How Well Are You Managing Your Universitys Tax Risk

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How Well Are You Managing Your Universitys Tax
Risk
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Presenter

• Darrell Cochrane, CGA
• Controller
• Dalhousie University
• CAUBO Taxes Committee Chair
• darrell.cochrane_at_dal.ca
• 902-494-6774

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Presenter
Michael Murdock, CASenior Analyst,Simon
Fraser UniversityCAUBO Taxes Committeemurdock_at_
sfu.ca778-782-4017
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Presenter

• Tracey McHardy, CAManager - Taxation,Universi
  ty of SaskatchewanCAUBO Taxes
  Committeetracey.mchardy_at_usask.ca 306-966-2461

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Areas of Concern

• GST Compliance
• Payroll Remittance Compliance
• Employee/Independent Contract
• Charity Receipting Requirements
• Researchers

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GST Areas

• Proper Completion of Return
• On time
• Added correctly
• Properly authorized
• Payment if applicable
• Documentation

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GST Areas

• Meal Plans
• Pit falls that cause blended plans to make the
  complete plan to be taxable
• Ways to avoid pit falls
• CRA draft Notice196R Application of the GST/HST
  to University and Public College Meal Plans
  (DRAFT FOR COMMENTS) http//www.cra-arc.gc.ca/E/pu
  b/gi/notice196r/README.html

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GST Areas

• Other CRA GST audit focus
• - GST collected is remitted
• - GST collected on conferences, similar events
  non-credit courses room and equipment rentals
  taxable benefits
• - GST self-assessed on imported services and
  intangible property purchase of land
• - GST rebate / input tax credit allocation
  methods
• - GST rebate claimed in error

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Payroll Remittance Compliance

• Reconciliation of accounts
• Errors occur both at the university CRA
• Meet deadline
• Online Payments

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Payroll Remittance Compliance

• CRA employee-benefit audit focus
• Tuition subsidizes (recent court cases)
• Books and supplies (employee and dependents)
• Paid parking (particularly for downtown campuses)
• Board and lodging  (residence used by employees)
• Professional fees

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Payroll Remittance Compliance

• CRA employee-benefit audit focus
• Recreational facilities
• Subsidized meals
• Inducements to promising students or faculty
• Employee vs. Independent contractor

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Employee vs Independent Contractor

• Wide range of hiring circumstances
• Who makes the decision in a decentralized
  environment?
• What guidance is available?
• How does Canada Revenue Agency decide?

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Wide Range of Hiring Circumstances
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Employee/ Independent Contractor

• Criteria
• Ownership of tools
• Chance of profit and risk of loss
• Degree of integration
• Degree of control
• no one test is adequate to all situations

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Specific to Universities

• Generally well accepted that full-time lecturers
  and professors are university employees

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Tip For Administrators

• Extremely important that the understanding of
  both the service provider and the university be
  documented in writing
• The nature of the relationship may be influenced
  by concerns unrelated to income tax e.g.,
  insurance considerations
• Simply having a GST registration number does not
  make an individual an independent contractor

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Tip For Administrators

• These may be helpful to obtain appropriate
  information via questionnaire (CAUBO Income Tax
  Guide has example)
• CAUBO.KNOTIA.CA
• High risk that part-time lecturers will be
  considered to be employees of the university

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Guest Lecturers

• A guest lecturer is usually considered to be
  carrying on business on his or her own account
• Report income on a T4a
• Travel reimbursement
• Non-residents

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Access CAUBO Income Tax Guide through CAUBO Knotia
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Other Than Teaching

• Where a consultant is not otherwise an employee
  of the university and provides similar services
  for a fee to the public at large in the course of
  carrying on a business, payment by invoice should
  be acceptable

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Charity Receipting Requirements

• Registered charity
• Carry out a business assessment
• Determine whether an official tax receipt may be
  issued

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Other Charity Tax Requirements

• Related business
• Transfers to non-qualified donees
• Restrictions on political activities
• Annual charity information return

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Business-related questions

• Is the gift consistent with the objectives and
  mandate of the charity?
• Does the gift expose the charity to any
  liabilities? If yes, is the charity willing and
  able to assume the liabilities?
• Does the gift vest completely with the charity?
• May the charity accept the conditions placed on
  the gift?
• Will legal advice be required

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Official Tax Receipt

• Prescribed information
• cra-arc.gc.ca/tax/charities
• Importance of complete of complete and accurate
  information
• Potential penalties for incomplete or missing
  information
• 5 penalty of receipt
• 10 for repeat offences within five years
• CRA still has the ability to revoke an
  organization's charity status where a charity has
  issued an incomplete or false official tax
  receipt.

