Western
University
Faculty Income
Tax
Presentation
Presented by:
Stephanie Hall
Jeff Hood
Diane Wood
March 31, 2016
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
1
Overview
• US Tax Considerations
•
•
•
•
Filing Requirements & Overview of US Tax System
Income Inclusions & Tax Deductions
Foreign Reporting Requirements for US Citizens in Canada
Expatriation Provisions
• Canadian Tax Considerations
•
•
•
•
Residency Status For Individuals
Income Inclusions & Tax Deductions
Tax Credits
Consulting Income and Incorporation
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
2
US Tax
Considerations
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
3
Overview of the US Tax System
• The United States taxes the following individuals on their worldwide
income:
• US Citizens
• US Permanent Residents (Greencard holders)
• US Residents
• Citizens are taxed on their worldwide income even if not physically
present or resident in the US
• Entitled to foreign tax credits for non-US source income
• File a 1040 Tax Return
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
4
Americans in Canada: General Filing
Requirements
• All US citizens are required to file Form 1040 annually
•
•
Form 1040 is due on April 15th (April 18th for 2015 tax year) but an automatic extension
is granted to June 15th for Americans who live abroad
Extension does not extend the time to pay but late payment penalties are not imposed
until after June 15th
• US citizens are taxed on worldwide income, regardless of their country
of residence
•
Therefore US citizens living in Canada must file a Canadian return reporting their
worldwide income and a US return reporting their worldwide income
• Potential for double tax exists, but several provisions of the
Act/Code/Treaty help mitigate this exposure
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
5
Relief from Double Taxation: Foreign
Earned Income Exclusion
• Qualified individuals may elect to exclude up to $100,800 US of foreign
earned income from taxable income
• Reported on Form 2555
• Income is reported on the return and then the exclusion is reported as
a subtraction from gross income
• Business income can also qualify for the foreign earned income
exclusion
• Foreign taxes paid on excluded income do not qualify for the foreign
tax credit
• Therefore proration of taxes required
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
6
Relief from Double Taxation: Foreign
Earned Income Exclusion
• An individual generally qualifies for the exclusion if his tax home is in a
foreign country and one of the following tests are met:
•
•
Bona Fide Residence Test – must be a resident of the foreign country for an
uninterrupted period that includes an entire tax year
Physical Presence Test – must be physically present in a foreign country for 330 full
days during a period of 12 consecutive months
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
7
Relief from Double Taxation: Foreign
Tax Credit
• Foreign tax credit may be claimed for foreign taxes paid on foreign
source income
• Separate “baskets” for sources of income
•
•
Passive Basket: generally includes interest, dividends, rents, royalties and capital gains
General Limitation Basket: all other types of income
• Foreign taxes eligible for credit include Canadian income taxes, EI
premiums and Canadian/other foreign withholding taxes paid
•
Note that the top Canadian tax rate, for an Ontario resident is 53.53% vs. top US
federal rate of 39.6% therefore the FTC usually eliminates all US tax on Canadian
source income
• Note that Canada also allows a FTC for US taxes paid on US source
income taxable in Canada
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
8
Americans in Canada: Taxation of
Income
• Employment Income
•
•
•
Cannot deduct RRSP
RPP contributions are deductible under the new Treaty protocol
Sourcing depends on where the services are performed
• Dividend Income
•
•
•
•
Qualified vs. Ordinary dividends are taxed at different rates
Dividends from Canadian corporations may qualify for the reduced rate
Dividends are sourced to the country of the payer
Holding Canadian mutual funds can create issues for US citizens
• Capital Gains
•
•
•
Tax rate depends on whether the gain is short term or long term
Sales of stock are sourced to the country of the taxpayer’s residence
FTC issues can arise depending on the period of time the stock was held, as well as
foreign exchange
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
9
Americans in Canada: Taxation of
Income
• Pensions
•
•
•
Treaty provides for matching treatment of US pension plans in Canada. Therefore if a
distribution from a plan is not taxable in the US, Canada will not tax the pension income
either
Roth IRAs are also granted Treaty benefits provided that the taxpayer does not make any
contributions to the plan while resident of Canada
This includes conversion from traditional IRA to Roth IRA
