Category Archives for "Personal Income Tax"

Does the Canada Revenue Agency Have Your Current Information?

By Randall Orser | Personal Finances , Personal Income Tax

Yes, it’s only January but the end of April comes quickly so now is a good time to think about tax-related issues. One of those is, does the Canada Revenue Agency (CRA), have your current information. That could be a new address, marital status, and more. What has happened in your life this year, that the CRA may need to know about.

Moved? - If you’ve moved in the year, then you should’ve informed CRA as soon as you were at your new address. Even if you signed up for online mail, you should let them know about your new address; you can do this through My Account where you get your online mail.

Why is this important? Keeping your information up to date will ensure that you keep receiving benefit payments to which you may be entitled and important correspondence from the CRA. Otherwise, your payments may stop or you may not receive important correspondence, such as your notice of assessment.

CRA will not forward your new information to other government departments, except Elections Canada if you authorized such on your tax return. Contact other departments or organizations directly to give them your new address.

Marital Status?  During the year you may have gotten married, or lived with someone for 12 consecutive months during some point in the year. In either case, you need to inform CRA as soon as your marital status changes.

This also goes for getting divorced. If your marital status changes during the year and you are entitled to any Canada child benefit (CCTB) payments, GST/HST credit, or working income tax benefit (WITB) advance payments, you must let CRA know by the end of the month after the month of your divorce. In the case of separation, do not tell CRA until you have been separated for more than 90 consecutive days.

If you changed your name, let CRA know as soon as possible. Call them at 1-800-959-8281 to update our records. CRA does not accept changes of name by email or over the Internet.

Birth of a Child?

You’ve had a big event this year having a child, and you may be eligible for some tax credits from the government. The first one being the Child Tax Benefit (CTB).

To be eligible for the CCB, you have to meet all of the following conditions:

  • You must live with the child, and the child must be under 18 years of age.
  • You must be primarily responsible for the care and upbringing of the child.
  • You must be a resident of Canada for tax purposes.
  • You or your spouse or common-law partner must be:
    • a Canadian citizen
    • a permanent resident
    • a protected person
    • a temporary resident who has lived in Canada for the previous 18 months, and who has a valid permit in the 19th month
    • an Indian within the meaning of the Indian Act, if you are not a Canadian citizen

The Automated Benefits Application is a partnership between the Canada Revenue Agency (CRA) and the Vital Statistics Agency of the participating province. The CRA will use the information from the child's birth registration to determine your eligibility for benefits and credits.

You can use the Automated Benefits Application if all of these situations apply:

  • you are the birth mother of a newborn
  • your child is born in a participating province
  • you did not already apply using My Account or Form RC66, Canada Child Benefits Application

What you need to do 

After your baby is born:

  1. Complete your child’s provincial birth registration form.
  2. Give your consent to the Vital Statistics Agency to securely share the information from your birth registration form with the CRA.
  3. Provide your social insurance number (SIN) to avoid delays.
  4. Submit your form.

We recommend that you sign up for direct deposit before your baby is born to get your payments faster.

If you use the Automated Benefits Application, do not apply any other way.

Disability

If during the year you’ve become disabled, there are tax credits you can apply for to reduce your tax burden.

Disability Tax Credit

What is the disability tax credit?

The disability tax credit (DTC) is a non-refundable tax credit that helps persons with disabilities or their supporting persons reduce the amount of income tax they may have to pay. An individual may claim the disability amount once they are eligible for the DTC. This amount includes a supplement for persons under 18 years of age at the end of the year.

The purpose of the DTC is to provide for greater tax equity by allowing some relief for disability costs, since these are unavoidable additional expenses that other taxpayers don’t have to face.

Being eligible for the DTC can open the door to other federal, provincial, or territorial programs such as the registered disability savings plan, the working income tax benefit, and the child disability benefit.

Who is eligible for the DTC?

You are eligible for the DTC only if we approve Form T2201. A medical practitioner has to fill out and certify that you have a severe and prolonged impairment and must describe its effects. Answer a few questions to find out if the person with the disability may be eligible.

If we have already told you that you are eligible, do not send another form unless the previous period of approval has ended or if we tell you that we need one. You must tell us immediately if your medical condition improves.

Disability supports deduction

Individuals who have an impairment in physical or mental functions and have paid for certain medical expenses can claim the disability supports deduction under certain conditions.

Who is eligible?

If you have an impairment in physical or mental functions, you can claim a disability supports deduction if you paid expenses that no one has claimed as medical expenses. You must have paid them so you could:

  • be employed or carry on a business (either alone or as an active partner)
  • do research or similar work for which you received a grant
  • attend a designated educational institution or a secondary school where you were enrolled in an educational program

Only the person with the impairment in physical or mental functions can claim expenses for this deduction.

