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T106 Forms – Revised Version Released

The Canada Revenue Agency (CRA) yesterday issued a revised version of the Form T106 to be used by taxpayers for tax years or fiscal periods beginning after 2021. A new question has been added to Part IV of the 2022 version of Form T106 to determine if a Pertinent Loan or Indebtedness (PLOI) election was made. If yes, the corporation resident in Canada is required to provide the amount of deemed interest related to the election. Reporting persons or partnerships are also required to provide additional information in Part IV about investments in the reporting entity by the non-resident (paid-up capital (PUC)). More information on the revised versions of the Form T106 can be found on the CRA website HERE.

Specifically, if debt is a PLOI, it will be subject to the new deemed interest income rule under section 17.1 of the Act instead of potentially being treated as a deemed dividend.

  • The new version of the T106 information return to be used when filing for tax years or fiscal periods that begin after 2021 (released on March 3, 2022)
  • When filing for tax years or fiscal periods that began before 2022, taxpayers must use the previous version of the T106 information return (released on November 16, 2017)
  • Individual Di Minimis threshold
    • For tax years or fiscal periods beginning in 2022 and later, the individual de minimis threshold has been increased to CAN$100,000 for the filing of Form T106, Information Return of Non-Arm’s Length Transactions with Non-Residents.
    • For tax years or fiscal periods beginning before 2022, the individual de minimis threshold remains at CAN$25,000

Where a reporting person or partnership’s total amount of the transactions with a particular non-resident during the tax year or fiscal period is below the threshold, there is no need to report these transactions in Part III of the T106 Slip. In other words, taxpayers must still file a T106 information return to report other information, but they do not need to report detailed information in Part III of the information return where their total transactions with a particular non-resident are below:

    • CAN$25,000 for tax years or fiscal periods beginning before 2022, and
    • CAN$100,000 for tax years or fiscal periods beginning in 2022 and later

Additional guidance on the individual di minis threshold is available on the CRA website HERE.

Contact our Transfer Pricing Principal & Practice Leader Avinash S. Tukrel for more information.

Reporting Requirements for Trust – 2021 Filings

CRA recently sent some clarification on the new 2021 reporting requirements for Trusts which would normally be due by March 31, 2022. The reporting only applies to Express Trusts.

1. What is an express trust?

An express trust is generally a trust created with the settlor’s express intent, usually made in writing (as opposed to a resulting or constructive trust, or certain trusts deemed to arise under the provision of a statute).

The Exceptions are:

  • Trusts that have been in existence for less than three months
  • Certain regulated trusts, such as a lawyer’s general trust account
  • Trusts that qualify as non-profit organizations or registered charities
  • Mutual fund trusts, segregated funds, and master trusts
  • Graduated rate estates
  • Qualified disability trusts
  • Employee life and health trusts
  • Certain government funded trusts
  • Trusts under or governed by certain registered plans
  • Cemetery care trusts and trusts governed by eligible funeral arrangements

2. What additional information will have to be provided?

For 2021 and subsequent taxation years, Budget 2018 proposes that all non-resident trusts that currently have to file a T3 return and all express trusts that are resident in Canada, with some exceptions, report the identity, address, birth date and identification number (SIN or Foreign ID) of :

  • trustees,
  • beneficiaries
  • settlors of the trust
  • each person who has the ability (through the trust terms or a related agreement) to exert control or override trustee decisions over the appointment of income or capital of the trust (e.g., a protector)

3. How will the trust provide the additional information?

A trust will have to file a new schedule with its T3 return to report the additional information regarding its beneficial owners, that is, the identity of all trustees, beneficiaries and the settlors of the trust, along with each person who has the ability (through the trust terms or a related agreement), to exert control or override trustee decisions over the appointment of income or capital of the trust (e.g., a protector).

Further information about the new schedule will be posted on Canada.ca when it is available.

4. If the trust has no income to report, can the trust just report the additional beneficial ownership information by filing the new schedule?

No, for 2021 and subsequent taxation years, the trust will have to report the additional information by filing the new schedule along with the T3 return.

5. What happens if a trust fails to file the T3 return or forgets to provide the additional information?

For 2021 and subsequent taxation years, Budget 2018 proposes that a penalty will apply if a trust that has to file a T3 return fails to do so or fails to provide the additional information about the beneficial ownership.