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
10
Taxation of Income Cont’d
• Scholarships
•
•
Amounts received as a qualified Scholarship by an individual who is a candidate for a
degree at a qualified educational organization are excluded from income
This does not apply to any amounts received which represent payments for teaching,
research or other services as a condition for receiving the scholarship
• Sabbatical Leaves
•
•
•
Expenses can be deductible on Schedule A as other itemized deductions limited to 2%
of AGI
Expenses must be directed related to the Sabbatical
Should write a sabbatical proposal outlining the research projects you plan to pursue,
establish a formal visiting arrangement with the host institution and keep good records
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
11
Consulting/Business Income
• Tax treatment the same if treated as business income earned
personally
•
•
Taxable on both the Canadian and US return
Eligible for FTC
• Corporations
•
•
•
Can be a CFC if a Canadian corporation or a controlled foreign affiliate if a US
corporation
Therefore additional filing requirements exist
Can trigger additional deemed income inclusions
• LLC or S-Corps are not recommended since the tax treatment differs in
Canada and the US
•
•
Canada does not provide for the flow through of income to the shareholder
Results in mismatch of income inclusion/foreign tax credits
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
12
Americans in Canada: Other Filing
Requirements
• Registered Retirement Savings Plans (RRSP)
•
•
•
IRS treats RRSPs the same as regular investment accounts therefore there is no
deferral of income tax
Income earned in RRSPs is not taxed in Canada until withdrawn from plan
Canada-US Tax Treaty allows for a resident of the US to defer inclusion of income
currently earned in an RRSP until such time that the income is taxed in Canada
• No longer required to disclose Treaty election on Form 8891 effective
for 2014 onward
• This election cannot be made on a late filed return
• Must also disclose RRSP account on FinCEN 114 and Form 8938
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
13
Americans in Canada: Other Filing
Requirements
• Registered Education Savings Plans (RESP)
•
Plan allows for individuals to make contributions for the future post-secondary
education of beneficiaries
•
•
Earnings are not taxable in Canada until received by the beneficiaries
•
•
•
Contributions cannot exceed $50,000 per beneficiary
US treats RESP account as a grantor trust
Income in the account must be included on the taxpayer’s US return annually
Must be reported to the US on Form 3520/3520A
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
14
Americans in Canada: Other Filing
Requirements
• Tax Free Savings Account (TFSA)
•
•
Plan allows for individuals to earn investment income in Canada tax-free
US treats TFSA account as a grantor trust
•
•
Income in the account must be included on the taxpayer’s US return annually
Must be reported to the US on Form 3520/3520A
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
15
Americans in Canada: Other Filing
Requirements
• Reporting may be required for investments in non-US entities:
•
5471 “Information Return of US Persons with Respect to Certain Foreign
Corporation”
•
•
•
•
•
•
Disclosure form for all US persons who have investments in certain foreign corporations
(includes investments in Canadian corporations)
Special reporting rules when foreign corporation is a considered a controlled foreign
corporation (CFC)
Potential for deemed income inclusions in the US which could result in a timing difference in
income/taxes between Canada and the US
Most common deemed income inclusions are for passive income and shareholder loans, as
well as personal services income
Form 8865 – Required to report investments in certain foreign partnerships
Form 8858 – Required to report investments in foreign disregarded entities
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
16
Americans in Canada: Other Filing
Requirements
• FinCEN Form 114, “Report of Foreign Bank and Financial Accounts
(FBAR)”
•
•
•
•
•
•
Separate filing from the tax return
US persons who have a financial interest in or signature authority over foreign
bank, securities, or other financial accounts, both business and personal, whose
total value exceeds $10,000 are required to file annually
Must disclose details of each account held, including the highest monthly balance
of the account in the year
Due date is June 30th of each year
Significant penalties for failure to file can be imposed
Must be electronically filed
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
17
Form 8938: Statement of Foreign
Financial Assets
• Any individual that holds in aggregate more than $400K at the end
of the year or $600K during the year (MFJ residents of Canada) in
reportable financial assets must report information about these
