Chess Tax Credit

[Jack Maguire]

Re : Re: Re : Re: Re : Chess Tax Credit

[QUOTE=Jordan S. Berson;59984]You're wrong. I would advise them to INFORM THEMSELVES before claiming such amounts.

If someone was in the tax business, Jordan, I don't think that kind of tax advice would go over too well (:

Let me cite you but one example as to why that might not be the most pragmatic bit of advice. When I was briefly living in Orillia after retiring from my tax/investment practice in Toronto, I happened to cross paths with a resident there who was dismayed that he still owed 10K in tax despite losing 75K on Northern Telecom stock. His tax accountant, a CA, assured him that was the case. A tax lawyer, retained to check the accountant's work, then did the same. He even got a 3rd 'opinion' (although I'm loathe to call it that) by calling your precious 1-800 #.

Fortunately for him, he sought a 4th opinion, yours truly, who was pleased to inform him that I could file the return with about a 30K swing in tax liability, that is, from -10K to +20K. The 'trick' was to treat his Northern Telecom loss as an 'adventure in the nature of trade' (i.e. a business loss pursuant to s.248 of the Income Tax Act at the time) rather than a capital loss. Few people seem to realize that this is even possible.

Of course, I did inform him there was a very real possibility (which never materialized) that the CRA would object and that we would have to go to court (with a very high probability of success) to substantiate our tax treatment.

You seem to think that tax law is decidedly black and white, Jordan. There are far, far more grey areas than you might care to admit. Or as one tax lawyer recently cited, "Practising tax law must sometimes feel like walking a tightrope without a net."

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Which is tantamount to saying "It's ok to cut corners and possible file false tax credits, which is better than INFORMING YOURSELF first".

Tantamount to no such thing, Jordan. I could probably find a half dozen tax lawyers who would back your position and another 6 who would back mine. Bear in mind that there is absolutely no case law on the matter. When there's a doubt, however, I deem it prudent to give the taxpayer the benefit of that doubt rather than the CRA (:

[Vlad Dobrich]

Re: Chess Tax Credit

Well said Paul B! Good anti-troll post.

[Tom O'Donnell]

Re: Chess Tax Credit

And even if we assume you meant "over $30,000", you still leave something else unclear. Once the coach has grossed over $30,000 in let's say an 8-month period, does that make all his or her customers for the past 8 months suddenly liable to pay HST? Does the coach have to call them all up and say, "You have to pay me another $X for HST because I've made so much money on lessons. If you don't pay, I'll report you to the tax authorities"? Or alternatively, do the past customers get off from having to pay, and only the subsequent customers (once the $30,000 level has been reached) have to pay? Again, I know you don't write the laws, but such a law is actually discouraging coaches from making $30,000 or more, and would encourage under-the-table payments.

I cannot speak for other coaches, but in my case I take an extended holiday, depending upon the year, sometime in mid to late November. Hey! That's coming up, thanks for the reminder!

[Kerry Liles]

Re: Chess Tax Credit

Whoa there, big fella. You just publicly tarred and feathered Jack Maguire for his interpretation of a tax law. Now someone else asks you to interpret another tax law, and lo and hold, the answer you give is about as ambigious as can be. AND on top of that, you didn't obey your own cardinal rule: you didn't tell Egidijus to INFORM HIMSELF. You didn't even mention the magic number!

Let's break it down: you're telling chess coaches that they can volunteer to collect HST, and upon doing so, they must collect HST on all chess lesson fees. Now I know you didn't write the law, but if indeed that is a provision of the law, pray tell: what chess coach in his or her right mind is going to volunteer, knowing that it's going to discourage their business by forcing people to pay more? The sheer idiocy of even having such a provision makes one think that perhaps you aren't totally correct in at least that interpretation, but with politicians, who knows; even that level of idiocy can manifest itself and often does. Maybe they'll rewrite all the tax code to make any and all taxes "voluntary"?

