EMPLOYER HEALTH TAX DEADLINES

It has been a few months since the introduction of the Employer Health Tax in British Columbia.

It is mandatory for all employers in British Columbia to be registered for the tax if they are above the exemption threshold.

General employers (entities that are not charities or not-for-profits) with eligible wages above $600,000 in 2018 should have registered by May 15th, and should have made installment payments on June 15th and September 15th. One additional installment payment is due on December
15th, and a final payment is due on filing on March 31, 2020.

Each of these installments should be 25% of their estimated Employer Health Tax based on the lessor of 2018 or 2019 eligible wages.

If the employer has eligible wages between $500,000 and $600,000, they only need to be registered by December 31, 2019, with one payment made on March 31, 2020. Employers with eligible wages below $500,000 do not need to register.

If an employer still has not registered, they can do so at E-Tax BC. Payments can also be made through this account.

They can also use online banking, under the payee “BC – EMPLOYER HEALTH TAX (installment or tax return payments)”.

REAL ESTATE TRANSACTIONS AUDITED

The CRA has ramped up efforts to collect tax on real estate dispositions.

For years, many taxable property sales were unreported to the CRA, resulting in significant amounts of potential taxes going unpaid.

However, working in conjunction with provincial agencies in charge of property transfers, the CRA has uncovered substantial numbers of property sales that had not been reported, resulting in considerable amounts of tax and penalty assessments to taxpayers.

In 2017, the CRA reported penalty assessments of $17 million related to unreported real estate transactions.

By 2019, this amount has increased to $101 million.

In BC alone between April 2015 and March 2019, over $422 million was uncovered through the audit of real estate transactions, including income tax, GST, as well as related interest and penalties.

It is important to note that if a taxpayer has not reported a principal residence transaction for 2016 or 2017, they can still do so without any penalties applied.

However, the CRA has not stated whether they will allow late filings for 2018 or any future year. It is likely they will not be lenient with late filings for these years.

There are still no income taxes owing on the sale of a property that fully qualifies as a principal residence for the taxpayer.

Mental Illness and the Disability Tax Credit

A recent case involving mental illness may have positive ramifications for future taxpayers claiming the Disability Tax Credit, in cases where those taxpayers have a mental impairment.

A taxpayer had been diagnosed by a psychiatrist as having severe social anxiety disorder, severe panic disorder with agoraphobia, and chronic and moderate to severe generalized anxiety disorder. A second psychiatrist had also diagnosed her with persistent depressive disorder.

She could perform many of her regular daily duties of care, such as meal preparation, bathing, and dressing, and she was able to maintain her own accommodations.

However, she was unable to sustain employment because her symptoms made it difficult for her to perform the necessary duties of any job she applied for.

In addition, her mother had to be involved in many of her other day to day duties, such as going to the bank and making medical and other appointments.

The taxpayer also had extreme difficulty participating in social and recreational activities.

The Canada Revenue Agency (CRA) had originally denied the Disability Tax Credit, arguing that the taxpayer did not qualify because she did not meet all three requirements necessary for claiming the credit.

They agreed that the taxpayer met the first two conditions, in that the impairment was expected to last for at least 12 months, and that it was present at least 90% of the time.

However, they argued that she did not meet the third requirement for claiming the credit, which states that “the effects of the impairment must markedly restrict the individual’s ability to perform a basic activity of daily living, all or substantially all of the time”. The Income Tax act specifically states that working, housekeeping, and social or recreational issues are not considered to be basic activities of daily living.

The taxpayer appealed her case to the Tax Court of Canada. The court stated that in order to determine whether a person’s mental impairment markedly restricts their ability to perform a basic activity, there are three issues that should be considered; the person’s memory, their adaptive functioning, and their problem solving, goal setting, and judgement when considered as a combined function.

The Court found that although the taxpayer’s memory was fine, her adaptive functioning was not, and therefore, she qualified for the tax credit.

The Court also commented that the taxpayer would have also qualified under the third issue as well.

This is a positive result for the taxpayer, and it will be interesting to see if this case will form a precedent for
other similar cases in the future.

Tax Changes to Come From Election

Now that a federal Liberal minority government has been elected, we can review some of the policies that the Liberals campaigned on to predict tax changes that may be coming in the next few years.

Currently all taxpayers in Canada pay no federal tax on their first $12,069 of income.

The Liberal government has pledged to increase this to $15,000, for those taxpayers with net income of less than $147,000. This would be phased in gradually until the year 2023.

The Liberals have also stated that they will make maternity and parental leave benefits tax free. Along those lines, they have indicated that they will increase the Canada Child Benefit by 15% for children under one year old.

Although making leave benefits tax free is potentially more beneficial to individuals with higher levels of income, the increase to the Canada Child Benefit will provide more of an advantage to low income families.

The Liberals have also pledged to establish a vacant homes tax similar to what is already in place in British Columbia. This will apply to non-residents who do not live in Canada.

They have also promised to introduce a tax of 10% on luxury vehicle purchases of over $100,000. This tax would also apply to boats and personal aircraft.

As it is likely that the Liberals will have to rely on the NDP for support to stay in power, there are certain promises in the NDP platform that the Liberals may have to incorporate into their own changes.

The NDP has indicated that they want to raise the general corporate tax rate by 3%.

When combined with the provincial rate, this would bring the general corporate tax rate in BC to 30%. They have also stated that they would increase taxes
on capital gains. Currently, only one half of a capital gain is included in taxable income. They would increase this inclusion rate to 75%.

They have also promised that they would raise the federal tax rate to 35% on income in the highest personal tax bracket.

When combined with the provincial rate, this would increase the personal tax rate on the highest level of income in BC to 51.8%.