Accounting and Taxes Thread

[DoubleF]

*Looks outside*

Merry Taxmas everyone!

[kipperiggy]

thank god I'm still in audit,
but everyone thinks I do taxes.
Auditor's nightmare.

[DoubleF]

Originally Posted by kipperiggy

thank god I'm still in audit,
but everyone thinks I do taxes.
Auditor's nightmare.

I do audits too. The tools you pick up in audit make you a better tax prepper.

Same for bookkeeping. The less you'd hate the bookkeeping in an audit, the better it is.

[calf]

I've been in industry for ~15 years, and was in financial statement audit for ~5 years.

I can barely do my own taxes.

[Locke]

Originally Posted by calf

I've been in industry for ~15 years, and was in financial statement audit for ~5 years.

I can barely do my own taxes.

Its a very different specialty.

Mine is tax. If you dont know where to find us, its in one of the lower circles of Hell.

"Lasciate ogne speranza, voi ch'intrate"

[fotze2]

This thread should be forwarded to the insomnia thread.

[Locke]

Originally Posted by fotze2

This thread should be forwarded to the insomnia thread.

If the Tax Thread can't put you to sleep its all over.

[Ironhorse]

Question for you tax guys. My wife recently went on short term disability, and just received her first payments from her benefits which is great. But the amounts seem high? Like only 10-ish% less than her full paycheque deposits. Her friend mentioned that this probably because no taxes etc. were deducted from the benefit payments. If this is true, is this going to come back and bite us in the ass next spring?

[iggy_oi]

Originally Posted by Ironhorse

Question for you tax guys. My wife recently went on short term disability, and just received her first payments from her benefits which is great. But the amounts seem high? Like only 10-ish% less than her full paycheque deposits. Her friend mentioned that this probably because no taxes etc. were deducted from the benefit payments. If this is true, is this going to come back and bite us in the ass next spring?

Does your wife pay her disability benefit premiums or does her employer? The accountants in here can correct me if I’m wrong but my understanding is that if she pays her own benefits premiums then the money paid for STD isn’t taxable but if her employer pays the premium then any money received through STD would be considered taxable income.

Edit: I should also mention that while the amount she’s receiving sounds high, there is no fixed amount that people receive as every plan is different. Some plans may only cover 50% of your pre-disability wages but some can pay as much as 100% it will just affect how much the premiums cost.

[Locke]

Originally Posted by iggy_oi

Does your wife pay her disability benefit premiums or does her employer? The accountants in here can correct me if I’m wrong but my understanding is that if she pays her own benefits premiums then the money paid for STD isn’t taxable but if her employer pays the premium then any money received through STD would be considered taxable income.

Edit: I should also mention that while the amount she’s receiving sounds high, there is no fixed amount that people receive as every plan is different. Some plans may only cover 50% of your pre-disability wages but some can pay as much as 100% it will just affect how much the premiums cost.

Thats a fairly good explanation but it tends to be a little more complicated than that, but unfortunately when it comes to Disability benefits, both short and long-terms, its the really little details that make very big differences.

I wouldnt be able to give you a solid answer based on this information.

[iggy_oi]

Originally Posted by Locke

Thats a fairly good explanation but it tends to be a little more complicated than that, but unfortunately when it comes to Disability benefits, both short and long-terms, its the really little details that make very big differences.

I wouldnt be able to give you a solid answer based on this information.

I believe the STD/LTD benefits are also none taxable if the premium costs are shared between employer and employee regardless of how those costs are divided but I’ve personally never dealt with that situation, can you confirm if that is generally the case?

My understanding has been that so long as the employee covers any portion of the STD/LTD premiums it’s not taxable.

[Locke]

Originally Posted by iggy_oi

I believe the STD/LTD benefits are also none taxable if the premium costs are shared between employer and employee regardless of how those costs are divided but I’ve personally never dealt with that situation, can you confirm if that is generally the case?

My understanding has been that so long as the employee covers any portion of the STD/LTD premiums it’s not taxable.

This is kind of true, however, you also run into businesses or...Governments, that self insure.