Then you add an apparant corallary, but your wording leaves things clear as mud. First of all, you say if the chess coach grosses $30,000 over any 12-month period. Do you mean EXACTLY $30,000? What about $30,001, or $29,999? Obviously you meant "over $30,000" but you think with having just critiqued Jack Maguire over his lack of precision, you could at least TRY to have a little yourself.

And even if we assume you meant "over $30,000", you still leave something else unclear. Once the coach has grossed over $30,000 in let's say an 8-month period, does that make all his or her customers for the past 8 months suddenly liable to pay HST? Does the coach have to call them all up and say, "You have to pay me another $X for HST because I've made so much money on lessons. If you don't pay, I'll report you to the tax authorities"? Or alternatively, do the past customers get off from having to pay, and only the subsequent customers (once the $30,000 level has been reached) have to pay? Again, I know you don't write the laws, but such a law is actually discouraging coaches from making $30,000 or more, and would encourage under-the-table payments.

And what about this "any 12 month period" business? Does that mean that if today is November 16th the coach has to figure out what s/he grossed on lessons from last November 16th to today, and if it happens to go over $30,000, then tonight's customer has to pay HST? And then tomorrow, the coach has to figure it all out again from last November 17th, and maybe the gross income went under $30,000, so tomorrow night's customer doesn't have to pay GST?

And by the way, when you write "the chess coach grosses $30,000 over any 12 month period", does that include income from other sources? The way you wrote it, Egidijus could easily think "yes", but I doubt that's the way it really is.

Come on, dude, you're supposed to think of these things! Mr. Technical Precision! You're supposed to know everything about taxes! 1000 times as much as Jack Maguire thinks you know! (Which could be nothing, and 1000 times nothing is... well, you can figure it out... maybe...)

If I were Egidijus, I'd call that magic number and I'd mention your name, Jordan, and tell the agent that you failed to provide clear and unambigious information. Huh, for all we know maybe that's why you're an EX-employee. Your stock answer to callers with questions was probably "INFORM YOURSELF".

Meanwhile, Jack Maguire, if you are reading this, I wouldn't lose any sleep over Jordan's trolling of your thread. He puffed out his chest and made himself seem like Mr. Tax Expert, and look at him now! At least, Jack, you were very diplomatic and gentlemanly in your replies to Jordan, but as you saw, a troll is a troll and diplomacy doesn't get you anywhere, they still respond with extreme viewpoints and insults (Jordan calling your practices "borderline illegal" is borderline libel; I wonder if he'd have the gall to write that here if you were still in the tax business?)

I'm not so diplomatic when it comes to trollsters like Jordan. I have no qualms making them look the fool. They fill this forum with vitriolic nonsense, calling things "absurd" on no basis or argument whatsoever, inflating their fragile egos. Anyone who comes to this forum with a possible interest in chess has to read their trolling rants and wonder if they should just stay away from chess altogether.

Some excellent (tax) questions Paul, but I am not optimistic Jordan (or anyone) would answer them when they are wrapped in such a nasty packaging... I understand the aversion to "trolls" per se, but your reaction - especially being a third party to the Jack.vs.Jordan smackdown is a bit over the top isn't it?

[Jack Maguire]

Re : Re: Re : Re: Re : Chess Tax Credit

That's the last you'll hear from me on this subject. I don't need any further proof that your advice is wrong and borderline illegal.

Jordan

Just for the record, Jordan, I asked my daughter, who is a lawyer - but admittedly NOT a tax lawyer - to take a quick look at the legislation and she just e-mailed me back:

I think it would depend on the organization - but it certainly sounds as if you have a good argument for the credit to apply to chess memberships. You certainly would have a reasonable basis for taking the position, which is what you need going up against the CRA.

[Egidijus Zeromskis]

Re: Re : Re: Re : Re: Re : Chess Tax Credit

which is what you need going up against the CRA.

There is the third person (an organization - a club) which issues receipts, and it makes the first decision of the program eligibility. The receipt should be different from a regular one as it should contain an "amount that is eligible for the children's arts amount (eligible fees)".