interests on their return
•
Does not replace FBAR requirement
• Specified foreign assets that must be disclosed on the return
include:
•
•
•
•
Foreign financial accounts
Foreign brokerage accounts
Interests in foreign entities
Foreign pensions, retirement plans, etc
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
18
Penalty Provisions: Undisclosed
Foreign Financial Assets
• Expanded Penalty Provisions:
•
A penalty of 40% will be imposed on the amount of understatement of gross income
attributable to an undisclosed foreign financial asset
• Foreign Assets Include:
•
•
Assets subject to the “new” foreign financial asset reporting requirement (form 8938)
Foreign financial assets required to be reported on Forms 5471, 8858, 8865, 926 and
3520-A
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
19
Penalty Provisions: Undisclosed
Foreign Financial Assets
• Expanded Statute of Limitations:
•
•
Statute of limitations period will not commence until the time at which all information
required under these reporting provisions is filed
Therefore this provision applies if:
•
•
•
•
Tax return is not filed
Foreign information returns are not filed
Foreign information returns are incomplete or inaccurate
New statute provisions apply to the entire tax return not merely to foreign information
that should be disclosed as part of the return
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
20
Medicare Tax on Investment Income
• Medicare Tax on Investment Income
•
3.8% tax imposed on the lesser of
•
•
(a) Net investment income
• Interest, dividends, capital gains
• Royalties, rents (unless ordinary course of business)
(b) Modified adjusted gross income in excess of
• $250,000 (joint filers)
• $125,000 (separate filers)
• Effective January 1, 2013
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
21
Legislative Updates for 2015
• Changes made to US Individual Taxpayer Identification Number issuance
and deactivation procedures.
• Starting with 2016 tax year, FBAR form will be due April 15th of the
following year but can be extended to October 15th
• Married same-sex partners will be recognized as married couples (can file
married filing jointly) starting with the 2015 tax year (or 2014 returns
submitted after June 26, 2015)
• Permanently extended estate and gift tax exemption (indexed each year)
• $5.45M for 2015 but top marginal estate tax rate increased to 40%
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
22
Americans Should Avoid Canadian
Mutual Funds
• US considers foreign mutual fund to be a Passive Foreign Investment
Company (“PFIC”)
•
•
•
Highest tax rate on excess distribution and gains
Interest charged on deemed deferred tax amount
No problem if held by RRSP if election made
• Also be cautious if investing in Canadian Income Funds
•
•
Distributions may not qualify for reduced US tax rate on dividends
Return of capital for US purposes is likely different from Canadian return of capital
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
23
Expatriation Provisions
• Imposed on certain individuals who renounce US citizenship or
relinquish a US greencard
• Rules involve a deemed disposition of all property held by the taxpayer
at expatriation
•
•
The covered expatriate is deemed to have sold nearly all his worldwide assets at FMV
on the day before the expatriation and is taxed on the accrued gains above the
threshold amount ($690,000 for 2015).
Gain is taxed as ordinary income
• Covered Expatriates are those taxpayers who meet any one of the
following:
•
•
•
Average net income tax for the previous 5 years exceeds $160,000
Net worth exceeds $2M at the time of expatriation
Fails to certify under penalty of perjury that he/she has met the requirements of the US
tax code for the 5 preceding tax years
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
24
Canadian Tax Treatment of US Pension
Plans
• Canadian law requires a taxpayer to include in income amounts received
from a foreign retirement arrangement (FRA)
•
•
Payments out of a FRA are not taxable in Canada to the extent that they would not be
taxable in the other country to a resident of that country
FRA definition includes an IRA
• Intention of FRA designation is to provide matching for Canadian
residents with IRA plans
• Allows payments to be transferred from one IRA to another without
triggering Canadian tax
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
25
Canadian Tax Treatment: Roth IRA
• A Roth IRA is not a FRA
•
Therefore a Roth IRA is not treated the same way as a traditional IRA
• Treaty discusses the treatment of Roth IRA plans and includes Roth
IRA in the definition of pension
• Under 3(b) of Article XVIII a Roth IRA will be treated as a pension as
long as no contributions are made to the Roth IRA after December 31,
2008 while the taxpayer is resident of Canada
•
•
Therefore income can accrue in the plan without being subject to US tax.
