investment & business income treatment of cryptocurrency lies. When considering the appropriate treatment, the following factors should be considered:

  • Whether your primary intention is to profit on cryptocurrencies through trading
  • Your ability & intention to profit from cryptocurrencies through means other than trading
  • The duration cryptocurrencies are held before trading
  • The volume & frequency of your transactions
  • The time spent engaged in cryptocurrency activities
  • Any financing used to support your cryptocurrency activities
  • Any relationship between your cryptocurrency transactions and ordinary business
  • The proportion of your cryptocurrency income to your total annual income

Examples:

  • You purchased several cryptocurrencies on a centralized exchange like Binance. Throughout the year, you regularly swapped them for other cryptocurrencies earning significant profit on their relative increases and decreases in value without taking them off exchange. CRA may consider this a source of business income since your primary intention was to sell cryptocurrencies for profit through frequent trading over the year.
  • You purchased cryptocurrencies such as Polkadot or Atom on Binance and then transferred them to a private wallet to stake them and earn additional tokens. To sell these tokens, they would need to be un-staked which requires a 14-28 day un-bonding period. CRA may consider your cryptocurrency to be a capital investment since it cannot be sold immediately if it suddenly increases in value, demonstrating a commitment to profit primarily by accumulating staking rewards.

Other things to consider with respect to cryptocurrency trading:

  • Many Investors frequently swap cryptocurrencies for other cryptocurrencies. It is important to note that swapping one cryptocurrency for another is considered a taxable sale as if they were sold for cash and reinvested.
  • If cryptocurrencies are exchanged for goods/services, it is considered a taxable event as if they were sold for cash and then used to pay for those goods/services.

Please contact us if you need assistance in assessing the appropriate treatment for your cryptocurrency trading income.

Cryptocurrency Mining Income

Like trading, the tax treatment of mining cryptocurrencies can be treated as either a source of business income or a capital investment. This treatment depends on your intention to mine cryptocurrencies for profit like a business venture, or if you mine for enjoyment as a hobby.

When assessing your situation, we would generally consider your investment in mining hardware and total income earned. Additionally, we would also consider many of the factors with cryptocurrency trading.

If considered a business activity, cryptocurrencies are taxed as income when initially mined and then treated as inventory. Once the cryptocurrencies are removed from inventory via a sale or transfer, further taxable income or losses will be reportable. Deductions can be made against business income for items such as: hardware purchased to mine cryptocurrencies, maintenance costs, electricity, and other costs related to the mining operation.

If considered a hobby, cryptocurrencies are not taxed when mined, but are taxed as a capital gain when sold.

Examples:

  • You purchased several retail graphics cards to build an Ethereum miner earning $20 CAD equivalent per day. CRA may consider this to be a venture undertaken in a business-like manner since hardware was purchase for the purpose of generating cryptocurrency income.
  • You purchased a high-end PC to play video games in 2020 and learned it could be used to mine cryptocurrencies in 2021. You then installed a program that rents your computing power to a mining pool when idle, earning you an equivalent of $5 CAD per day. CRA may consider this hobby mining since your primary intention when purchasing the hardware was personal enjoyment and it is used to mine only when it would otherwise be idle.

Staking Income

Some cryptocurrencies can be staked to passively earn additional cryptocurrency. CRA has not provided any guidance on this activity but, as with mining cryptocurrencies, the receipt of additional cryptocurrencies through staking is likely to be considered a source of taxable income.

Other Cryptocurrency Income Sources & Decentralized Finance

Due to the emerging nature of the cryptocurrency industry, there are many other types of transactions that are likely taxable which CRA has not provided any guidance on proper treatment. Please consult us if you require guidance on any of the following activities:

  • Airdrops
  • Liquidity Pool rewards
  • NFT purchases/sales
  • Loss of cryptocurrencies through theft or loss of keys
  • Cryptocurrency lending

Foreign Reporting (T1135)

Generally speaking, CRA considers cryptocurrencies to be foreign assets. For which, a T1135 (foreign income verification statement) filing may be required if the total cost of your foreign assets, cryptocurrency & other, exceeds $100,000 (CAD).

Closing Comments

If any of the above situations apply to you, we recommend reaching out to our team at Lohn Caulder to discuss the proper treatment & reporting of your cryptocurrency income.

Additionally, if you utilize decentralized finance applications beyond centralized exchanges, please be sure to let us know prior to submitting your tax documents.

