How To Survive An Audit

By Randall Orser | Business Income Taxes , Personal Income Tax

Old fashioned audit report written in feather on parchment. TNBusinesses do not only have to audit financial records these days. You can audit every facet of the business and the processes used by employees for a variety of reasons. Whatever the reason, an external party coming in to audit your business can be quite a nerve-racking experience for the business manager.

Many businesses need to comply with industry specific legislation and audits are one way of tracking that compliance. You may need to demonstrate compliance with security, occupational health and safety, or union regulations. Prospective customers and current customers can initiate audits to see if your business meets their needs.

Auditors will have certain criteria or benchmarks for your company to meet, and will compare your business standards to these criteria. If your business does not meet the criteria, the auditor will issue a non-conformance notice and will give your business a deadline to fix the problem.

Non-conformance in some audits can lead to a loss of licence, legal fines, or legal action taken against the company, and loss of customers. You could even find that your business has to shut down due to non-conformances in an audit, depending on the severity of the non-conformance, and the importance of the audit.

Preparation is the Key to Surviving the Audit

Spending time preparing for the audit before the external auditor arrives will save much time and headaches during the audit. Know what the perimeters and scope of the audit are. Although auditors may not provide the criteria unless asked, all auditors have specific criteria or benchmarks against which to audit the business.

If the audit is required to demonstrate legal compliance, the guidelines for the audit should be available from the government department undertaking the audit. Check each area in the audit and make sure your business is compliant before the auditor arrives. Get out the appropriate files and reports to have on hand to show the auditor your compliance when needed.

Internal Audits Help You to Keep Track

If you have an external compliance audit every two years, you should hold smaller audits in between yourself. These internal audits will enable you to pick up errors and to fix the procedures to match the external compliance requirements well before the external auditor arrives.

You can reduce preparation time prior to the audit by completing small audits internally, as part normal procedure. Audits, whether internal or external, give you the opportunity to see whether your business procedures are efficient, helpful, compliant, and if staff are following procedures correctly.

Review Procedures against the Benchmarks to Ensure Compliance

Review your current business procedures against the legal and external benchmarks or standards expected. Make sure that if your employees are following your procedures, you will automatically be compliant with the audit requirements.

Discipline Employees for Not Complying with Procedure

If your internal audits or other checks show that certain employees do not comply with the procedure, you may need to instigate further training and even disciplinary action, as required. Enforce your business procedures, so that employees are used to complying with the requirements and you will not worry that individuals will let your business down during the external audit.

Say as Little as Possible During the Audit

A common error made by business managers is actually telling the auditor too much. Allow the auditor to ask the questions. Answer the questions concisely and do not be tempted to add in extra information. Any additional information may lead the auditor on to a different track, and could show unexpected errors.

Negotiate for Time to Fix Identified Issues

When the auditor does bring an issue to your attention during the audit, you can negotiate for time to fix the problem before the auditor gives your business a formal non-conformance notice. This could save your business from paying fines or dealing with some of costs involved with a formal non-compliance. If you can address the issue within a couple of days, many auditors will hold the audit report open for you if you successfully negotiate and show the auditor a willingness to resolve the non compliance issue.

Respond Quickly to Identified Non-Conformance Issues

As soon as practical after the audit, send a report reply to the auditor with the necessary attached documents which prove your business is now compliant. This allows the auditor to close out the non-conformances and could prevent the auditor returning to check if your business has resolved the identified problems.

Preparing your business to survive an essential or legal compliance audit is not difficult, but does take some work and planning time. If you have everything in place prior to the auditor arriving on your site, your business is far more likely to survive the audit without any non-conformance issues.

Why Small Businesses Go Bankrupt and How to Avoid It

By Randall Orser | Budget , Business Income Taxes , marketing strategy , Small Business , Technology

Debt Word And 3d Character Shows Bankruptcy And Poverty TNStatistics are regularly released that say something to this effect: “85% of new businesses fail in the first five years”. The message is clear. If you start a small business there is a high probability that you will fail. You would think that this would send the smart money straight to the Help Wanted ads but what about the businesses that succeed? What made them different? What secret did they know that lead them down the path to prosperity? Here is what you need to know to be one of the winners.