Distributions are not taxable in the US; therefore they should not be taxable in Canada
• Contributions do not include rollover contributions from a different
Roth IRA or Roth 401(k) but do include a conversion from an employer
plan or traditional IRA into a Roth IRA
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
26
Roth IRA as “Pension”
• If a contribution is not made into the Roth IRA the taxpayer can elect to
defer Canadian taxation with respect to the income accrued in the Roth
IRA
• Under paragraph 1, pension income arising in one country and paid to
a resident of the other country may be taxable in the other country but
if the pension income would be excluded from income in the first
country, income cannot be taxed in the other country
•
Roth IRA distributions are not taxable in the US, therefore should also not be taxable
in Canada
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
27
Transfer of Plans to Canada
• Lump-sum payments out of a IRA would be taxable in Canada (because it
would be taxable in the US)
•
Therefore US tax applies to transfers of IRA plans to Canada
• Eligible for contribution to a RPP or RRSP plan if derived from
contributions made to the IRA by the Canadian taxpayer
•
The transfer must be made within 60 days following the end of the year in which the
payment from the IRA is received
• The lump sum payment is treated as income and then the taxpayer claims
a deduction for the contribution of the lump sum into the RRSP
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
28
Canadian Tax
Considerations
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
29
Basis of Canadian Taxation
• Resident of Canada
•
•
•
Taxed on world wide income from all sources
Entitled to foreign tax credits for non-Canadian source income
Files a T1 Individual Tax Return
• Non-Resident of Canada
•
•
•
Taxed on Canadian source income
Entitled to utilize provisions of Canada – United States Income Tax Convention (1980) to
determine Canadian income tax liability
Files a T1 NR Individual Tax Return
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
30
Residency Status For Individuals
1. Deemed full-time residency
•
Sojourned in Canada for 183 or more days
2. Full-time residency
•
Based on continuing relationship with Canada based on surrounding facts
3. Part-time residency
•
Severing or creating ties to Canada in departure or arrival
4. Non-resident
•
Not resident under 1 – 3 above
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
31
Income Inclusions
• Employment Income
•
Includes remuneration and taxable benefits reported on T-4
• Property Income
•
Includes interest, dividends, royalties and rental income
• Business Income
•
Includes self employment income such as consulting
• Taxable Capital Gains
•
Includes 50% of capital gains in excess of capital losses
• Other Sources
•
Includes items such as pensions, RRSP and alimony
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
32
Scholarships, Fellowships and
Bursaries
• Taxable to the recipient net of available exemption
•
•
Amounts received from the employer of a parent are included in the child’s income
Amount received by an employee from his/her employer are taxable as employment
income and not eligible for the exemption
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
33
Scholarships, Fellowships and
Bursaries
• Exemption calculated as the aggregate of:
I.
Scholarships, fellowships and bursaries received for enrollment in:
•
•
II.
A program for which the education deduction can be claimed; or
An elementary or secondary school educational program
The lesser of:
•
•
Scholarships, fellowships, bursaries and prizes received to be used in production of literary,
dramatic, musical or artistic work; and
Amounts expended to produce the work
III. Lesser of:
•
•
$500; and
amounts received in excess of exemption claimed in i. and ii.