Joseph Gonsky – Jgonsky@lohncaulder.com

and/or

Torin Lynskey –Tlynskey@lohncaulder.com

B.C. PST Rebate on Select Machinery and Equipment

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In March of 2021, the B.C. provincial government announced the B.C. PST Rebate on Select Machinery and Equipment program (PST rebate program). The temporary rebate program was introduced to help corporations recover from the financial impacts of COVID-19.

The PST rebate program allows you to recover the PST paid on the purchase or lease payments, of machinery and equipment.

The B.C. provincial government recently announced that the PST rebate period has been extended by six months. The extension allows you to recover the PST paid on select machinery and equipment, purchased between the period of September 17, 2020, to March 31, 2022. The PST rebate program is also available on machinery and equipment that you leased. You can recover the PST paid on lease payments of machinery and equipment, made between the period of September 17, 2020 to March 31, 2022.

The PST rebate program is available to most incorporated businesses, you do not need to be a PST registrant to be eligible for the PST rebate program. Unfortunately, the PST rebate program is not available to unincorporated entities, such as sole proprietors.

The list of goods that qualify as machinery and equipment under the PST rebate program is expansive and includes goods that fall within the commonly used capital cost allowance classes.

Examples of some of the goods that qualify for the PST rebate program include:

  • Computer hardware and computer software
  • Photocopiers
  • Furniture and appliances
  • Dental chairs
  • Machinery and equipment use to manufacture or produce goods
  • Most zero emission vehicles and electric vehicles charging stations

The PST rebate applications must be received by September 30, 2022.

If you are interested in applying for the PST rebate program, Lohn Caulder LLP would be happy to assist. Please contact us if you require assistance in applying for the PST rebate program.

Additional information about the PST rebate program can be found at www.gov.bc.ca

2021 T4 Income Tax and CPP Remittance

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In the course of preparing the 2021 financial statements for your organization, you may recall that it was necessary to declare management salaries in addition to any salaries or wages you may have paid to regular employees.

If you have not made any payroll remittances for 2021 for your management salaries, please contact Ryan Lore at the email address or phone number listed below.  If required, we recommend a nominal payment be made to The Receiver General of Canada by January 10, 2022. The remittances should be made to your company’s payroll “RP” account.  They will be incorporated into your 2021 T4 slips.

If you plan to remit only a nominal amount of income tax, you should be aware that CRA now places a heightened emphasis on assessing interest on the difference between the tax actually paid and the theoretical amount to be remitted according to the Canada Revenue Agency’s published withholding guides.  Consequently, in today’s tax environment, it is preferable to make regular monthly remittances throughout the year, rather than a single payment once a year (whether nominal or otherwise).  Please contact us if you require further assistance on this matter.

In order for Lohn Caulder LLP to prepare your 2021 T4s, we will require the necessary information by no later than the end of January 2022.  This information would include a summary of your calendar-year payroll records.  The filing deadline for T4s is February 28, 2022 and it is your responsibility to ensure that this filing deadline is met to avoid penalties.

Electronic filing of T4s is now mandatory. Therefore, once we have received and processed your information, we will electronically file the T4 Information Returns to the CRA. The copies which you later receive from us will be strictly for your own files, and your employees if applicable.

Mr. Ryan Lore of our office is in charge of T4s – please contact him if you have any questions.  Ryan’s email is rlore@lohncaulder.com, and his direct dial telephone is 604-408-3079.

Thank you in advance for your assistance and cooperation!

2021 T3 Trust Tax Returns

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What’s New with Trusts in 2021?

For 2021 and subsequent tax years, Budget 2018 proposed a new reporting obligation that requires express trusts to report the identity of all trustees, beneficiaries, and settlors of the trust. These changes are being made to improve the collection of ownership information to help Canada Revenue Agency assess the tax liability for trusts and its beneficiaries.

As a consequence, clients with existing trusts must fill out a form to submit this
information to Canada Revenue Agency. We have created a disclosure form to help summarize the information needed. This disclosure form can be downloaded at: https://www.lohncaulder.com/checklists. Completed forms should be sent to Lilian Tseng at ltseng@lohncaulder.com. Of course, if we prepare the individual tax returns of all the trustees, beneficiaries, and settlors of the trust, then we would already have this information.

2021 T3 Trust Tax Returns

We are writing to remind you that it will soon be time to file your family trust tax return for 2021. All family trusts must report their income and disbursement activity for the 2021 calendar year by no later than March 31, 2022.

This deadline is applicable to all family trusts, and there are penalties for failing to file on time.

For family trusts that hold private corporation shares, the practical deadline is actually much earlier: February 28, 2022. This is because corporations must report any dividends paid on such shares on T5 slips, and these T5s must be filed by the end of February. Quite often, the cash-flow through trusts “drives” the quantum of dividends that the corporation has to report, and there is sometimes a bit of bookkeeping involved.