Thus the court should be between the CRA vs club & mom :)

[Dan Hunter]

Re: Chess Tax Credit

To answer Paul Bonham's questions about the $30,000 level above which HST is payable, assuming he was actually looking for answers and not trolling, we ran a small business for several years some time ago. This issue was nothing like as complicated as implied!

Each year you file a tax return. Included in that can be the details of your small business. The business decides what their fiscal year will be, in our case I believe we made it calendar to match the tax year, but we could have made it any twelve month period we wished, and many made it September to give them time to sort out the business details before filing the tax return. I am sure you couldn't change the fiscal year willy-nilly once established.

If your business reported income of $30,000 or more, you were subject to HST, in our case GST then. You reported and paid. Whether or not you had charged your customers to cover this was really a business decision....we were liable for the taxes.

It was one of the more simple problems of running a small business, and we made it even simpler by simply easing off at the end of our fiscal year, like Tom. The benefit for me was that by the time we factored in all the asset and property costs, we generally showed a small loss over the year, which helped my overall tax liability at that time. A common strategy, perfectly legal Jordan, set up by our accountant! Never questioned by Revenue Canada.

One thing that many people will consider in all this is to do absolutely nothing to trigger an audit. Even if you are sqeaky-clean, an audit is never a pleasant experience, and is to be avoided at all costs!

[Zeljko Kitich]

Re: Chess Tax Credit

To answer Paul Bonham's questions about the $30,000 level above which HST is payable, assuming he was actually looking for answers and not trolling, we ran a small business for several years some time ago. This issue was nothing like as complicated as implied!

Each year you file a tax return. Included in that can be the details of your small business. The business decides what their fiscal year will be, in our case I believe we made it calendar to match the tax year, but we could have made it any twelve month period we wished, and many made it September to give them time to sort out the business details before filing the tax return. I am sure you couldn't change the fiscal year willy-nilly once established.

If your business reported income of $30,000 or more, you were subject to HST, in our case GST then. You reported and paid. Whether or not you had charged your customers to cover this was really a business decision....we were liable for the taxes.

It was one of the more simple problems of running a small business, and we made it even simpler by simply easing off at the end of our fiscal year, like Tom. The benefit for me was that by the time we factored in all the asset and property costs, we generally showed a small loss over the year, which helped my overall tax liability at that time. A common strategy, perfectly legal Jordan, set up by our accountant! Never questioned by Revenue Canada.

One thing that many people will consider in all this is to do absolutely nothing to trigger an audit. Even if you are sqeaky-clean, an audit is never a pleasant experience, and is to be avoided at all costs!

I am assuming you are referring to an incorporated business because there would be different tax year issues for someone just reporting business income on their personal return. On the other hand if you are talking about an incorporated business you would not be able to use the tax loss against personal income. Only carry it forward or back against income from the business. If you are filing unincorporated business income on your personal tax return then it would be necessary to make the business fiscal year the calendar year. You wouldn't really have an option. There are complicated rules that effectively make this mandatory. Anyone with active business profits from a small business would be advised to incorporate to take advantage of the lower small business rate. Active having a technical definition under the ITA. This should be done with some thought not only because of the cost of incorporating but also because you lose the ability to take losses against personal income. This would not include property, rental or investment income for which there is not favourable treatment. So I assume in the end you were required to make your tax year the calendar year because you were filing on your personal tax return and your business was not incorporated. If I remember right filing this way does allow you a couple of extra months to file as I believe the deadline is then in June but I'd have to look that up to be sure.

Running a loss for several years is a good way to end up having Revenue Canada trigger an audit. Also I am not sure how long ago this was but a couple of years ago Revenue Canada doubled their audit force.

Note: This should not be considered tax advise. I am not a tax adviser, merely a Canadian citizen who has read the Income Tax Act. Render unto Stephen Harper that which is Stephen Harper's...

[Zeljko Kitich]

Re: Re : Re: Re : Chess Tax Credit

I would beg to differ, Jordan. Of course, the membership would have to be for a minimum of 8 weeks. I would suggest that most clubs are "supervised" and certainly suitable for children. Then one only has to meet one of the listed activities and chess certainly meets the development/use of intellectual skills criterion.