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
34
Research Grants
• Amount “received” in excess of “allowable expenses” is taxable in year
of receipt
• An amount is not considered received if all the following conditions are
met:
•
•
•
•
Funds are available to individual who has an academic appointment to university;
Funds are paid directly to university;
Funds are to be used solely for costs of research; and
Funds were not used or otherwise available for personal benefit of individual
• Allowable expenses include cost of equipment, fees, laboratory, charges,
etc and exclude:
•
•
•
Personal living expenses;
Unreasonable amounts; and
Amounts otherwise deductible or paid/reimbursed by University
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
35
Motor Vehicle Expenses
• Deductible if:
•
•
•
•
Ordinarily required to carry on duties away from place of employment
Required to pay expenses under employment contract
Not in receipt of non-taxable allowance for motor vehicle expenses
Form T2200 signed by employer
• Amount of expenses not limited but amounts must be reasonable and
substantiated by receipts and records
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
36
Dues and Other Expenses of
Performing Duties
• Amounts paid in year as:
•
•
•
•
Annual professional dues necessary to maintain professional status
Office rent, salary of assistant or substitute if required by employment contract
Cost of supplies consumed in duties if required by employment contract
Annual union dues
• Require a Form T2200 signed by employer
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
37
Registered Retirement Savings Plan
Contributions
• Annual limit calculated as the lesser of:
• 18% of prior year’s earned income, and
• Annual dollar limit (see below)
(reduced by pension adjustment for prior year)
• Annual dollar limits:
• Current
2015
2016
2017
$24,930
$25,370
$26,010
• Indexed based on increases in average wage levels
• Pension adjustment is value of pension earned in prior year
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
38
Moving Expenses
• Moving expenses incurred in respect of a move originating outside
Canada are not deductible
• Moving expenses deductible in respect of a move to a new business or
employment in Canada if:
•
•
Both the old residence and new residence are in Canada; and
Distance between new residence and new work is at least 40 km closer than old
residence
• Deduction is limited to business or employment income at new location
and undeducted amounts may be carried forward
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
39
Moving Expenses
• Deductible moving expenses include:
•
•
•
•
•
•
•
•
Travel costs for family members
Transportation and storage of household effects
Cost of meals and accommodations for up to 15 days during the move
Lease cancellation costs in respect of old residence
Selling costs of old residence
Legal fees, transfer taxes in respect of new residence if old residence was sold
Up to $5,000 related to mortgage interest, property taxes, insurance, heat and power on
vacant old residence during period reasonable efforts made to sell
Utility connection and disconnection fees and costs related to revising legal documents to
reflect new address
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
40
2015 Personal Tax Credits
Tax rate applied
Basic personal
Spousal/partner
- income threshold
Canada Child Benefit
-
Federal
Ontario
15.00%
5.05%
$11,474
$ 10,011
11,474
nil
8,500
850
Replaces the child tax credit and universal child care benefit
Income tested and not taxable
Children’s fitness amount
500*
Children’s arts amount
250*
$56 refundable credit (10% of
eligible expenses up to $560)
Adoption
15,453
12,033
Disability
8,001
8,088
Medical**
------Amount paid-------
-income threshold (see footnote)
2,237
2,266
*To be eliminated for 2017 and subsequent taxation years
**Medical credit is for eligible medical expenses exceeding lesser of :
• 3% of net income
• Threshold amount
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
41
2016 Personal Tax Credits
Federal
Ontario
15.00%
5.05%
$2,544
$2,544
955
955
Education (including textbook amount)
- Full time – per month
465**
- Part time – per month
140**
539**
161**
Tax rate applied
CPP (max)
EI (max)
Tuition
Interest on student loan
-------Amount paid--------**
-------Amount paid--------
** - Federal Education and Textbook tax credit – 2016 budget proposes to eliminate effective January 1,
2017
- Ontario Tuition & Education Credits – 2016 budget proposes to eliminate effective for studies
beginning in September 2017
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
42
Charitable Donations Tax Credit
• Gifts to:
•
•
•
•
•
•
•
Registered charity
Registered Canadian amateur athletic association
An exempt housing corporation
A Canadian municipality
The United Nations or an agency of UN
A prescribed university o/s Canada
A charitable organization o/s Canada to which Canada made a gift in year or preceding
year
• May claim gifts made in year and preceding five years
• Federal and Ontario credit of 15% on first $200 and 33% on remainder to
of 75% of net income
• Foreign donations may be used to reduce Canadian tax on foreign
source income from the same jurisdiction
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
43
First-Time Donor’s Super Credit
• For first-time donors, a federal tax credit of 25% is available for the first
$1,000 of monetary charitable contributions.