Lets look at a scenario. Andre is a baker. Not just any baker. When anyone who has eaten Andre’s baking hears mention of it they start to salivate like Pavlov’s dogs. One day Andre’s grandmother passes away and leaves him a modest inheritance. His time has come. He takes his money and starts his dream business. Five years later the inheritance is gone and Andre is back working for his old boss. What happened?

Andre had spent all his time learning about his passion, which was baking. In order to succeed he needed to know an equal or greater amount about business. For every cookbook he read he needed to read a book on business. For every cooking class he attended he needed to attend a course on business. Andre didn’t know the difference between a Monthly Bank Statement and a Cash Flow Forecast. He had heaps of Specialty Knowledge and almost no Business Knowledge.

So the first step to succeeding in business is to learn about business. Sounds simple doesn’t it. It is but it is a sad fact that most people will only figure this out after it is too late and maybe not even then. Here are some things you can do to give yourself a huge edge and increase your likelihood of success.

  • Sign up for some courses in small business at your local college or university. Maybe even start working on a degree in business. Be aware that there are now programs aimed at learning to be an Entrepreneur, which differ somewhat from a typical business degree designed to send you into the corporate world.
  • Start networking. Meet successful business people. You will find them at your local Chamber of Commerce, at work in their business and as members of clubs such as Toastmasters.
  • Read books on business. The libraries and bookstores are filled with them. Read reviews to find some of the most recommended titles and take notes when you read them.
  • Make use of the excellent resources online. The United States Small Business Administration website is just one example of a tremendous (and free) resource on starting a small business.

Entrepreneurs are known for taking risks but the reality is that the skilled entrepreneur takes risks that are calculated and based on knowledge and experience, which is available to anyone who will go looking for it.

One west coast entrepreneur has owned a jewelry store, a pub, a community centre, a restaurant and a music store. Each one was a success and was ultimately sold as a profitable business. The key elements of his success were his solid business fundamentals.

Some things you need to know before you start leasing space, hiring staff or buying equipment include:

  • A sound understanding of Business Plans and which one you need (and you absolutely do need one).
  • The basics of marketing, who your customers are and how to reach them with your message.
  • What is your USP (Unique Selling Proposition) and how this differentiates you from your competition. Why would your potential customers choose you over them?
  • What are the important numbers that you need to know and monitor to measure the health of your venture.
  • What is Cash Flow, how does it differ from Monthly Sales, what potential Cash Flow pitfalls effect your business model and how can you protect against them.
  • Who are your competition and what are their strengths and weaknesses.

Taking the time to gain a solid business education to supplement your Specialty Knowledge is the key to surviving your new business venture. It is what separates the winners from the losers. Reading this article is a sign that you are on the right track. Use the list given above as a starting point as you build a framework of required business knowledge and continue to fill your areas of weakness until you are strong and prepared to enter the arena. Do this and you will enhance your potential for success and give yourself the edge you need to achieve your dreams.

Where Does Our Tax Revenue Go?

By Randall Orser | Personal Income Tax

Canadian-Two-Dollar-Bill--Tidbits 2015-04-29 TNPeople just hate paying taxes. I think a lot of that has to do with we really don’t know where it goes. It all goes into that sinkhole we know as General Revenue. From there what happens to it is a mystery. Of course, there are many things the government spends money that really tick off people, and that has much to do with this hatred for taxes. So where does this money we grudgingly pay to the government go exactly?

The following figures are from the Department of Finance for the fiscal period 2013 to 2014, and we accept no responsibility for their accuracy, nor for how much they may tick you off.

For the fiscal year ending March 31, 2014, Canada’s federal government spent $276.8 billion. That represents roughly 15 per cent of our country’s $1.9-trillion economy.

Transfer payments

Payments that go directly to persons, to provincial and territorial governments, and to other organizations are called “transfers.” Transfers are the largest category of government spending. They made up about 61 cents of each tax dollar spent ($169.4 billion).