I'll admit that I've been out of the tax business for more than a decade now (back in the early 80's I took over from Price Waterhouse the administration of the Investment Funds Institute tax course, one of their 6 courses at the time for CFP designation). I've taken a number of very aggressive tax positions in the past (e.g. my 'Zero Tax Report', which many tax lawyers and tax accountants subscribed to, was the first to promote the idea that gratuitous CSB interest should not be taxed as interest) and generally been right far more often than wrong (as I was on the CSB bonus interest which was ultimately taxed as a capital gain and cost the gov't untold millions of lost tax revenues).

If I was still in the tax business - which I'm not - I would probably advise my clients to claim chess club fees for their U16 children. Moreover, it's a relatively minor fiscal issue and not likely to lead to any kind of dispute. Quite frankly, hardly worth a CRA auditor's time. One would probably stand better than a 90% probability of never having the CRA even question the item. And even those unlucky enough to have to deal directly with the CRA would stand an excellent chance of success. This is precisely the kind of item the CRA would not want to ever proceed to the courts. Rather like Pascal's Wager in reverse. Way too little to gain (for the CRA) and much too much to lose.

I would tend to disagree. The 'structured' nature would not be met just by being a member of a chess club. CRA might not be concered about an individual tax payers return. However, they may be willing to take some cases to court to ensure the new policy is not being abused by Canadians in general. There would also be possible repercussions for the club handing out tax receipts without ensuring they meet the definition. It would be like people giving each other out receipts just because their children do art together or kick a soccer ball around in their backyard or get together to play chess in their living room or play video games online together. The fact that you can call it an art club or soccer club or game club does not mean it meets the requirement. Most chess clubs are nothing more than people getting together and passing the hat around to pay the rental. There is no structured instruction and they generally don't take attendance. Unless of course there is junior instruction like at the Mississauga club.

[Zeljko Kitich]

Re: Re : Chess Tax Credit

I'm sure you and I could share some great tax stories, Jordan. I was tax manager at Eaton-Bay Financial Services for 5 years before running my own tax/investment business for 18 years, catering almost exclusively to individuals.

I can assure you I never called the CRA (or Revenue Canada as they were known in my day) for tax advice (:

I wonder how many tens of thousands of people called your number and got the wrong answer on CSB bonus interest (:

If push ever came to shove, I'd be happy to argue before any Tax Court of Canada judge that fees paid to my particular chess club (on behalf of U16 children), the Annex Chess Club, meet all the requirements for the Canadian Children's Art Tax Credit. Then again, the ACC is rather special. They do (on occasion) offer tax lectures before the games begin and there's clearly ample "supervision".

But we can agree to disagree and leave it at that.

You may not have contacted the CRA but many tax lawyers and advisers do. The result being the CRA comfort letters.

[Zeljko Kitich]

Re: Re : Re: Re : Re: Re : Chess Tax Credit

[QUOTE=Jack Maguire;59993]

You're wrong. I would advise them to INFORM THEMSELVES before claiming such amounts.

If someone was in the tax business, Jordan, I don't think that kind of tax advice would go over too well (:

Let me cite you but one example as to why that might not be the most pragmatic bit of advice. When I was briefly living in Orillia after retiring from my tax/investment practice in Toronto, I happened to cross paths with a resident there who was dismayed that he still owed 10K in tax despite losing 75K on Northern Telecom stock. His tax accountant, a CA, assured him that was the case. A tax lawyer, retained to check the accountant's work, then did the same. He even got a 3rd 'opinion' (although I'm loathe to call it that) by calling your precious 1-800 #.

Fortunately for him, he sought a 4th opinion, yours truly, who was pleased to inform him that I could file the return with about a 30K swing in tax liability, that is, from -10K to +20K. The 'trick' was to treat his Northern Telecom loss as an 'adventure in the nature of trade' (i.e. a business loss pursuant to s.248 of the Income Tax Act at the time) rather than a capital loss. Few people seem to realize that this is even possible.

