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It may be tempting for some taxpayers to write off personal expenses as tax-deductible ones, especially under the guise of a business, but doing so could get your expenses denied by the Canada Revenue Agency and could even expose your prior years’ tax filings to reassessment beyond the “normal reassessment period.”

Indeed, this is exactly what happened in a recent Tax Court of Canada decision released last week in a case involving a taxpayer who was reassessed by the CRA in November 2018 for his 2013, 2014 and 2015 taxation years. The 2013 taxation year was reassessed after the expiry of the applicable normal reassessment period and thus would generally be considered to be “statute-barred.”

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If you borrow money for the purpose of earning investment or business income, the interest you pay on that debt is generally tax deductible. But what if your investment turns out to be a dud and goes to zero — or you’re forced to shutter your business — while you still owe money on your loan? Should interest continue to be deductible for tax purposes long after the original source of that income has disappeared?

The answer, fortunately, comes in the form of a little-known rule in our Income Tax Act sometimes known as the “loss of source” rule. The rule, which has been in force since 1994, applies when the borrowed money no longer has the potential to generate income because the source of that potential income has disappeared. The rule, therefore, essentially permits you to continue to write off previously deductible interest expenses, even after the source of the investment or business income has disappeared.

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In just over a week, Toronto Raptors superstar, fan favourite and “fun guy” Kawhi Leonard becomes a free agent and can effectively write his own ticket to play anywhere in the NBA. Leonard was named Finals MVP after the Raptors defeated the defending champion Golden State Warriors in six games.

Basketball fans across Canada (this writer among them!) are begging Leonard to re-sign with the Raptors, in the hope the team can repeat as champs, following in the footsteps of the Toronto Blue Jays’ back-to-back World Series wins in 1992 and 1993. Local Toronto businesses are offering Leonard incentives to stay, including the use of a multi-million dollar penthouse and free dining under the “Ka’Wine & Dine” initiative. And, of course, he would continue to be paid in U.S. dollars while spending our cheaper Canadian currency.

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If you own foreign property whose total cost exceeds more than $100,000 at any point in the year, you must complete Form T1135, Foreign Income Verification Statement, and file it along with your annual income tax return.

When we think of foreign property, our minds may turn to that offshore Swiss bank account or, perhaps, a Florida rental property. But, believe it or not, a T1135 must be filed if you own foreign stocks, such as Apple Corp., Ford Motor Co. or Bank of America, in your Canadian, non-registered brokerage account.

I’ve always wondered why self-reporting one’s such foreign securities is even necessary to ensure proper tax compliance given that the Canada Revenue Agency already gets a copy of your brokerage firm’s T5 slip, which reports any foreign dividends or interest income paid into your account. The CRA also gets a copy of the T5008 slip, which reports any dispositions of securities (including foreign securities) you held in your account and disposed of in the prior year to ensure you are reporting your capital gain (loss). What new information could the CRA possibly get from the T1135 that it’s not already getting via tax reporting?

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With taxes out of the way, it’s time to give your business a boost. With our latest QuickBooks® Online updates, you’ll get time-saving features to help simplify your clients’ workflow and employee management, plus expert help to support your growth.

What’s new in April

Free third accountant user in QuickBooks Online Advanced

Enhanced custom fields in QuickBooks Online Advanced

Automated time-off tracking in QuickBooks Online Payroll

Pre-scheduled contractor payments in QuickBooks Online Payroll

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