Transfers to persons

Major transfers to persons cost 26 cents of each tax dollar spent ($72.2 billion). The biggest category within transfers to persons was elderly benefits. These transfers include:

  • Old Age Security
  • Guaranteed Income Supplement
  • Allowance for Spouses

Total elderly benefits cost about $41.8 billion, or roughly 15 cents of each tax dollar spent.

Another major transfer to persons is Employment Insurance (EI) benefits. Altogether, EI benefits cost over 6 cents of every tax dollar spent ($17.3 billion). The final category of transfers to persons is children’s benefits. The federal government provided $13.1 billion to help families raise their children through the Canada Child Tax Benefit and the Universal Child Care Benefit. These payments cost almost 5 cents of every tax dollar spent.

Federal support for health care

Federal support for health care goes beyond cash payments under the Canada Health Transfer and the Equalization and Territorial Formula Financing programs. The federal government also provided over $6 billion last year for:

  • First Nations health services
  • Health care for veterans
  • Programs for public health
  • Health research

Other transfer payments

Last year, spending on federal grants, contributions and subsidies added up to $36.7 billion, just over 13 cents of each tax dollar spent. This included:

  • $6.3 billion in assistance provided by Employment and Social Development Canada in support of learning, skills and employment, and social housing
  • $6.2 billion in transfers by Indian Affairs and Northern Development for First Nations and Aboriginal peoples
  • $3.4 billion in transfers by the Canada Revenue Agency, which includes transfers made to individuals and corporations through the tax system

Other funding was provided in support of farmers and other food producers, research and development, infrastructure, regional development, health research and promotion, the arts, amateur sports, international assistance, and multiculturalism and bilingualism.

Other program expenses  

After transfers, the bulk of federal tax dollars went to cover the operating costs of the more than 130 government departments, agencies, Crown corporations and other federal bodies that provide programs and services for Canadians.

Government operating expenses such as salaries and benefits, facilities and equipment, and supplies and travel made up 29 cents of each tax dollar spent ($79.2 billion). Close to half of this spending—14 cents of each tax dollar—went to just three organizations.

National Defence

First, spending last year by National Defence, including the Canadian Armed Forces, made up 8 cents of each tax dollar spent ($21.5 billion) 

Public Safety

Next, operating costs of Public Safety and Emergency Preparedness represented over 3 cents of each tax dollar spent ($9.8 billion). This includes funding for the Royal Canadian Mounted Police, the federal prison system, and border traffic and security operations.

Canada Revenue Agency

And third, expenses of the Canada Revenue Agency, which administers the federal tax system (and also collects taxes for all provinces except Quebec) totalled $7.8 billion, or 3 cents of each tax dollar spent.

Other operations

A further $32.6 billion—12 cents of each tax dollar—was spent on the operations of the other federal departments and agencies. These included major departments such as:

  • Employment and Social Development Canada
  • Environment Canada
  • Fisheries and Oceans Canada
  • Health Canada
  • Industry Canada
  • Department of Justice
  • Natural Resources Canada
  • Public Works and Government Services Canada
  • Transport Canada
  • Veterans Affairs Canada
  • Funding also went to federal agencies such as the Canadian Food Inspection Agency and Parks Canada.

Paying for Parliament

One of the smallest spending slices goes to Parliament itself—the House of Commons, the Senate and the Library of Parliament. Last year, the combination of salaries and benefits for Members of Parliament, Senators and parliamentary staff, and spending on facilities and services, totalled about $534 million. That’s less than one-quarter of a cent of every tax dollar spent.

Crown corporations

Crown corporations (organizations owned directly or indirectly by the Government) cost $7.5 billion, or 3 cents of each tax dollar spent. Most of these expenses were recorded by three organizations:

  • Canadian Commercial Corporation—$1.7 billion
  • Canadian Broadcasting Corporation—$1.7 billion
  • Atomic Energy of Canada Limited—$1.3 billion.

Funding was also provided to cultural organizations (including the National Gallery of Canada, the Canadian Museum of History and the Canada Council for the Arts), to enterprises like VIA Rail, and to the Canadian Tourism Commission.

