by Ron Clarke
With April 1 only about 48 hours away, why not lighten tax time up.
Here are a couple of stories that might make you laugh, perhaps smile … or at least groan.
Have you heard about the $1,000 Staycation Credit?
Only available in Ontario. Seriously.
If you lived in Ontario and stayed in Ontario for your 2022 vacation, you can claim up $1,000 of your expenses!
To a more, serious funny side?
The Tax Free Savings Account (TFSA) rules permit you to invest money with all interest earned, dividends paid, and capital gains earned accumulating tax free within your TFSA, and then you can draw it out of your TFSA tax free at any time.
Pretty sweet!
And if that’s not enough, if you take money out, that contribution room is not lost. You can re-invest that same amount, but you must wait until the next calendar year.
What’s so April 1st funny about this?
Well, if you become too interactive with your TFSA, Canada Revenue Agency (CRA) may investigate and determine that you are “carrying on business” or in the “business of investing.”
What will this mean?
Well, the status of your TFSA will be cancelled and all your investment earnings will be determined to be taxable income.
Ok, so that’s not so funny.
What defines being too interactive with your TFSA?
If you buy and sell a couple of times a month, no flags should run up the flagpole for CRA.
At the other end of the scale is buying and selling on a daily basis. And what will certainly trigger a CRA investigation is swapping securities in and out of your TFSA.
How about a third funny story? Are you ready?
Gambling winnings in Canada are typically not considered taxable income, but not always.
It depends on whether CRA determines you to be in the “business of” gambling.
Just like with the TFSA, the level of activity helps make this determination by CRA.
Do you do on-line gambling daily? And if you do, do you have any other source of income, like a job to support you?
A gentleman who won $4,000,000 in the World Series of Poker was investigated by CRA and the CRA determined he was in the business of gambling and his winnings were deemed to be income and taxed.
The taxpayer took it to the Tax Court of Canada and that court disagreed with the CRA because CRA did not prove that the taxpayer had a “system” for winning, and this was proven by the many years he had significant losses.
The 4M remained tax free to the taxpayer.
Ok, that’s kinda funny.
Here’s one last attempt at tax humour.
Maybe you will smile and say … “Oh, if only.”
A taxpayer with an undisputed diagnosed debilitating medical condition that had led to the replacement of joints with prosthetic devices was seeking warmer conditions to alleviate the personal suffering created by the prosthetics because of Canada’s cold winter climate.
To provide the relief needed for this medical condition, the taxpayer traveled to the sunny south and claimed the travel cost as medically necessary expenses on the T1 personal tax return.
The claim was denied by CRA.
The taxpayer appealed to the Tax Court of Canada where the claim was deemed allowable and reinstated by that Court.
End of story, PLEASE!!
CRA then appealed the Tax Court’s decision to the Federal Court of Appeal where that Court ruled in favour of CRA stating that a more favourable climate cannot be defined as a “medical service.”
The take-a-way … don’t feel badly that you didn’t keep all your travel receipts from your recent sunny south trip.
They are of no tax reporting value.
Despite April Fools Day, all these stories are true, even the Ontario Staycation Credit.
No joke.
Ron Clarke, owner of JBS Business Services in Trail, provides accounting and tax services.