With a deadline this tight, we need your help!

To get so much done in such a short period of time, while keeping your accounting fees to a minimum, we ask that you please summarize the following for us:

  1. The amount of cash paid into the trust for each month of calendar 2021.
  2. The amount of cash paid out from the trust to each of the beneficiaries for those months.

To assist you in reporting such information to us, we have prepared a transaction summary form for you to fill in and send back to us.

The transaction summary can be downloaded at: https://www.lohncaulder.com/checklists

An Excel spreadsheet version is provided, which allows you to enter data, and have the sums automatically done for you. Alternatively, a PDF version is available if you would like to fill out the form manually.

Once completed, you can return the form to us by one of the following options:

  1. Return e-mail (please send to ltseng@lohncaulder.com);
  2. Over the Internet, to our secure web portal. Please go to the ‘Portal’ link on the front page of our website https://www.lohncaulder.com/, or contact portal@lohncaulder.com for invitation access to Portal;
  3. Fax (604-688-7228); or
  4. Mail

If you are unable to prepare the transaction summary, please send us your January-to- December 2021 trust bank statements and cancelled cheques, so that we can prepare the summary for you. For these situations, it will also be necessary to identify for us the particular beneficiary for whom a payment to a third party was made.

We will compare your transaction summary to the information in your corporate records, and will optimize the allocation of the income of the trust into one of two categories:

  1. New 2021 calendar dividends or other payments, and, if applicable,
  2. Tax-free distribution of capital from previous years.

Lilian Tseng of our office is in charge of T5s and T3s—please contact her if you have any questions. Lilian’s email is ltseng@lohncaulder.com, and her direct dial telephone is 604-699-3361.

Thank you in advance for your help!

Land Owner Transparency Act

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In May 2019 the BC provincial government passed the Land Owner Transparency Act (LOTA), which created the Land Owner Transparency Registry.  This registry records the beneficial landowner of all real estate interest in British Columbia.  A beneficial landowner is an individual or entity who owns or controls real estate indirectly, such as through a corporation, partnership, or trust.  Often this is seen where an individual is on title owning a property in a fiduciary capacity by way of a trust that is beneficially owned by a corporation.

The LOTA requires these entities who hold an interest in real estate located in BC to file a Land Owner Transparency Report by November 30, 2021.  Many of our clients hold properties in these entities.  As such, they will all need to complete this report by the deadline.

On November 2, 2021, the government extended the filing deadline for the report for pre-existing owners to November 30, 2022.  This extension only applies to pre-existing owners of prescribed interests in real estate who owned their interest on or before November 30, 2020.  All purchasers of land after that date, who otherwise have an obligation to file, still have a November 30, 2021 deadline.

Why should you care?  The maximum penalty is the greater of the following:

  • $25,000 for individuals or $50,000 for a person other than an individual (e.g. relevant corporation); or
  • 15% of the assessed value of the property

Additional information about the LOTA, forms, and filing requirements can be found at www.landtransparency.ca

Please contact your lawyer or notary to assist you with making the appropriate filings before the due date of November 30, 2022.

CSRS 4200: Impacts of a New Compilation Standard

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A change to CPA standards will soon impact on the scope of work we do for many of you.

This change, which has been years in the making, updates the rules for preparing and presenting certain types of financial statements.  The goal is to make “Notice to Reader” style financial statements more meaningful – both to you as the business owner, and to whoever else ends up viewing them.

All CPA firms will have to adopt the new standards for fiscal years ending December 14, 2021 and beyond.

Lohn Caulder is planning for a seamless transition to the new standard.  Clients should only notice small changes – a slightly altered look to your financial statements, and being asked a few additional questions each year.  A brief summary of these changes follows.

What is Changing?

Financial Statements

The new standards shouldn’t change the numbers on your financial statements, but they will add additional context.  The changes can be found in 2 primary areas:

  • Compilation Engagement Report: This is the new name for the “Notice to Reader” report found on page 3 of your statements. It will be quite a bit longer than what you are used to seeing.  Most notably, it now describes the responsibilities of both management and practitioner.  You can see an example of a the new wording on page 5 of the CPA Canada briefing
  • Basis of Accounting Note: The “Basis of accounting” note will describe the accounting method used in your business (most commonly: cash basis, accrual basis, or a mixture of the two). Many of business owners won’t know how to describe their ‘basis of accounting’, so we will help.  But please keep this in mind: you will be asked to acknowledge responsibility for the basis of accounting, so please ask as many questions as you need to!
Other Changes

In practical terms, implementing the new standard means we, the accountants, will be collecting more information from you, the business owners.  Please bear with us if we ask more questions than usual.  Some typical questions include:

  1. Enquires about the intended and expected users of your financial statements.
  2. Discussions about the methods of accounting you use.
  3. Asking you to sign Engagement and Management Representation letters before releasing the financial statements.
  4. Filling in gaps in our knowledge of your business. This could include things such as the number of people you employee, additions to your product line, or changes to your corporate structure.

