Need help from CRA? Here are the answers to some of your most common questions.
At CFIB, we frequently receive complaints from business owners about Canada Revenue Agency's (CRA) customer service call centre. You’ve told us that CRA gives out incorrect or confusing information, complicating already frustrating situations.
Since 2010, we have been investigating and evaluating the service. Posing as “secret shopper” callers, we anonymously asked CRA Business Enquiries Line four typical questions a business owner might ask.
Too often, they gave us the wrong answers. To make your life easier, we've compiled the right ones here.
SCENARIO #1: How to pay sales taxes when providing a service in another province
Question #1: “For a consulting company that’s looking to provide services across the country, what are the rules around when they should be applying GST or HST?”
Correct response:
- The company should apply GST/HST according to the customer’s address, regardless of where the service was performed. (For example, you could provide training in one province, but if the contract is with the company’s head office, in another province, you apply that province’s HST or GST rate.)
- Check the “place of supply” rules, found under Services – general rules on this page: https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4022/general-information-gst-hst-registrants.html#H1_110
SCENARIO #2: Paying EI premiums for family members
Question #1: “My understanding is that if a business owner is hiring their child, they may not have to collect EI premiums. Is that true?”
Question #2: “What process needs to be followed to get this done?”
Correct response:
- The employer needs to determine if a non-relative would have been hired under a similar employment contract regarding remuneration, terms and conditions, work hours, timing and duration, and the nature and importance of the work. If the employment contract would be similar for a relative and a non-relative, then EI premiums should be collected.
- Check this web page: https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/payroll-deductions-contributions/employment-insurance-ei/hiring-a-family-member-a-related-person.html
- If the employer is not certain that a similar contract would apply to both relatives and non-relatives, they should submit a CPT1- Request for Ruling. The ruling request can be submitted to their regional tax centre or through the "My Business Account" portal on the CRA website. They should be sure to include all relevant documents with their ruling request (such as contracts, agreements, etc.).
SCENARIO #3: Investing in equipment for my business
Question #1: My client, a garden tool manufacturer, is buying used machinery to increase their manufacturing capacity. Are they eligible for the Capital Cost Allowance (CCA)?
Background
The Capital Cost Allowance is the yearly amount a business owner can claim on their taxes for the cost of property that wears out over time, like buildings, furniture or equipment. The changes, which were introduced in fall 2018, apply to property and equipment acquired after November 20, 2018, and that becomes available for use before 2028. Applicants will base their CCA claim on the fiscal period ending in the current tax year, not the calendar year.
Correct response:
- The changes provide an enhanced first-year allowance for all property subject to CCA rules. This includes second-hand equipment, providing that neither the business owner nor a non-arm's length person previously owned the equipment, and that it has not been transferred on a tax-deferred "rollover" basis.
- Check the “Additional Restrictions” section of: https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/report-business-income-expenses/claiming-capital-cost-allowance/accelerated-investment-incentive.html#CDECOPGE
- For equipment and machinery used in Canada, the business can now claim 100% of the cost in the first year. They can do the same for the purchase of clean energy equipment.
- Find out more here: https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4002/t4002-6.html#tocch4e
‘Above and beyond’ response:
- A non-arm’s length person:
- Has a blood, adoption, marriage or common-law tie to the business owner. However, blood relationships do not typically include aunts, uncles, nieces, nephews or cousins for the purposes of the Income Tax Act.
- Has a common mind (a common purpose or interdependent relationship) with the business owner that directs the bargaining for both parties.
- Has de facto control of the business—that is, enforced by social influence despite no legal control.
- See these links:
- Income tax act s. 251(1), s. 251(2): https://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-251.html
- Income tax folio (which is CRA’s interpretation of the rules) https://www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-1-individuals/series-1-individuals/income-tax-folio-s1-f5-c1-related-persons-dealing-arms-length.html
SCENARIO #4: Car allowance
Question #1: Is the provision of a car allowance to sales people considered a taxable benefit?
Background
A car allowance is any payment (in addition to salary or wages) that employees receive from an employer for using their own vehicle in connection with their employment without having to track its use.
Correct response
- If you pay your employee an allowance based on a flat rate that is not related to the number of kilometres driven, it is a taxable benefit and has to be included in the employee's income.
- However, if the car allowance is based on a per-kilometre rate that is considered “reasonable” by CRA standards, the employer does not deduct CPP contributions, EI premiums or income tax.
- Agent should direct the caller to: https://www.canada.ca/content/dam/cra-arc/formspubs/pub/t4130/t4130-18e.pdf
Above and beyond response
- The CRA considers an allowance reasonable if all the following conditions apply:
- the allowance is based only on the number of business kilometres driven in a year.
- the rate per-kilometre is reasonable.
- the employer did not reimburse the employee for other business expenses related to using the vehicle (excluding the likes of tolls, ferry charges or supplementary business insurance, if the allowance was initially determined without factoring in these reimbursements).
- Regarding rates, the CRA considers the allowance reasonable if the rate is not more than $0.58/km for the first 5,000 kilometres and not more than $0.52/km for any additional kilometres. The allowance must take into account the actual kilometres driven, therefore employees must record the distances they travel.
- Additional links:
- https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/benefits-allowances/automobile/automobile-motor-vehicle-allowances/reasonable-kilometre-allowance.html
- https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/benefits-allowances/automobile/automobile-motor-vehicle-allowances/flat-rate-allowance.html
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