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Funding For Researchers

• Grants
• Contracts
• Fellowships
• Self-funded
• Does it matter how the money is received?

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Past Experience

• Researcher preferred grants
• Eligible expense could be deducted
• Fellowships taxable
• Originally 500 deduction
• Increased to 3000 in 2004
• Limit removed in 2006
• Donation to undergraduate programs normally in
  the form of scholarships

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Payments From Employees for Research Grants

• Unique issues arise
• Charitable donation?
• Eligible for SR ED tax incentives?

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Funding From External Organizations

• No income tax consequences for university as a
  tax-exempt organization

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Employees Receiving Grants

• Who receives the funds
• Individual
• University
• Makes a difference for income tax purposes

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CRA Accepts Funding to University with the
Following Conditions

• Individual that has access to funds must hold an
  academic position
• The funds are paid directly to university
• The funds are provided only to pay for research
  costs
• The funds are not otherwise used by the individual

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Research Contracts

• Various Structures
• Single contract
• Sponsor/university
• Two contracts
• Sponsor/university
• University/researcher
• Tripartite agreement
• Parties act independent of each other

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Taxation of Research Grants

• For taxable recipients, research grants are
  classified for income tax purposes as other
  income

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Taxation of Research Grants

• The grant is included in income net of applicable
  expenses, rather than reporting the gross amount
  received separate from the related deductions as
  is the case for employment income.
• Subject to CRA audit

Canada Revenue Agency
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Donations By Faculty Members

• Can a Faculty Member Donate to his own Research
  Grant?
• CRA's view is that a charity receipt may not be
  issued where the donation is to be used for the
  donor's own benefit or for the benefit
• The gift must be under the direction and control
  of the university. Any designated purpose must be
  part of the general activities for which gifts
  would normally be accepted
• Gifts should not be credited to an account set up
  specifically under the control or for the benefit
  of the individual (such as a research account).

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Benefits

• Research grants (net of eligible expenses) are
  included in earned income for registered
  retirement savings plan (RRSP) purposes.
• Not eligible for CPP, EI, employment benefits

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Eligible Expenses

• All expenses, including both current and capital
  expenditures, incurred in connection with the
  research project for which the grant was awarded
  are eligible for deduction, subject to certain
  restrictions
• Personal living
• Reimbursed amounts
• Expenses otherwise deductable for income tax
  purposes
• Amounts must be reasonable

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Research Assistants

• The cost of a research assistant may be an
  eligible expense
• In cases where the university is the payor of a
  research grant, it is the university's
  responsibility to report the research grant via
  T4a

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Personal living Expenses

• Personal and living expenses are not eligible
• Travel costs incurred by the grant recipient
  while away from home is the exception
• Traveling expense vs. sojourning expenses

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Personal living Expenses

• CRA has interpreted a stay in the same place of
  30 days or more to be a sojourn
• Not defined in Income Tax Act (ITA)
• CRA's view that where the employee is sojourning
  or temporarily residing in a place, meals and
  lodging considered a personal living expenses
• No jurisprudence
• Must retain documentation

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Startup Funds

• Purpose to assist new faculty members
• Often referred to as research grants
• Not in the definition of ITA

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Research grants in lieu of salary

• Reallocation from salary expense
• Conditions
• the faculty's employment duties must be reduced
  in proportion to the amount reallocated
• only specific research projects that are separate
  and apart from the employee's normal work duties
  can be funded as a research grant.

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Sabbatical Leaves

• Income received while on sabbatical leave is
  employment income
• The courts have held that travel expenses
  incurred while on sabbatical are not deductible
  against the employment income received
• Research grants may be provided to employees on
  sabbatical

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Withholding and reporting obligations of the payor

• No amounts are required to be withheld from
  scholarships, bursaries, fellowships, or research
  grants, even where the recipient is a
  non-resident of Canada
• The payor of a research grant must report the
  amount on a T4A
• No withholding required

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Commercialization of Research

• Options
• a branch within the university
• a non-profit entity
• a for-profit entity
• Complex and outside scope of presentation

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SR ED Expenditures

• Mainly beneficial to for-profit-companies
• SRED Application Policy 2001-01, CRA will accept
  contributions towards a research chair (in part)
  to qualify as a third-party payment (for SRED
  purposes) provided certain conditions are met

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Resources

• Financial Services home university
• CAUBO Income Tax Guide
• CAUBO.KNOTIA.CA
• CAUBO Taxes Committee
• caubo.ca
• http//www.caubo.ca/tx/committee_members_e.cfm

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Questions

• ?