The penalty will be equal to $25 for each day of delinquency, with a minimum penalty of $100 and a maximum penalty of $2,500. If a failure to file the return was made knowingly, or due to gross negligence, an additional penalty will apply. The additional penalty will be equal to 5% of the maximum value of property held during the relevant year by the trust, with a minimum penalty of $2,500. As well, existing penalties in respect of the T3 return will continue to apply.

Please contact a Segal representative if you have any questions.

Tax Manager

Segal LLP is a rapidly growing mid-size accounting, tax and business advisory firm headquartered in midtown Toronto. Segal is committed to growth by investing in our team, providing continuous learning and a positive, supportive entrepreneurial work environment all with a focus on providing clients best in class client service.

As a member of our Tax Team, you will advise our clients by contributing to strategic tax planning and client management initiatives. As Manager, you’ll work as part of a team to collaborate, design, and solve complex business issues from strategy to execution.

Responsibilities

  • Participate in income tax planning engagements
  • Prepare and/or review tax planning memos including reorganizations, estate planning, cross border structures
  • Prepare detailed tax analysis on tax issues
  • Review complete corporate, personal, trust and partnership returns
  • Work with both the tax group partners and accounting/auditing group partners
  • Work efficiently and effectively within client engagement parameters and prioritize and balance multiple files
  • Supervise a team, delegate tasks, and promote teamwork
  • Mentor, train, and delegate work to junior team members in the Tax team.
  • Participate in the training of staff to support their growth, knowledge, and professional development.

Qualifications

  • CPA designation.
  • Completion of CPA Canada In Depth Tax Course or Master of Taxation is required
  • Demonstrated experience in tax and estate planning for business owners or high net worth individuals
  • Strong technical background in Canadian income tax; experience with corporate tax return preparation and review, tax research, and drafting letters would be considered an asset
  • Experience with cross border tax issues would be an asset
  • Ability to prepare effective research and planning memos independently and as part of a team.
  • Can work under pressure, be decisive, exercise good judgment and common sense
  • Working proficiency in Microsoft Suite including Word, Excel, PowerPoint, is essential.
  • Experience with Caseware and TaxPrep (or similar tax preparation software) is expected.
  • Ability to recognize and analyze problems, propose sound alternatives and conclusions
  • Strong interpersonal and relationship building skills and a demonstrated ability to develop and nurture strong relationships with clients
  • Excellent verbal and written communication skills
  • Team player with a positive ‘can do’ approach.
  • Creative problem-solving ability.
  • Organized and able to meet multiple project deadlines while being detail oriented.
  • Strong commitment to professional client service excellence

This position represents a significant opportunity for those looking to advance their career by playing a major role in a growing organization, and who have the curiosity and interest in exposure to a broad range of clients, industries, and assignments.

To submit your resume for this position, please contact us by email here.

Targeting COVID-19 Support Measures

On October 21, 2021, the Department of Finance announced that the Canada Emergency Wage Subsidy (CEWS) and the Canada Emergency Rent Subsidy (CERS) will end on October 23, 2021. In its place, the government is introducing two new programs:

  • The Tourism and Hospitality Recovery Program
  • The Hardest-Hit Business Recovery Program

The 2021 Federal Budget provided the government with the authority to extend these programs until November 20, 2021. The government plans to introduce legislation as soon as possible to allow these programs to run past November 20, 2021, until May 7, 2022, with authority for further amendments through regulations until July 2, 2022.

Tourism and Hospitality Recovery Program

This new program is targeted to organizations in selected sectors of the tourism and hospitality industry that have been deeply impacted since the beginning of the pandemic and continue to struggle. Examples of eligible organizations in the tourism and hospitality industry include hotels, restaurants, bars, festivals, travel agencies, tour operators, convention centres, convention and trade show organizers, and others. The Department of Finance indicated that it will provide additional details on businesses that qualify for this program in the near future.