These costs were partially offset by revenues earned by the Crown corporations, which totaled $3.5 billion in 2013–14. These revenues are included as part of the Government’s other revenues discussed in the section entitled “Where the money comes from.”

Public debt charges

Interest charges on Canada’s public debt—money borrowed by the federal government over the years and not yet repaid and liabilities for pensions and other future benefits—cost $28.2 billion. That’s 10 cents of every tax dollar spent. Currently, 74 per cent of the Government’s un-matured debt is owed to Canadians, including citizens and domestic institutions holding federal bonds, treasury bills and other forms of the debt.

Here’s a summary of where all your tax dollars go:

  • Canada Health Transfer (11 cents)
  • Canada Revenue Agency (3 cents)
  • Canada Social Transfer (5 cents)
  • Children’s benefits (5 cents)
  • Crown corporations (3 cents)
  • National Defence (8 cents)
  • Employment Insurance benefits (6 cents)
  • Other major transfers to other levels of government (6 cents)
  • Other operations (12 cents)
  • Other transfer payments (13 cents)
  • Public debt charges (10 cents)
  • Public Safety (3 cents)
  • Support to elderly (15 cents)

Six Ways Small Business Owners Can Reduce Costs

By Randall Orser | Small Business

Reduce Overhead Costs TNIf you own a small business, you may need to cut your business costs in order to survive the global recession and to protect your business and personal assets for the future. Reducing your business costs at any time will increase your profit margin, and during a recession, it may make the difference between going out of business and fiscal survival.

  1. Offer Personalized and Interactive Internet Services

Offering a good service on the internet to your customers can save your business some costs. Often the labour costs of your small business are the highest regular costs. Providing an interactive internet service means your customers can order products without needing an individual to service the request.

Providing a personalized internet service means you have one customer service representative answering emails and customer queries on the website, which could save your business some labour costs.

  1. Become Efficient

Streamlining your business processes and eliminating waste from your business can save you a lot of money. Look at every task your business has and break down each process. If there is any duplication in the process or parts of the process that you can streamline or cut, changing your processes could save your business in many ways.

  1. Barter and Negotiate for supplies

Every small business needs supplies and services by other businesses. You may be able to cut your costs by bartering for your business needs. For example, you may need to employ a website designer to get your website up and running. If your business offers the website designer free advertising on the website, you may be able to negotiate for a discount.

Use your imagination to see what services or products you can barter in return for the supplies and services your business needs. If you can offer products or services in place of cash for some supplies, you can cut down on your business costs. Restaurants can offer meals for a certain period in exchange for menus, and the printer can offer flyers for the website design for the print shop. You may not always be able to negotiate a straight barter situation, but you can certainly try to negotiate for discounts and reduced costs with your suppliers.

  1. Manage cash flow to reduce expensive loans

Managing your business cash flow does not have to mean borrowing money from the bank and paying high interest rates. You can factor your income by paying a small fee to a credit company to get immediate payment on outstanding invoices. Instead of offering credit to your customers, you can create a business where customers must pay up front for your products. Customers who order a product via the internet will expect to pay by credit card or a secure internet payment site, such as PayPal. Using these services means your customers pay before you ship the product, so your cash flow is easier to balance.

  1. Find Cheaper Forms of Advertising or Marketing

While it is not advisable to cut out advertising and marketing completely, even during a recession, it is possible to reduce your marketing costs. Internet advertising can be relatively cheap. You can send an email newsletter to your customers instead of paying for printing. Local radio and community newspapers can reach a wide market within a local region for relatively little cost, especially in comparison to advertising in national newspapers or magazines.

  1. Reduce Packing Costs

If your business ships products across the country and overseas, the freight costs can be exorbitant. Look at how you pack your product. Many cargo and freight companies charge on a volume rate, as well as a weight rate and choose the larger rate for each package. Even if your product is relatively light, you could pay for the volumetric size of your package. If you pack a small product in a large box with lots of packing foam or air envelopes, you could be paying to ship air across the country. Reduce your package size to reduce your packing and freight costs.

You can easily save money and cut your business costs by streamlining your business processes, cutting the costs for supplies, packing, freight, and marketing, and by offering customers internet self service options. Managing your business cash flow can reduce your costs in paying loan repayments.

