Rental or Business Income???

Rental income from real property for an individual or partnership will either be property income or business income for tax
purposes.

In general, the number and kinds of service provided in relation to the rental of the property will determine whether the income is property or business income.  The more services that are provided, the more likely that the income will be considered business income.  The number of rental properties being managed will not affect the classification of the income.  For more detailed information, see the Canada Revenue Agency (CRA) Interpretation Bulletin IT-434 Rental of Real Property by Individual.


Why does it matter?

Property income and business income are treated differently for tax purposes.  The following are some of the differences.

Business income

• is reported on line 135 of the tax return, as part of self-employment income.
• is subject to Canada Pension Plan (CPP) premiums on net income.
• is included in working income for purposes of the working income tax benefit (WITB).
• is included in self-employment income for calculation of the refundable medical expense supplement.
• is included in earned income for purposes of calculating the child care expense deduction.

Property income

• from real estate rentals is reported on line 126 of the tax return.
• is not subject to CPP premiums.
• is not included in working income for the working income tax benefit (WITB).
• is not included in self-employment income for calculation of the refundable medical expense supplement.
• is not included in earned income for purposes of calculating the child care expense deduction.

One other important difference is that when the rental income is considered business income*, the filing due date for the individual and for their spouse is June 15th.  The due date for other individuals is April 30th.

* other than a business whose expenditures are primarily in connection with a tax shelter

August Small Biz Builder

Padgett Business Services is pleased to offer the August 2010 issue of the Small Biz Builder.  Highlights of this issue are below and the full version can be viewed by clicking the link below.

• Record keeping got you down?
• Do you have to file a tax return?
• Common Deductions and Tax Credits for Students
• Non-refundable Tax Credits

August 2010 Small Biz Builder

Employee Benefits — Promises Revealed

Reproduced from the AcSB's FYI Newsletter June Issue

Financial statement users often stress the need for information that is more useful and understandable on financial reporting for employee benefits. Wait no longer! New proposals issued by the International Accounting Standards Board (IASB) in April 2010 on accounting for employee benefits under defined benefit plans expect to meet that need by:

• 
  
  requiring the full amount of the defined benefit obligation, net of plan assets, to be reported on the balance sheet;
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  reporting changes in the carrying amounts of defined benefit obligations and plan assets in the income statement in a more understandable way;
• 
  
  clarifying requirements that have resulted in diverse practices; and
• 
  
  improving information about an entity’s defined benefit plans, including the risks to the entity arising from these plans.

The IASB’s Exposure Draft, “Defined Benefit Plans (Proposed amendments to IAS 19, Employee Benefits),” has significant implications for both financial position and income reporting. Deferred recognition and smoothing of gains and losses would be eliminated — the full amount of defined benefit obligations, net of plan assets, would be reported in the statement of financial position. All changes in defined benefit obligations and in the fair value of plan assets would be recognized when those changes occur. The Exposure Draft also proposes a new presentation approach — entities will split changes in the defined benefit obligation and the fair value of plan assets into service cost, finance cost and remeasurement components, and present:

• 
  
  the service cost component in profit or loss;
• 
  
  the finance cost component (i.e., interest on the net defined benefit liability or asset, as part of finance costs in profit or loss); and
• 
  
  the remeasurement component in other comprehensive income.

Thus, this new presentation approach makes it easier for financial statement users to understand how defined benefit plans affect an entity’s financial position and financial performance, and how they may affect its future cash flows.

But that’s not all! The Exposure Draft also proposes improved disclosures focused on the characteristics of an entity’s defined benefit plans, the amounts in the financial statements resulting from those plans, and the risks arising from defined benefit plans (including sensitivity analyses of changes in significant actuarial assumptions). Additional disclosures about participation in multi-employer plans are also proposed.

The Exposure Draft contains some additional proposals that address issues arising in practice. These include how expected future salary increases affect the attribution of benefits to different periods and questions received by the former IFRIC (now known as the IFRS Interpretations Committee). As well, it proposes to incorporate the requirements of IFRIC 14 IAS 19 — The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction directly into IAS 19.

The Accounting Standards Board (AcSB) will adopt the amendments to IAS 19 into Part I of the CICA Handbook – Accounting when they are finalized, which is expected to be in mid-2011. As part of this adoption process, the AcSB plans to expose the IASB proposals for public comment in Canada shortly.

Survival of the smartest How credit unions can stay competitive in a changing industry - Published from Deloitte LLP

Amid the most turbulent economic environment in recent history, credit unions and caisses populaires are facing enormous challenges. As markets realign and the pace of consolidation accelerates, it is becoming increasingly imperative to consider new business models and strategic partnerships. More stringent regulatory scrutiny requires the adoption of improved compliance processes. Spiralling consumer demands mandate that you build scale, while staying true to your community-based roots. And the challenges don’t end there.

To help credit unions and caisses populaires respond to these market forces, Deloitte prepared a report entitled Survival of the smartest. In it, you will find details of seven key issues you must address in the coming years, along with a wealth of action items that can help you:

• Develop a strategy for consolidation
• Enhance regulatory compliance
• Prepare for industry transformation
• Attract new members
• Leverage IT to improve productivity and profitability
• Attract, manage and retain top talent
• Protect your members from fraud

To learn how credit unions and caisses populaires can position themselves for success in today’s volatile financial markets, download the report.

 Survival of the smartest: How credit unions can stay competitive in a changing industry  (2584.12 KB)