For anyone who really wants to dig in we recommend this summary from CPA Canada: Compilation Engagements Management Briefing.  Or, as always, give us a call or send us an email.

CERS: The New Subsidy for Renters AND Owners

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We aren’t the first to say this, but things sure are changing fast these days!  Back in August (which feels like years ago now!), we wrote about Canada’s covid-related subsidies in a newsletter titled “CEWS in the News”.  Since then, every single subsidy we covered has been tweaked, extended, updated, or otherwise nixed

Today’s newsletter focuses on a subsidy that didn’t exist back in August.  We are going to talk about a new, significant addition to Canada’s covid relief program that we want to be sure every client of ours is aware of: the Canada Emergency Rent Subsidy, or “CERS”

For those who haven’t heard of it yet (it was just announced in October), CERS is a federal subsidy that assists businesses with their monthly property costs.  CERS is available to virtually all Canadian businesses, non-profits, and charities – to both renters and property owners – who have seen a drop in monthly revenues.  The subsidy runs in 4 week periods, starting with September 27 to October 24th, and continues through to June 2021.  At this point there is very little deadline pressure – CRA says they will start processing applications on November 30th, and continue to accept new applications for up to 6 months after the end of each period.

So how much is this subsidy worth?  The answer is, as usual, it depends!  CERS only funds a portion of your eligible property costs.  The important questions are: Which costs are eligible? and What portion of these costs can be claimed?

1. Which property costs are eligible for CERS?

If you are a renter, this includes most costs you are required to pay under a lease agreement, up to $75,000 per claim period. Think: base rent (excluding GST!), property taxes, insurance, and certain customary operating costs.

If you own your business property (which excludes homes), eligible costs may include property taxes, insurance, and interest on your mortgage, not to exceed $75,000 per claim period.

2. What portion of your costs can be claimed?

The portion of your costs that qualify for subsidy are tied to declining monthly revenues.

  • Revenue drops of 70% or more qualify for the maximum subsidy – 65%
  • Revenue drops over 50% and below 70% qualify for a subsidy between 40% and 65% (the calculation for this tier of subsidy is a bit too complicated for a newsletter!)
  • Revenue drops under 50% qualify for a subsidy equal to 80% of their revenue drop (for example, if revenues dropped 20%, your subsidy is 16%)

There is a final tier of subsidy we hope none of you find yourself in.  If any of you are in an industry that has been temporarily shut down due to a mandatory public health order, you qualify for the base subsidy plus a 25% top-up.  This bumps the maximum claim up to 90%.

Of course, this information is all high-level, and businesses will need to look at their eligibility on a case-by-case basis. If you think you might qualify, or have any questions about CERS or other subsidy programs, we are here to help!

March 2016 Federal Budget

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“Frankly, Scarlett . . . .”

Ten years, more or less, seems to be all the tolerance that Canadians have for their Governments.  At least, that is what we must assume, given our total surprise at the extent of the Liberal electoral victory last October.  In fact, as things evolved through the campaign, it seemed rather more likely that we would see the NDP holding the balance of power, in a Tory minority government.  NDP leader Thomas Mulcair must have believed it, too, as he was quoted making statements that were generally quite friendly (or at least conciliatory) to business.  That left the Liberals to carve out more extreme positions during the campaign, in order to distinguish themselves from the throng.  Read More

2016 Personal Tax Filing Season

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Welcome to the 2016 Personal Tax Filing Season!

It’s time again to file your personal tax returns. The deadline keeps changing – this year, those returns must be filed with the Canada Revenue Agency by no later than Monday May 2, 2016.

We’d like to deliver the finished product as quickly and efficiently as possible – and we’re sure that many clients will, as of today, already possess all the information that’s needed (much of the most relevant data may already be on our system – we usually just need the ‘small stuff’, and other items, to tie everything together). So, we’d like to encourage everyone to consider the “practical” deadline as really being early April – there’s little reason for any later than that!

To help us help you, organization is the key! This newsletter contains a few items to help you accomplish your annual filing obligation with as little trouble and expense as possible.

Personal Tax Season Checklists:

Read More