You May Qualify For The Family Tax Cut

By Randall Orser | Personal Income Tax

tax frustration--Tidbits-2015-04-15 TNUnder Canada’s tax system, federal personal income tax rates increase with the level of taxable income of the individual. As a result, a couple in which one individual has a higher taxable income than the other often pays more federal income tax than a couple where both individuals have equal taxable income.

In October 2014, the federal government introduced the Family Tax Cut; a new non-refundable tax credit of up to $2,000 for eligible couples with minor children based on the net reduction of federal tax that would be realized if up to $50,000 of an individual’s taxable income was transferred to the individual’s eligible spouse or common-law partner. This would take advantage of a spouse’s lower income tax bracket. This tax cut is available for the 2014 tax year and subsequent years.

To be an eligible partner, your spouse or common-law partner must be a resident of Canada on December 31 of the year (or on the date of death) and you were not, because of a breakdown in your marriage or common-law partnership, living separate and apart from each other at the end of the year and for a period of 90 days or more beginning in the year.

Can I claim the Family Tax Cut?

  • You were a resident of Canada on December 31 of the year (or on the date of death);
  • You have an eligible spouse or common-law partner for the year who has not claimed the Family Tax Cut;
  • You have a child who is under 18 at the end of the year who ordinarily lives throughout the year with you or your eligible spouse or common-law partner;
  • You were not confined to a prison or similar institution for a period of at least 90 days during the year;
  • Neither you nor your eligible spouse or common-law partner became bankrupt in the year;
  • Neither you nor your eligible spouse or common-law partner elected to split eligible pension income in the year; and
  • Both you and your eligible spouse or common-law partner file an income tax and benefit return for the year.

In most situations, only one spouse may claim the Family Tax Cut. However, if you and your ex-spouse have a child under the age of 18 and you have joint custody, you may be able to both claim it. Because of a joint custody arrangement, your child may have ordinarily lived with both you and your former spouse or common-law partner throughout the year. Provided that you and your former spouse each have an eligible spouse or common-law partner for the year, and all of the other conditions for claiming the Family Tax Cut are met, you can both claim the credit for the year.

Your net income or taxable income will not change with the Family Tax Cut. This credit is calculated as if an individual allocated up to $50,000 of taxable income to an eligible spouse or common-law partner of the individual. Your actual net income and taxable income will remain unchanged.

Likewise, other credits don’t change. Unlike pension income splitting, your net income and the net income of your eligible spouse or common-law partner will not change if you claim the Family Tax Cut. As a result, benefits and tax credits that are calculated based on net income, such as the GST/HST credit, the CCTB, the age amount, and the spouse or common-law partner amount, will not change.

The Family Tax cut can definitely benefit those families, and not just the rich, as many would have you believe, where one spouse makes more than the other.

What Every Small Business Owner Should Know Before—and After—Hiring a Bookkeeper

By Randall Orser | Small Business

Bookkeeping word cloud with data sheet background TNMany small businesses need to hire a skilled bookkeeper to track income and expenses, not only for tax preparation purposes, but for financial management as well. But how do you find a qualified bookkeeper, what should you look for and what should you look out for?

A common misconception made by accounting novices is that anyone that can add and subtract can be a bookkeeper. Another is that anyone with a little computer savvy can purchase and use popular accounting software to meet his bookkeeping needs. Useful bookkeeping requires some basic knowledge of accounting, including concepts such as assets, liabilities, equity, income and expense accounts, and be able to understand financial statements. Furthermore, if you have employees your bookkeeper should be familiar with payroll taxes and federal and state laws pertaining to employees, even if you have an outside service preparing the payroll. Frequently, you can find individuals offering their services as “bookkeepers” when they do not have a grasp of these basic accounting principles. Unfortunately, if the employer also does not understand accounting, it can be months or more before he finds out that this bookkeeper really doesn’t know what he is doing.