Of course, I did inform him there was a very real possibility (which never materialized) that the CRA would object and that we would have to go to court (with a very high probability of success) to substantiate our tax treatment.

You seem to think that tax law is decidedly black and white, Jordan. There are far, far more grey areas than you might care to admit. Or as one tax lawyer recently cited, "Practising tax law must sometimes feel like walking a tightrope without a net."

-----

Which is tantamount to saying "It's ok to cut corners and possible file false tax credits, which is better than INFORMING YOURSELF first".

Tantamount to no such thing, Jordan. I could probably find a half dozen tax lawyers who would back your position and another 6 who would back mine. Bear in mind that there is absolutely no case law on the matter. When there's a doubt, however, I deem it prudent to give the taxpayer the benefit of that doubt rather than the CRA (:

An adventure in the nature of trade for a stock loss? You are a very brave man and so is your client. The only way this would make sense is if he was a stock broker or dealer. Just as a question does this mean he is going to report any future stock trading gains as adventures in the nature of trade and be taxed at 100%. Or is he suddenly going to revert to calling them capital gains again and be taxed at 50%. In other words is he going to try to have his cake and eat it? If I make money one a stock tax it favourably as a gain but if I have a loss tax it favourably to me as business income. Once he has indicated that stock trading is business income for him and not capital gains how were you planning on convincing CRA that he is suddenly not? Or does your whole strategy depend on CRA not noticing this ever in future? Hoping no one will notice? Who does that remind me of? Oh, yes Conrad Black.

If memory serves me right it was this kind of attitude that lead the CRA to treat stock options unfavourably because a few people complained about some losses. So now stock option gains are taxed when exercised not when sold.

[Zeljko Kitich]

Re: Chess Tax Credit

Let's break it down: you're telling chess coaches that they can volunteer to collect HST, and upon doing so, they must collect HST on all chess lesson fees. Now I know you didn't write the law, but if indeed that is a provision of the law, pray tell: what chess coach in his or her right mind is going to volunteer, knowing that it's going to discourage their business by forcing people to pay more? The sheer idiocy of even having such a provision makes one think that perhaps you aren't totally correct in at least that interpretation, but with politicians, who knows; even that level of idiocy can manifest itself and often does. Maybe they'll rewrite all the tax code to make any and all taxes "voluntary"?
.

Anyone making less than the cut off limit for collecting the HST can choose to collect it or not. If they don't collect it they lose the potential HST rebate on their business inputs. That is why you can and would voluntarily register to collect the HST. It is up to you to decide whether the rebates are worth it. My guess is for the typical chess coach it would not be worthwhile registering for it unless required. The rebate on inputs would likely be minimal. Whereas the answer would be different for someone in other lines of activity.

Although according to you you are living in America. Never knew too many people living in America to be familiar with the Canadian tax system.

My favourite (least favourite?) GST story is the kid who lived in his parents basement who registered for GST when it first began. He then sent in a GST statement, quarterly I think, that claimed a rebate in the hundreds of thousands. The feds duly sent him a cheque. He only got caught when he tried it a second time not long after the first.

[Dan Hunter]

Re: Chess Tax Credit

So I assume in the end you were required to make your tax year the calendar year because you were filing on your personal tax return and your business was not incorporated. If I remember right filing this way does allow you a couple of extra months to file as I believe the deadline is then in June but I'd have to look that up to be sure.

Running a loss for several years is a good way to end up having Revenue Canada trigger an audit.

You are correct Zeljko, I am reminded of the details. We were not incorporated, and I suppose we used calendar fiscal year without exploring whether we had other options, and I certainly remember the extra time to file. I think that you had to satisfy Revenue Canada that there was a sporting chance that the business would turn a profit down the road....five years guide-line comes to mind, although we ran for ten years, may be not a loss every year!?

Think I'll stop there! Thank you.

[Jordan S. Berson]

Re: Chess Tax Credit

Paul,

I didn't tell Egidijus to inform himself because the rules for collecting HST/GST are straightforward. The tax credit discussed above requires a review of a particular club or program for qualification. That's why for the tax credit, it's better to contact CRA for information first before claiming it.