Eligible organizations would be required to meet the following two conditions to qualify for this program:

1. An average monthly revenue reduction of at least 40% over the first 13 qualifying periods for the CEWS (12-month revenue decline); and

2. A current month revenue loss of at least 40%.

The 12-month revenue decline would be calculated as the average of all revenue decline percentages for eligible organizations from March 2020 to February 2021 (claim periods 1-13, excluding claim period 10 or 11). Any periods in which an entity was not carrying on its ordinary operations for reasons other than a public health restriction (for example, because it is a seasonal business) would be excluded from this calculation. The existing rules would continue to apply for the purposes of calculating the current month revenue decline.

Under this program, the maximum subsidy rate for the wage and rent subsidies would be set at 75% from October 24, 2021 to March 12, 2022 (claim periods 22 to 26).

The wage and rent subsidy rates would continue to be calculated based on current month revenue losses compared to those of a prior reference period, as under existing rules. The subsidy rate would start at 40% for eligible organizations with a 40% current month revenue decline, increasing thereafter in proportion to current month revenue loss up to a maximum rate of 75% for those with a current month revenue decline of 75% or higher.

The rent and subsidy rates would be reduced by half from March 13 to May 7, 2022 (claim periods 27 and 28).

Lockdown Support would be available at the current fixed rate of 25% and pro-rated based on the number of days a particular location was impacted by a lockdown, as under existing rules.

The following table summarizes the wage and rent subsidy rate structure for organizations that qualify for the Tourism and Hospitality Recovery Program from October 24, 2021 until May 7, 2022:

 

Periods 22 to 26 (October 24, 2021 to March 12, 2022)

Periods 27 to 28 (March 13, 2022 to May 7, 2022)

Current month revenue decline

  

75% and over

75%

37.5%

40% to 74%

Revenue decline

(e.g., 60% revenue decline = 60% subsidy rate)

 

Revenue decline / 2 

(e.g., 60% revenue decline / 2 = 30% subsidy rate)

 

0 to 39%

0%

0%

Hardest-Hit Business Recovery Program

This new program is targeted to hard-hit organizations that do not qualify for the Tourism and Hospitality Recovery Program, but have still been deeply impacted since the beginning of the pandemic and continue to struggle.

Eligible organizations would be required to meet the following two conditions to qualify for this program:

1. An average monthly revenue reduction of at least 50% over the first 13 qualifying periods for the CEWS (12-month revenue decline); and

2. A current month revenue loss of at least 50%.

The calculation of the 12-month revenue decline would follow the same rules as under the Tourism and Hospitality Recovery Program, as discussed above. The existing rules would continue to apply for the purposes of calculating the current month revenue decline.

Under this program, the maximum subsidy rate for the wage and rent subsidies would be set at 50% from October 24, 2021 to March 12, 2022 (claim periods 22 to 26).

The wage and rent subsidy rates would continue to be calculated based on current month revenue losses compared to those of a prior reference period, as under existing rules. However, under this program the subsidy rates would start at 10% for eligible hard-hit organizations with a 50% current month revenue decline, increasing thereafter on a straight-line basis to a maximum rate of 50% for those with a current month revenue decline of 75% or higher.

The rent and subsidy rates would be reduced by half from March 13 to May 7, 2022 (claim periods 27 and 28).

Lockdown Support would be available at the current fixed rate of 25% and pro-rated based on the number of days a particular location was impacted by a lockdown, as under existing rules.

The following table summarizes the wage and rent subsidy rate structure for organizations that qualify for the Hardest-Hit Business Recovery Program from October 24, 2021 until May 7, 2022:

 

Periods 22 to 26 (October 24, 2021 to March 12, 2022)

Periods 27 to 28 (March 13, 2022 to May 7, 2022)

Current month revenue decline

  

75% and over

50%

25%

50% to 74%

10% + (revenue decline – 50%) x 1.6

(e.g., 10% + (60% revenue decline – 50%) x 1.6 = 26% subsidy rate

5% + (revenue decline – 50%) x 0.8 

(e.g., 5% + (60% revenue decline – 50%) x 0.8 = 13% subsidy rate

 

0 to 49%

0%

0%

Support in the Event of a Public Health Lockdown

To recognize the challenges that may arise from resurgences of the pandemic, organizations subject to a qualifying public health restriction would be eligible for support at the subsidy rates as calculated in the Tourism and Hospitality Recovery Program (see above), regardless of sector, if they have one or more locations subject to a public health restriction (lasting for at least 7 days in the current claim period) that requires them to cease activities that accounted for at least approximately 25% of total revenues of the employer during the prior reference period.