The best place to start when looking for an acceptable candidate would be your accountant’s office. Many accounting offices offer bookkeeping services, but their staff bookkeeping services are often billed at a premium. If your accountant offers this service, but you feel that the rate is too high for your small business, ask the accountant if he can refer you to a qualified independent bookkeeper. Rates for these individuals usually run a little lower.

You should interview several bookkeepers until you find one that you feel comfortable with, as this is someone you will be working with closely on sensitive information relating to the business. You should also request permission to run a background check on your prospective hire, as incidents of fraud and embezzlement do occur. The individuals who have committed these types of crimes are not always prosecuted, and after being discovered and terminated, will often take employment elsewhere with unsuspecting business owners. An experienced and reputable bookkeeper will not be offended by this request, and should be able to offer business references as well.

There are bookkeeping tests that you can administer to your prospective hire to determine if the individual has sufficient skill to perform the tasks necessary. Many are offered free on the Internet, some provided by professional bookkeeping organizations.

Once you have hired a bookkeeper, there are some ways to protect your business from fraudulent activities and in turn allow the bookkeeper to feel free from suspicion. The following is a partial list of good practices:

  1. Have all bank information such as statements, passwords, cancelled checks, etc. mailed to your home or a different business address. Open all such mailings, before any employees, to review for any suspicious activity and ASK QUESTIONS if something doesn’t look right.
  2. Never give out passwords on bank, credit card, or loan accounts to the bookkeeper even though it may seem more convenient to do so.
  3. Make sure that all bank and credit card accounts are reconciled properly and promptly and that you review the reconciliation reports. If you don’t know how to read a bank reconciliation report, ask your banker or your accountant to teach you what to look for.
  4. Make sure that you have adequate “separation of duties” policies in place. Some examples of this would be:
    1. The employee recording a bill or creating a bill payment should not also be signing the checks.
    2. The employee reconciling the cash should not be the same person taking the deposit to the bank.

You can find out more about the “Separation of Duties” by researching online or by speaking with your accountant.

  1. Be sure that you and/or your accountant review the financial statements on a regular basis for anything that looks out of the ordinary.

Finally, when you find a good bookkeeper, be sure to value and compensate him accordingly. This is an important position within the business and should not be left to unskilled, poorly trained, and underpaid people.

Canada Revenue Has A New Online Mail Service For Individuals

By Randall Orser | Personal Income Tax

Email On Email box Shows New Messages TNCanada Revenue Agency (CRA) is diving into the 21st century with most everything going online. Direct deposit will be required by April 2016, and I believe the days of paper notices of assessment will be long gone very soon. CRA has asked tax preparers (especially Efiler®’s) to get permission to give CRA your email. Once you do that, the days of paper NOAs is gone.

What Is This New Service Called Online Mail?

The Canada Revenue Agency (CRA) has introduced a new service that allows individuals to receive some of their correspondence from the CRA directly in My Account. Once you are registered for online mail, eligible correspondence will no longer be printed and mailed to you. Instead, an email notification will be sent to the email address you provided when new mail is available for you to view in My Account. For security reasons, the email notification does not contain any links.

What are the advantages of registering for online mail?

Paperless—viewing your correspondence online means less paper clutter around the home. The CRA even sends you an email notification when there is new mail in your secure online account, so you won’t miss a thing.

Convenient—when there is correspondence to view, you only need to log in to My Account to see it. You can access your tax information whenever you need it, wherever you are. To register, go to My Account at http://www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/myccnt/menu-eng.html.

Secure—the CRA takes the protection of Canadians’ tax information very seriously. The CRA uses the same high levels of security that financial institutions use to protect your banking information.

What correspondence items can be viewed online?

Currently, only the following correspondence items will generate an email notification when a new item is ready to be viewed in My Account:

  • Notices of assessment (issued after February 9, 2015)
  • Notices of reassessment (issued after February 9, 2015)

You will continue to receive other correspondence items from us on paper through the mail.

As more correspondence items become available, you will be automatically registered to receive them online rather than by mail. We will send you email notifications when correspondence is available for you to view in My Account.

How do I register for online mail?