Home Accessibility Expenses

If you became disabled and had to make adjustments to your home for your mobility and use of the home, you may be entitled to claim expenses for doing so. What renovations or expenses are eligible and ineligible?

A qualifying renovation is a renovation or alteration that is of an enduring nature and is integral to the eligible dwelling (including the land that forms part of the eligible dwelling). The renovation must:

  • allow the qualifying individual to gain access to, or to be mobile or functional within, the dwelling; or
  • reduce the risk of harm to the qualifying individual within the dwelling or in gaining access to the dwelling.

An item you buy that will not become a permanent part of your dwelling is generally not eligible.

Eligible Expenses

These expenses are outlays or expenses made or incurred during the year that are directly attributable to a qualifying renovation of an eligible dwelling. The expenses must be for work performed and/or goods acquired in the tax year.

Work performed by yourself

If you do the work yourself, the eligible expenses include expenses for :

  • building materials;
  • fixtures;
  • equipment rentals;
  • building plans; and
  • permits.

However, the value of your own labour or tools cannot be claimed as eligible expenses. This includes someone who is related to you, unless they have a contracting business and are registered to GST/HST.

If you have had any changes in relation to the above, it’s best to inform the CRA as soon as possible. If you don’t and later changes are made to any credits you were receiving, then CRA will claw back any overpayments, and charge penalties and interest.  At the same time we always appreciate knowing about any changes so that we can keep your file up to date.

What Your Tax Accountant Needs to Prepare Your Income Tax

By Randall Orser | Business Income Taxes , Freelancing , Home Based Business , Investments , Personal Income Tax , Small Business

When it comes to income tax preparation, there are do-it-yourselfers and there are those who have their income tax prepared by professionals.

For many businesses, having a professional such as a tax accountant prepare their income tax returns is the most sensible option. We don’t all have time to become income tax experts and income tax mistakes can be costly. So why not hire an expert to get the job done right and cut down on tax time anxiety?

To do the job right, though, your tax accountant or other income tax preparer will need to have all the right tax records at hand – preferably organized. Use this checklist to get your records together for your tax accountant.

Business Records Your Accountant Needs

· Revenue and business expenses for the year

· Business use of auto

· Auto operating expenses

· Vehicle driving log with business kilometres driven

· Asset additions

· Business use-of-home details

Your tax accountant will also need any tax records such as:

· Last year’s Notice of Assessment

· Amounts paid by installments

· A copy of your income tax return filed last year (if you’re a new client)

Other records your tax accountant will need will depend on whether you’re asking him or her to prepare a T2 (corporate) or T1 (personal) income tax return.

If the latter, your tax accountant will need all the relevant information slips and tax-related documents. Here are some of the most common:

· T4 slips (if you have employment/business income)

· T4A commissions & self-employed

· T5013 Partnership Income

· T3 Income from Trusts

· T5 Investment Income

· RRSP contribution slips

· Charitable donations

· Medical and dental receipts

· Child care information

Save Money on Your Tax Accountant’s Fee

Accountants generally charge by the hour, so the harder you make their job, the more it will cost you.

Summarize and tally records wherever possible. Cheques, invoices, business expenses - all should be categorized and totalled. Sort all your information slips by type. Having your tax accountant do the organizing and tallying is the expensive way to go.

If you have several businesses, remember that you will have to have separate revenue and business expenses figures for each business, as business income should be listed by individual business on the T1 form.

Be as organized as you possibly can. For example, clip groups of receipts together by type and put a post-it-note stating what the category is on the top. The less your accountant needs to figure out, the less time she’ll be spending on your file.

And remember, having a tax professional prepare your income tax return(s) isn’t costing you as much as you think when you see the bill – it’s a legitimate business expense.

Personal Finance New Year’s Resolutions

By Randall Orser | Budget , Investments , Personal Finances , Personal Income Tax , Retirement

The start of a new year is the perfect time to take stock of your financial situation and see how you can make changes to improve it.   You need to make firm resolutions to help you get closer to your financial goals whether it be saving for retirement, a down payment for a house or starting a business.  Here are some considerations that you might want to add to your resolutions list. 

RESOLVE TO DO BETTER IN 2020 – Identify the financial mistakes that you made in 2019 and how you could have avoided them so that you are armed with that knowledge to help you avoid making the same mistakes in 2020.

Prioritize Your Debts – Make a list of all your debts and organize them according to the annual interest rate.  Plan to pay off those with the highest interest rate first, these will probably be your credit cards.  It makes no sense to save money in an account with a low interest rate when you are paying high rates of interest on your credit cards. You might want to also think about selling any assets that you might have such as matured savings bonds and using the money to pay off high interest debts. 

Open a Registered Retirement Savings Plan – It’s never too late to start saving for retirement.  Meet with a financial planner and let them advise you about the right plan for you.  Even if you only contribute $50 a month it soon starts to add up and any contributions will help to lower to your income tax bill. 