Applicants would not need to demonstrate the 12-month revenue decline, only a current month decline. It would be available to impacted organizations, regardless of sector.

Increasing the Monthly Cap on Eligible Expenses under the CERS

Under current rules, there is a monthly cap on eligible expenses that can be claimed under the CERS of $75,000 per business location and $300,000 in total for all locations (including any amounts claimed by affiliated entities).

To better respond to the needs of businesses, including hard hit businesses like hotels and restaurants, the government is proposing to make legislative amendments to increase the aggregate monthly cap from $300,000 to $1 million (including any amounts claimed by affiliated entities) starting on October 24, 2021.

This new monthly cap would be available to all eligible employers and organizations that meet the new eligibility requirements for the rent subsidy under the Tourism and Hospitality Recovery Program and the Hardest-Hit Business Recovery Program.

Extending the Canada Recovery Hiring Program

The Canada Recovery Hiring Program (CRHP) is set to expire on November 2021. The government is proposing to increase the subsidy rate from 20% to 50% for currently eligible employers from October 24 to November 20, 2021.

The government is also proposing to introduce legislation to extend the hiring program at the new rate of 50% past November 20, 2021 until May 7, 2022, with authority for a further extension through regulations until July 2, 2022.

Under the proposed extension, the existing baseline period of March 14 to April 10, 2021, would continue to be used to calculate incremental remuneration. The existing eligibility rules would also continue to apply, including the required revenue decline of more than 10%.

General Comments

For organizations that have managed to endure the pandemic with low to moderate revenue declines, the expiry of the current version of CEWS and CERS will mark the end of their ability to claim these subsidies. These types of organizations should consider applying for CRHP if they experience a revenue decline of more than 10% for a given month and have increased their payroll costs compared to the March 14 to April 10, 2021 period.

For organizations that have been severely impacted by the pandemic and experienced steep revenue declines, they will be able to continue receiving government support through either the Tourism and Hospitality Recovery Program or the Hardest-Hit Business Recovery Program.

In the event of any future public health lockdowns, organizations (regardless of sector) that are forced to shut down one or more locations may be able to get subsidy support as calculated under the Tourism and Hospitality Program.

If you have any questions regarding these recent government announcements, please feel free to contact your Segal advisor.

2021/2022 Tax Series for Accountants

We are pleased to announce the return of Segal’s Tax Series For Accountants for 2021/2022, hosted by our Tax Partner, Howard L. Wasserman.

We invite any interested accounting professionals to join us for a great seminar series, covering a range of relevant tax topics.

The series will span over the following four days:

  • Wednesday, October 6th, 2021
  • Wednesday November 3rd, 2021
  • Wednesday December 1st, 2021
  • Wednesday, January 26th, 2022

To ensure the safety of our speakers and guests, we have made the decision to host all four seminars online. The sessions will be presented live, giving attendees the opportunity to ask questions.

If you are unable to “attend” the live presentation, don’t worry, the recorded sessions will be available to watch at your convenience.

We hope you will join us again this year and we look forward to seeing you!

The event is $300 (plus HST) to attend. This includes four 2 hour sessions and learning materials.

Each seminar will run from 8:30 am to 10:30 am. The Tax Series will be hosted online and the link to attend will be sent to attendees the week prior.

CPD: Attending these 4 sessions will provide 8 hours of verified CPD hours with an attendance certificate provided.

Wednesday, October 6th, 2021

  • Budget 2021 Update
  • Update on Impact of COVID 19 Tax/Subsidy Rules
  • Update on TOSI Issues
  • Bill C-208 Intergenerational Transfers

Wednesday, November 3rd, 2021

  • Integration and Tax Rates
  • Year-End Planning Including Salary/Dividends
  • Personal and Corporate Taxation of Earning US Income
  • Discussion/Impact of Proposed US Tax Rules

Wednesday, December 1st, 2021

  • Estate Freeze and Re-freeze Considerations
  • Treaty Filings – Non Resident Corporations

Wednesday, January 26th, 2022

  • Purification and Capital Gains Exemption
  • Safe Income and Dividends
  • Purchase/Sale Considerations