There are three ways you can register to receive online mail from the CRA:

  • Enter your email address on your T1 Income Tax and Benefit return;
  • Log in to My Account and select “Manage online mail”; or
  • Contact our Individual Income Tax and Trust Enquiries by telephone at 1-800-959-8281.

Which Email Should You Use?

Individuals should provide the email address of an account they regularly access.

The email address you provide is the one we will use to advise you that you have new mail available for viewing. While the CRA will not share any personal information by email, it is highly recommended that you provide your own personal email address to protect your privacy.

What happens after I register?

Once you are registered, the CRA will send a registration confirmation email to the address you provided. Depending on the method you used to register, you should receive your confirmation email within the following timelines:

  • Immediately if you used the “Manage online mail” service in My Account.
  • Immediately if you called the Individual Income Tax and Trust Enquiries call centre.
  • Within 8 business days if you filed your return electronically.
  • Within 4-6 weeks if you filed your return by paper.

If you do not receive a registration confirmation email, log in to My Account and review the email address in your profile. If the email address is incorrect, update it. If it is correct, check your junk mail or trash folder for an email from the CRA.

As with your mailing address, it is your responsibility to ensure we have your correct email address at all times.

Similar to the system employed by banks, no sensitive or confidential information is sent to you by email, nor do we request to receive such information from you through email.

When your new mail is available online, you will be advised to log in to My Account, to view and, if required, print it. My Account is the only place to view your online mail.

When to Hire an Accountant to do your Taxes

By Randall Orser | Personal Income Tax

NX_accountant_worriedfront TNDo you fill out your own tax forms, use a software program to file your taxes, or have a tax service do it for you? Each of these methods is a good option, but sometimes it is better to work with a tax preparer. A tax preparer has specialized expertise and knowledge of tax rules making them the perfect candidate to accurately complete tax forms. The more complicated your taxes are, the more likely you will need the help of an experienced preparer.

If expense is not a concern for you, having a tax preparer file your taxes for you may be the best decision. You shouldn’t have to worry about your taxes being filed correctly if you are working with an experienced tax preparer. You also don’t have to spend any time calculating details and filing tax forms yourself. Whether you fill out a one-page form or you have a stack of forms to fill out, a preparer will be able and willing to do it for you. However, if you don’t want to throw away your money, simple forms can be done with software programs, through a tax service, or on your own much less expensively.

If you have several sources of income, such as a side business, stock investments, income properties, and other income sources, it is a good idea to have a preparer do your taxes for you. These types of income sources can be very complicated and require several extra forms to be filled out. A good preparer will have experience with it and can ensure that it will be done correctly and efficiently. Filling out a mountain of different forms can be tedious and confusing. One mistake can carry problems throughout the forms. Have someone who knows what they are doing complete it for you. On the other hand, if you only have one W2 form, you should be able to do it yourself.

Whether or not you should have a preparer do your taxes depends on what forms you need to file and how confident you feel doing them yourself. If you like to speed through things and don’t like looking over your work, you could miss important deductions and make costly mistakes. A preparer will ensure things are done right. Precision and detail are important when filing taxes to avoid mistakes and penalties. The more complicated the forms are, the more precise you need to be. If you feel uneasy about it, hire a preparer to do it for you. With a preparer, you are paying for expertise, precision, and accuracy.

What Happens To Capital Losses At Death?

By Randall Orser | Personal Income Tax

Capital gain and losses TNAs the old saying goes ‘there’s two things inevitable in life: death and taxes’. Sadly, for most of us they will happen in the same year. We’re not going to get into all of the issues surrounding a deceased taxpayer (there are many); we’re just going to concentrate on capital losses. You have a capital loss when you sell, or are considered to have sold, a capital property for less than its adjusted cost base plus the outlays and expenses involved in selling the property.

In the year of death, many items are considered ‘deemed disposition’. Canada Revenue Agency (CRA) is basically saying that you sold them at the time of death. Capital losses may have also occurred, or the deceased may have capital losses from prior years that were unused. These capital losses, usually, can only be written off against capital gains. In the year of death, if there is any capital losses left over after using them against capital gains, the balance can be used against other income.

CRA allows for two methods to apply a net capital loss that happened in the year of death, you could use either Method A or Method B.