Some Governments for their employees do not take out LTD policies and as such just continue to pay their employees, while on Disability, but at a reduced rate, but because of that the Disability amounts are taxable, because its just considered reduced pay.

Whereas other companies that hold Disability policies with insurers, those policies are typically non-taxable.

[Table 5]

A question for the accountants in regards to the impending raise of the capital gains tax (thanks again Justin!).

So I have an investment account under my corporation. These are mostly long-term holds, but with a currently decent profit on paper. Am I correct to assume that if I sell the winners before June, the capital gains will still only be taxed at the current 50% rate? My thinking is that I can sell the stocks now to lock in that tax rate, and then buy them up again.

Anything off with that line of thinking? I know I'll have to pay more taxes for the year, but would rather pay 50% now then 65% later.

[DoubleF]

Originally Posted by Table 5

A question for the accountants in regards to the impending raise of the capital gains tax (thanks again Justin!).

So I have an investment account under my corporation. These are mostly long-term holds, but with a currently decent profit on paper. Am I correct to assume that if I sell the winners before June, the capital gains will still only be taxed at the current 50% rate? My thinking is that I can sell the stocks now to lock in that tax rate, and then buy them up again.

Anything off with that line of thinking? I know I'll have to pay more taxes for the year, but would rather pay 50% now then 65% later.

I don't see an issue with how you derived your logic. But the true answer is, no idea and individuals must decide for themselves what they want to do. Everyone doing this is basically going for a buzzer beater. Consider that for something like this, the CRA is basically going to do everything they can do to call the goal back on video review.

In a theoretical scenario with these details provided, based on how CRA has historically investigated certain transactions, I think there is an exceptionally elevated risk that CRA could potentially investigate, attack and latch onto a individual/entity for the transactions and claim an avoidance rule standpoint.

Canadian income tax rules use laws that are written in a way that is fundamentally principles based. If the intention of an individual was to hold long and was not to sell prior to the announcement, a sudden change due to the announcement might cause the CRA to evaluate the individual's actions as a "potential bad actor" in CRA's eyes. This especially if an individual were to re-purchase the same or exceptionally similar investments. The reasoning would be that the intention of such transactions were always for the purposes of avoidance.

Keep in mind that there's always an element of truth in a joke, especially if the joke is that in CRA's eyes, they often consider someone guilty until proven innocent.

It's not guaranteed that that CRA would be successful if they were to challenge transactions that are similar. However, it certainly already feels like low hanging fruit for the CRA if they could just tell Mr CRA Computer to automatically flag and investigate any capital gains transactions over a certain threshold that were transacted between April-June 2024. There's no way to know whether such a challenge from the CRA would even stick, if the CRA investigated similar types of transactions in detail.

The concept of a superficial gain doesn't exist. But for a sort of easier exercise, I'd view these proposed transactions from a similar lens and logic of the superficial loss rules. Replace the words loss in the rule with gains and see if it sounds like it's sounds like a transaction that might be undertaken. If the intention and logic of why someone is doing what they're doing is remotely similar to the fundamentals of superficial loss, especially if someone sorta implies they might be re-acquiring the same investments, I think such transactions might be of special interest to the CRA. I also believe that the CRA isn't stupid. Even if someone acquires an investment that is different in name, but exceptionally similar to the original investment, this won't cause the CRA to rule out these transactions as being the type that may be for avoidance purposes.

Don't try and score a goal if you aren't comfortable with the concept of a video review with the CRA. For those willing to accept the challenge and get the best chance at shooting their shot while also risking a bull#### delay of game/unsportsmanlike penalty, I do earnestly wish them the best of luck and I do hope they succeed.

Shooting a shot or not, both are valid. I'm just saying this is probably more like playoff hockey than regular season until the effective date passes. CRA likely will be reviewing every goal that is scored with extra scrutiny.

[Slava]

^ but when you look at this through the superficial loss lens, you often do exactly what you’re describing here. You sell one thing to crystallize the loss, and buy something similar as a proxy (or maybe new permanent, depending on how things go) holding. CRA is well aware that this happens and they’re fine with it. I’m not sure why that would suddenly be viewed differently here?

