September 2018 Newsletter

Are you considering starting a home business? Here are some planning issues, tax rules and tips to keep in mind.

Incorporation

Many people are not clear on the difference between a business and a corporation, but the difference is extremely important, for both tax purposes and liability purposes.

You can carry on business without creating a corporation. Although you may give your business a name, it is simply you carrying on the business. You are a “sole proprietor”.

If you are buying a new home or condominium, a GST or HST (and in Quebec, QST) New Housing Rebate may be available to you – but there are a number of traps and pitfalls that can cause you to lose the rebate.

Amount of rebate

The federal rebate, offsetting in part the 5% GST on the new home, is 1.8% of the purchase price, or 36% of the GST. However, the full rebate is available only up to a purchase price of $350,000, where the maximum rebate is $6,300. After that the rebate is phased out, and disappears entirely once the home price exceeds $450,000.

In Quebec, an additional rebate is available of 4.9875% of the purchase price (50% of the 9.975% Quebec Sales Tax — QST). However, the full rebate is available only up to a purchase price of $200,000, so the maximum rebate is $9,975. After that the rebate is phased out, and disappears entirely once the home price exceeds $300,000.

The CRA recently issued a warning to taxpayers not to “be fooled by the working income tax benefit tax scheme”.

The WITB (which will be renamed the Canada Workers Benefit starting 2019) is a refundable tax credit intended to help low‑income individuals and families who are currently in the workforce. It also encourages Canadians to enter the workforce. You can only claim the WITB if you are earning income from working in Canada.

The scheme involves the promoter preparing a T4 employment income slip in your name, listing an income amount in Box 14 that will maximize your tax refund. Because the WITB is a refundable credit, earning such income can keep you below the level of paying tax and yet generate a WITB for you.

Mortgage lender lost out to borrower’s pre‑existing GST debt

In The Queen v. Toronto-Dominion Bank, 2018 FC 538, a Mr. Weisflock was in the landscaping business as a sole proprietor. In 2007-2008, he accumulated some $68,000 of unremitted GST, which he had collected but not remitted.

In 2010, Weisflock and his wife took a line of credit from TD Bank, secured by their home, which was registered in his name. A year later he sold the home and repaid the loan to the bank, discharging the mortgage.

The CRA then sued the bank in Federal Court for the $68,000 that the bank received back from Weisflock. This was because section 222 of the Excise Tax Act (the GST/HST legislation) imposes a deemed trust on Weisflock’s property despite any security interest, and required “proceeds” of the property to be paid to CRA “in priority to all security interests”.