Method A

You can carry back a 2014 net capital loss to reduce any taxable capital gains in any of the three tax years before the year of death. If you are applying it against taxable capital gains realized in 2011, 2012, or 2013, you do not need to make any adjustment because the inclusion rate is the same in all three years. The loss you carry back cannot be more than the taxable capital gains in those years. To ask for a loss carryback, complete “Section III − Net capital loss for carryback” on Form T1A, Request for Loss Carryback, and send it to your tax centre. Do not file an amended return for the year to which you want to apply the loss.

After you carry back the loss, there may be an amount left. You may be able to use some of the remaining amount to reduce other income on the final return, the return for the year before the year of death, or both returns. However, before you do this, you have to calculate the amount you can use. From the net capital loss you have left, subtract any capital gains deductions the deceased has claimed to date. Use any loss left to reduce other income for the year of death, the year before the year of death, or for both years.

If you claim any remaining net capital loss in the year of death, you should claim it as a negative amount in brackets at line 127 of the final return.

Do not use a capital loss claimed against other income at Line 127 in the calculation of net income for the purposes of calculating other amounts such as social benefit repayments, provincial or territorial tax credits, and those non-refundable tax credits requiring the use of net income.

Method B

You can choose not to carry back the net capital loss to reduce taxable capital gains from earlier years. You may prefer to reduce other income on the final return, the return for the year before the year of death, or both returns. However, before you do this, you have to calculate the amount you can use.

From the net capital loss, subtract any capital gains deductions the deceased has claimed to date. Use any loss remaining to reduce other income for the year of death, the year before the year of death, or for both years.

If you claim any remaining net capital loss in the year of death, you should claim it as a negative amount in brackets at Line 127 of the final return.

Example

A man died on June 20, 2014. You have the following details about his tax matters:

  • Net capital loss in 2014:         $11,000
  • Taxable capital gains in 2012: $4,000
  • Taxable capital gains in 2011: $2,000
  • Total capital gains deductions claimed to date: $4,000

He did not claim any capital gains deductions for 2011 or 2012.

You can use Method A or Method B.

Method A

If you choose Method A, you can use the net capital losses to reduce his 2012 taxable capital gains to zero ($11,000 − $4,000). Then, you can use the remaining balance of $7,000 to reduce his 2011 taxable capital gain to zero ($7,000 − $2,000).

After you subtract his capital gains deductions ($5,000 − $4,000), you still have $1,000 left to reduce the man’s other income for 2014 or 2013 or for both years.

Method B

If you choose to use this method, you will first deduct his capital gains deductions of $4,000 from his net capital loss in 2014 of $11,000. You can now use the remaining $7,000 to reduce the man’s other income for 2014 or 2013, or for both years.

If you claim any remaining net capital loss in the year before the year of death, you will need to complete Form T1-ADJ, T1 Adjustment Request, or send CRA a signed letter providing the details of your request.  Send your Form T1-ADJ or letter separately from the deceased’s final return. Applying a 2014 net capital loss to a previous year may reduce any capital gains deductions the deceased claimed in that year or a following year.

Do I Have To Claim Income From Renting To My Mother-In-Law?

By Randall Orser | Personal Income Tax

Family Key Means Blood Relation Or Relatives TNYou’ve taken the plunge and renovated the basement for mom. Fortunately, she’s able to help pay for the new suite. However, now you’re worried that the monies she’s paying are going to get added to your income; or worse, you’ve put lots of money into the rental unit and you may not be able to write-off the loss.

Canada Revenue Agency (CRA) will look at the transaction and determine whether you are dealing with each other at Arm’s Length. Arm’s Length means a relationship or transaction between persons who act in their separate interests. Related persons are not considered to be dealing with each other at arm’s length. Related persons include: individuals connected by a blood relationship, marriage, common-law partnership, or adoption (legal or in fact); or a corporation and an individual, or two corporations, may also be related persons.

Unrelated persons might not be dealing with each other at arm’s length at a particular time. For example, one person is under the influence or control of the other, or the persons are considered to be acting together. Each case depends upon its own facts.

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