[DoubleF]

Originally Posted by Slava

^ but when you look at this through the superficial loss lens, you often do exactly what you’re describing here. You sell one thing to crystallize the loss, and buy something similar as a proxy (or maybe new permanent, depending on how things go) holding. CRA is well aware that this happens and they’re fine with it. I’m not sure why that would suddenly be viewed differently here?

Original idea implied reacquiring the same investments. I said, superficial gain concept doesn't exist. I was speculating that I think CRA might be very interested in the transactions that look very similar to something mentioned in the superficial loss rule, but if the wording was superficial gain instead.

CRA wouldn't look at it differently. It's a totally brand new concept and lens. However, in recent history, when the CRA was closing certain rules (I think it was one of the surplus stripping rules?) they did comment that they might look at some of the activities and transactions of those legitimate that were done just before the new rules came into effect.

I'm not saying it'll stick. I'm not saying it's guaranteed. I'm just saying the risk is elevated that CRA may want to have a friendly chat. Just because someone squeaks the transaction in just before the rule is officially in effect doesn't mean the CRA won't potentially consider looking at it. They've been more aggressive since their JR and SR auditor hiring spree last summer.

[opendoor]

Originally Posted by Table 5

A question for the accountants in regards to the impending raise of the capital gains tax (thanks again Justin!).

So I have an investment account under my corporation. These are mostly long-term holds, but with a currently decent profit on paper. Am I correct to assume that if I sell the winners before June, the capital gains will still only be taxed at the current 50% rate? My thinking is that I can sell the stocks now to lock in that tax rate, and then buy them up again.

Anything off with that line of thinking? I know I'll have to pay more taxes for the year, but would rather pay 50% now then 65% later.

I would do the math, because if you're holding long term, there's a chance you'll come out behind by realizing the gains now. Yes, the inclusion rate is lower than it will be, but by paying the tax now, you're forgoing all the gains from the deferred taxes.

Just as an example assuming a $500K unrealized gain, 25% corporate tax rate, 8% annual return, a 15-year timeline, and that tax rates don't change:

Realize gain now at 50% inclusion rate:

Pay $62.5K in tax, leaving $437.5K to reinvest
At 8% over 15 years, you end up with $1.388M
Capital gains tax owing on the $950K gain would then be $159K

Total available to distribute after tax: $1.229M ($1.388 - $159K tax)

Don't realize the gain now:

At 8% over 15 years you end up with $1.586M
Capital gains tax owing on that amount would be $266K

Total available to distribute after tax: $1.32M ($1.586K - $266K tax)

So in that scenario, you come out about $90K ahead by not realizing the gain now. The numbers change depending on the timeline and growth, so it'd really depend on your situation.

[Table 5]

Thanks everyone, appreciate the insight. I wasn't even really thinking about the CRA angle, but that's definitely something to keep in mind (even though things would still be well within the rules).

Opendoor, I wish we were talking about a $500K gain, ha. Definitely not at that level, but I agree there are some long term implications of reducing the capital invested due to the earlier tax payment. I think my timeline would be not quite that long (more like 2-3 years, which in todays environment can feel like a long-term investment!), but definitely still something to calculate out.

[opendoor]

Actually, probably a simpler way to think of it is just the break even point. I think it'd be at about a 40% gain in value? Anything above that and you'd save taxes by waiting and anything below that you'd save by realizing the gain now.

So if it's something you might only hold for a few years, it probably makes sense to crystallize the gain with the lower inclusion rate. But if it was something like an index fund you plan on holding for 15-20 years, then you'd almost surely come out ahead by waiting.

I'm no accountant, so there are probably other moving parts I'm not thinking about, but I think in general that'd be a good way to ballpark estimate it. And of course, this government is living on borrowed time, so it's quite plausible that the inclusion rate (or the corporate tax rate) will be lowered in the coming years.

[bizaro86]

Originally Posted by opendoor

And of course, this government is living on borrowed time, so it's quite plausible that the inclusion rate (or the corporate tax rate) will be lowered in the coming years.

Offsetting that, we now have a huge structural deficit because of increases in interest costs from higher rates/higher debt. Getting that under control will probably require more revenue and I can imagine a world where "the rich" pay for that via higher capital gains inclusions/corporate tax rates.