Alternatively, something I forgot to mention previously, is that if a person is unsure if he or she qualifies for a particular credit, then it is best to leave it off the tax return, and then submit a T1-ADJ form to request the credit. The T1-ADJ would then be reviewed by a CRA agent, who would then approve or deny qualification for the credit. That way, the tax payer will know for future reference whether or not a particular club membership or program qualifies.

Next item: A business or self-employed person is required to collect the HST/GST starting from one month after the quarter in which the business or self-employed person reaches a cumulative 12-month gross income of $30,000 or more.

For example: Business A grossed $7,500 in each of the last three quarters. This quarter (September 1 to December 31), they have already grossed over $7,500. Therefore, since they have grossed $30,000+ over the last 12 months, then Business A is required to start collecting HST/GST as of February 1, 2013, which is one month after the end of the quarter.

Alternatively, a business or self-employed person can contact the CRA at any time and register to collect the HST voluntary regardless of income levels. This is most beneficial to a start-up business that has a lot of purchasing to do, or to a business that carries and sells a lot of product. A service provider that does not do a lot of purchasing (such as a chess coach) would likely not benefit from voluntarily collecting HST/GST.

A business whose gross revenue falls below $30,000 over a 12-month period does have the right to contact CRA and request to stop collecting the HST/GST. I'm not 100% sure if this is granted automatically, or if it is case-by-case, nor do I know if there is a certain timeframe before they can halt collecting.

The $30,000 refers to business-related revenues only. If a self-employed person earns $25,000 per year from self-employment revenues and another $10,000 a year in pension income, then the revenue threshold has not been exceeded since the pension income is not related to the business.

To answer another question: If a business must start collecting or volunteers to collect HST/GST at any time, then the collection only counts on revenues as of the start date and is not retroactive.

For example: Business B is in the Wedding Planning business. They have contracts for which they collect a payment upon booking, and then regular monthly payments leading up to the day of the wedding. 2012 was an excellent year, and they just reached a fourth consecutive quarter of over $7,500 in revenue. As of February 1, 2013, Business B will be required to collect HST/GST on all revenues as of that date, even on existing contacts that were signed prior to that date. So if Couple X has a contract for which they pay $200 monthly, they would be required to pay HST/GST on all payments starting on February 1, 2013. Business B would advise all clients prior to the start date that they will be collecting HST/GST so that clients can have an opportunity to make payments up to January 31, 2013 and avoid paying the HST/GST on those payments.

Hope that answers your questions. Call 1-800-959-5525 for CRA Business Tax and HST/GST enquiries.

Jordan

PS: I forgot one thing: If a business starts collecting HST/GST, then it will get a HST/GST rebate on its purchases. Therefore, in some cases it would be advantageous to the business and its clients to include the HST/GST as part of their regular pricing. That way, clients won't pay more than they used to, and the business will keep all or part of the difference when they do their quarterly remittance to the CRA.

For example: Business C registers to collect HST as of February 1, 2013. They decide to lower the price on a $100 service to $88.50 + 13% HST which grosses up to $100. The business will have to keep aside the $11.50 HST until the next remittance when they will be able to offset all or part of that amount from purchases that they paid HST on for the business. Therefore, even though there may be a decrease in total revenue, the lost revenue can be offset by savings on purchases. A business that makes a lot of purchases would benefit from this type of price adjustment than would a business that mainly offers services and does little purchasing.

[Jordan S. Berson]

Chess Tax Credit

Just for the record, Jordan, I asked my daughter, who is a lawyer - but admittedly NOT a tax lawyer - to take a quick look at the legislation and she just e-mailed me back:

I think it would depend on the organization - but it certainly sounds as if you have a good argument for the credit to apply to chess memberships. You certainly would have a reasonable basis for taking the position, which is what you need going up against the CRA.

Until you call the CRA and ask them what their stance is, I will have no further discussions with you on the matter. You've spent more time spewing BS and even getting the advice of someone who does not specialize in the field than you have of actually finding out the truth.