• First-time donors are those who:
•
•
Have not claimed a donation tax credit between the 2008 and 2013 taxation years
Do not have a spouse who has claimed a donation tax credit between the 2008 and
2013 taxation years
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
44
Consulting Income / Business Income
• Consulting income is included in the calculation of business income on
Form T2125
• An unincorporated business must have a December 31 year end
• Required to register for GST purposes if taxable sales exceed $30,000 in
a fiscal period
• Business income is calculated on an “accrual basis” and not on a “cash
basis”
•
•
Accounts receivable at year end included in income
Accounts payable at year end deducted from income
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
45
Business Expense Limitations
• The ITA prohibits deduction of:
•
•
•
•
•
•
an outlay unless incurred for purpose of earning business or property income
an outlay of a capital nature
an outlay incurred to earn exempt income nature
a reserve for contingent liability, unless otherwise allowed
a personal or living expense
club or recreational facilities dues and amounts incurred for use or maintenance a yacht,
a camp, a lodge, or a golf course
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
46
Business Expense Limitations
• One-half the cost of meals and entertainment subject to exceptions for
office functions and work at remote work locations
• Home office expense unless:
•
•
Principal place of business; or
Used on regular and continuous basis for meeting clients, customers or patients
• Remuneration unpaid within 179 days of taxation year
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
47
Incorporation of Consulting Income
Incorporated
Business
Unincorporated
Business
Income
$100,000
Consulting
Company
Proprietorship
Income Tax
$0
Corporate
$15,500
$53,530
Personal
$38,279
Mr. A
Mr. B
$53,530
Total Tax
$53,779
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
48
Incorporation of Consulting Income
• Advantages:
•
•
11% tax rate on first $500,000 of taxable income from business sources
Capital gains exemption
•
•
•
•
Only applies to sale of shares
$824,176 for qualified small business corporation shares
Ability to split income with family members
Flexibility in remuneration package and in timing of receipts
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
49
Incorporation of Consulting Income
• Disadvantages:
•
Shareholder benefits
•
•
Complexity
•
•
•
can apply if corporation pays personal expenditures or has a loan receivable from the
shareholder
additional reporting requirements
have to maintain separation between corporation and individual
Set-up costs and annual carrying costs
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
50
International Income Tax Conventions
Select Non-Resident
Withholding Tax Rates
Interest
Dividends Royalties Pensions
• Australia
10%
5/15%
10%
15/25%
• China, People’s Rep
10%
10/15%
10%
25%
• France
10%
5/15%
0/10%
25%
• Germany
10%
5/15%
0/10%
15/25%
• India
15%
15/25%
10/15/20%
25%
• Pakistan
15%
15%
0/15%
25%
• United Kingdom
10%
5/15%
0/10%
0/10/25%
• United States
0%
5/15%
0/10%
15/25%
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
51
Questions?
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
52
Contacts
Stephanie Hall, CPA, CA,
CPA (Illinois)
Senior Manager
T: (519) 747-8201
E: sdhall@kpmg.ca
Diane Wood, CPA, CA
Partner
T: (519) 660-2123
E: dianejwood@kpmg.ca
Jeff Hood, CPA, CA
CPA (Illinois)
Manager
T: (519) 747-8238
E: jeffhood@kpmg.ca
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
53
kpmg.ca/tax
This document has been prepared specifically for Western University by KPMG LLP and is of a very
preliminary nature intended solely for discussion purposes. This does not constitute tax advice and
no action should be taken based on its contents.
Any Tax advice in this communication written by KPMG LLP is not intended or to be used, and
cannot be used, by any person or entity for the purpose of (i) avoiding penalties that may be
imposed on any taxpayer or (iii) promoting, marketing or recommending to another party any matters
addressed herein.
This presentation may contain a discussion or analysis of decided tax cases. Any discussion or
description of the facts of the case or the positions argued by the parties is based solely on publicly
available information. For greater certainty no confidential client or taxpayer information is disclosed.
This information is current to March 30, 2016. The information contained herein is of a general
nature and is not intended to address the circumstances of any particular individual or entity.
Although we endeavor to provide accurate and timely information, there can be no guarantee that
such information is accurate as of the date it is received or that it will continue to be accurate in the
future. No one should act on such information without appropriate professional advice after a
thorough examination of the particular situation.
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of
independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a
Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of
KPMG International.