Today is the last in the series of Canadian Taxes A to Z (2018) posts. Yes, I know you're sad. I'm sad too. But at least you can look forward to receiving that big tax refund generated through your newfound interest in Canadian tax law!
I'm combing the last six letters of the alphabet into one post, rather than stretching them out into six separate posts, because we're down to the wire for filing deadlines. So I hope you'll forgive me for the combination of the last six tricky letters of the alphabet.
If you run into trouble with the CRA out of the 2017 taxation year, I urge you first to consult a designated accountant or tax planning lawyer. You may need to file an objection, or seek other relief; you'll be subject to strict time deadlines in doing so.
If you still can't sort things out, and need to go to the Tax Court of Canada or the Federal Court after exhausting the CRA's internal remedies, given me a call, or drop me a line.
UCC STANDS FOR MORE THAN UNIFORM COMMERCIAL CODE
"U" is for for Undepreciated Capital Cost (UCC). It's very important to keep track year to year of your UCC for each capital asset (within each class) that you own. It's not enough to simply know how much you paid for the capital item, and what percentage of depreciation can be claimed each year, since each year the depreciation claimed will be a slightly smaller figure (the same percentage of a lower number), whereas in the first year the depreciation claimed will be a much small number (half the normal depreciation rate) because of the half year rule. Keep all your UCC receipts organized by class, and year of acquisition.
"V" ISN'T JUST FOR VICTORY
"V" is V-Day. No, not Victory Day. Not Victoria Day. Definitely not Valentines Day. V-Day stands for Valuation Day in tax speak. V-Day is any day when you needed to determine a fixed financial value for something that you'd owned for a while, and planned to own for a while longer, but which didn't have a readily apparent value (like a share price).
For example, if you bought a commercial property back in the 1960's prior to capital gains being taxable, and then planned to sell it now, you'd need to establish a value for it as of the end of 1971 after which capital gains became taxable. There could be other tax reasons for a V-Day, like making a particular election under the Income Tax Act. In any case, you may need to later defend your V-Day value if challenged by the CRA, so ideally you'll employ a professional to establish a fair market value.
ENSURE YOU WITHHOLD TAX WHEN REQUIRED
"W" is for Withholding Tax. Canadian law stipulates many situations where a payor of money is required to withhold a certain percentage of that money, and instead of paying it over to the person to whom it is owed, must remit it to the government for estimated taxes owning. The most common type of tax withholding is that of employers who are required to withhold a percentage of employee wages as income taxes, with the percentage of withholding rising with the level of the employee's wages. Other kinds of common withholding taxes are those required by financial institutions on RRSP withdrawals, and those required on foreign residents for Canadian income.
At tax filing time, the government may determine that there was too much or too little withholding, leading to a refund or additional taxes owing. The trick to navigating withholding rules is to try to bring yourself within the conditions where no withholding is required, or to keep the payments you receive below the threshold where a higher level of withholding is triggered.
X MARKS THE SPOT
"X" is for ... well ... er ... I don't know what X is for. I've look in the Income Tax Act. I've studied accounting term glossaries. And none are big on the letter X.
Perhaps Taxgirl (who gave me the inspiration for all these Canadian taxes A to Z posts) can help out? Her X word is sometimes the name of an IRS form which doesn't really help in the Canadian context. In other years she cited financial terms involving X, but I like her 2012 post the most: X is for X-Mark (Signature): http://www.forbes.com/sites/kellyphillipserb/2012/03/28/taxes-from-a-to-z-x-is-for-x-mark-signature/.
Taxgirl quite rightly points out that a tax return in the U.S., just like a return in Canada, isn't valid unless it's signed! It's easy to forget that last step, after putting in all the up front work on the numbers. Electronic returns also need to be "signed," but there are deeming rules that you signed it if you submitted it in the correct way through the electronic portal.
BEWARE OFF-CALENDAR YEAR ENDS
"Y" is for Year End. Many organizations (including corporations) have off-calendar fiscal years. Often, the timing of the year-end is to coincide with a time of the year when business is slow and employees are not on holiday, and thus there are more resources available to close the year-end books. Tax consequences of having a non-calendar fiscal year can be to shift some income to a future taxation year, and thus defer tax.
However, unincorporated individuals operating as sole-proprietors or partners can generally no longer benefit from a permanent income/taxation shift. While they might initially defer some tax in the first year of business, that tends to get picked up in the second year of business (possibly pushing the businessperson into a higher tax bracket by capturing more than 12 months of income). Definitely get professional accounting advice prior to deciding to go with a Year End other than December 31.
ZERO BASED BUDGETING LOOKED SO GOOD ON PAPER
"Z" is for Zero Based Budgeting (ZBB). Yes, not really a tax term. But like the letter X, there aren't a whole lot of Z tax terms. And zero based budgeting could ultimately affect your tax situation by increasing (or decreasing) your net revenues.
The concept was first deployed on a large scale by the Texas Instruments corporation in the 1960's in the private sector, and later championed in the public sector by Jimmy Carter (prior to his becoming U.S. president).
It's another of those looks great on paper, not so easy to practically implement concepts. For any business (or government), the theory goes that instead of a new fiscal year's budget starting with the previous year's budget as a base (and thus being prone to incremental budget creep), each year should start with zero, with every line item being required to be justified all over again year after year. The theory is that ZBB is a great way to eliminate waste. If you can't justify why you've got a budget line, then "poof" you're eliminated.
The problem with ZBB is that rebuilding a budget every year from the ground up can become an overwhelming, all consuming task. And valuable parts of an organization with less tangible outputs could get snuffed out, to the detriment of the entire organization.
Gordon S. Campbell practices Federal and Ontario court litigation and dispute resolution, including tax, immigration & citizenship, business, property, criminal, family, professional conduct, and farm law. Learn more at www.acmlawfirm.ca/gordonscottcampbell