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Sharing Economy: Know Your Tax Obligations

On March 17, 2017, CRA released a Tax Tip reminding those involved in the sharing economy to ensure that they comply with relevant income tax and GST/HST obligations. All income earned through sharing economy activities should be reported.

CRA identified five key sectors, being accommodation sharing, ride sharing, music and video streaming, online staffing, and peer/crowdfunding.

CRA also noted that it is co-operating with industries, the provinces, and the territories to identify and address areas where the tax system and compliance might be affected.

If you are involved in the sharing economy, ensure you are compliant with your tax obligations.


Leave Of Absence: There Are Tax Consequences

A deferred salary leave plan (DSLP) permits an employee to fund, through salary deferrals, a leave of absence from their employment. Generally, salary deferrals are included in income when the amounts are earned. However, if certain conditions are met under a DSLP, the employment income is taxed when the amounts are received.

In a December 19, 2016 French Technical Interpretation, CRA opined that the requirements of a DSLP must be met when the plan is entered into and throughout the duration of the plan. One requirement is that the employee return to their employment after the leave of absence for a period that is not less than the leave period.

If, when entering into the agreement, the parties expect the employee to cease employment during the plan, it would not qualify as a DSLP. In this case, the deferred amounts would be included in the employee’s income when earned.

On the other hand, if, at the time the agreement is made, it is clear that the employee will meet all the requirements, being temporarily out of work during the period should not, in and of itself, prohibit an employee from participating in a DSLP.

Consider a deferred salary leave plan as an option for key employees wishing to take a leave of absence.


Payroll Advances: Tax Consequences

In an April 26, 2016 Technical Interpretation, CRA opined that where an employer provides a payroll advance to an employee, the amount is not generally considered to be a loan. A salary advance is a payment for salary, wages or commissions that an employee is expected to earn in the performance of future services. These amounts are generally included in the employee’s income in the year the advance is received.

If a repayment by the employee is required, a deduction is available in the tax year in which the repayment was made. The deduction cannot exceed the advance that was previously included in the employee’s income from employment.

When providing an advance to an employee, ensure that the employee clearly understands the tax implications.


Objections? Not So Fast!

When filing an objection to a CRA reassessment, one of the most frequently-posed questions is “How long will it take?”. The answer, according to the Auditor General, is “too long”.

On November 29, 2016, the Auditor General released a report to Parliament focusing on the effectiveness and timeliness of the objection process.

Length of Process

For the five-year period ending March 31, 2016, CRA took the following numbers of days, on average, to resolve objections from the time they were filed by the taxpayers:

  • 143 days for low-complexity objections (about 61% of total objections for the period);
  • 431 days for medium-complexity objections (about 37% of total objections for the period); and
  • 896 days for high-complexity objections (about 2% of total objections for the period).

On average, CRA did not assign an objection to an appeals officer until 150 days after the taxpayer had mailed the notice of objection.

CRA’s performance was also compared to six other administrations using 2009 data. Canada took 276 days compared to an average of 70 days for the other six countries.

It was also noted that the tracking system for timing the process was not sufficiently accurate or complete.

Objection Decision Results

Of the objections accepted and processed by CRA, 65% were decided in favour (in whole or part) of the taxpayer. 0.6% of objections resulted in an increase in income tax owed.

Next Steps

In the Fall of 2016, CRA commenced a review of its objections process. As an immediate response, CRA indicated that it will implement the standard to respond to taxpayers on low-complexity objections within 180 days, 80% of the time. Also, beginning in the 2017-2018 year, as part of the initial step when objections are received and screened, taxpayers will be contacted (if necessary) to provide missing information to ensure the file is complete when assigned for resolution.

As it will likely take a long time to complete an objection, a significant amount of interest on the tax liability may accumulate. Consider making an earlier payment to reduce the interest cost in the event that the objection is not successful. If it is successful, the CRA will pay interest to the taxpayer, albeit at a lower rate.