Rebalance Your Investment Portfolio -  Meet with your financial advisor to ensure that your investments are still working for you, and that once attractive investments are still that way or no longer appropriate.  If your financial goals have changed then you may need to rebalance your investment portfolio.  

Set up an Automated Savings Plan – If your willpower to save money is not too great then consider setting up an automated savings plan with your bank.  “Paying Yourself First” is one of the most effective ways to save money.  With an ASP a specific amount of money will automatically be transferred to your savings account at regular intervals before you have the chance to get your hands on it.  With regular deposits like this earning compound interest your savings will grow faster.

Collect Your Change – You may think that this is not a great way to save money, but you could be surprised!  Whenever you pay with cash save the change or take the money that you get back from recycling bottles and cans at the store and put it into a jar. At the end of the year take the change you have accumulated and use it to pay down debt.  

Commit to No Spend Days – Plan on taking regular no spend days or weekends, eat at home, find free entertainment and skip shopping.  This is probably best done during cold and rainy weather that makes you want to stay indoors.  Maintain the habit throughout the year to get the best financial benefit.

Get Healthy Without Joining a Gym – Save money on expensive gym memberships by doing free exercise videos on-line, working out at the park or taking winter hikes.  There are a number of free apps such as Fitbit Coach and Nike Training Club that you can use to do workouts at home.

Cut Back on Your Bad Money Habits – these usually include eating out too much and buying too many clothes. Identify what makes you want to indulge in your bad habits and try a different activity to replace it.  If you eat out too much try prepping your meals for the week on Sunday and ask friends and family to help you. 

Start Using Personal Finance Software -  This will enable you to keep track of where your money goes.  If you don’t know how much you spend on coffee, haircuts, movie tickets or eating out how can you start to cut your spending?

Read a Financial Book Regularly -  Some books recommended for Canadians are:

Personal Finance for Canadians for Dummies (2018) Eric Tyson

Millionaire Teacher (2nd ed 2017) by Andrew Hallam

Wealthing Like Rabbits by Robert R Brown

Worry Free Money (2017) by Shannon Lee Simmons

Happy Go Money (2019) by Melissa Leong

The Value of Simple (2018) – John A Robertson

The Latte Factor (2019) David Bach

Retirement Income for Life (2018) Frederick Vettes

Thinking About Taking out a Reverse Mortgage? Have you Done Your Homework?

By Randall Orser | Budget , Personal Finances , Personal Income Tax , Retirement

If you are retired or close to retirement and finding yourself short of money then a reverse mortgage might be the answer, but make sure you do your homework before you take out this type of loan.

What is a Reverse Mortgage?

A reverse mortgage is a loan secured against the value of your home.  In Canada you have to be a homeowner’s aged 55 or over to take out a reverse mortgage.  You can convert up to 55% of your home’s value into tax free cash to use as you wish.  With a reverse mortgage you retain ownership of your home and there are no monthly payments required.  The loan is only repaid when your home is sold when you either move out or the last borrower dies.   

Reverse Mortgages are surging in Canada at about 25% per year as older people are finding themselves without the income that they need for their retirement and this is a source of additional income for them.  Outstanding balances on reverse mortgages have more than doubled in the four years up to 2019 and now stand at $3.12billion, although this is less than 1% of the residential mortgages that have been issued, they are growing at a much faster pace.  

At present the big banks do not offer reverse mortgages they can only be taken out with two lenders –  the leading provider is Canadian Home Income Plan (CHIP) from HomeEquity Bank which has offered reverse mortgages since 1986, the second is the PATH Home Plan from  Equitable Bank available in BC, Alberta and Ontario.  Some Credit Unions in BC and Ontario also offer reverse mortgages. 

In order to qualify for a Reverse Mortgage in Canada, these factors are taken into consideration:

  • Both you and your spouse must be at least 55 years old.
  • The home that you are using to secure a reverse mortgage must be your primary residence, and you live there at least six months of the year.
  • The location of your home.
  • The type of home – detached, condo, townhouse etc.
  • The appraised value of your home – it must be at least $150,000.
  • The condition of your home.
  • The equity that you have in your home.
  • If you have a mortgage, loans or a line of credit secured on the home, you must pay it off before taking out a reverse mortgage.  
  • The older you are and the more equity that you have in the home the more money you could get but the amount is also impacted by current market trends. 

How to access the money

You can usually take out the money from your loan either as a one-time lump sum or by taking some up front and the remainder over time.  You need to ask your lender what options are open to you and if there are restrictions or fees.  

A reverse mortgage may sound like a great idea but is it the best option for you?

It’s Almost Back to School Time – Have you Thought About a RESP for your Child?

By Randall Orser | Personal Finances , Personal Income Tax

Back to school is upon us, and if you haven’t already thought about a Registered Education Savings Plan for your child, then this could be a good time to find out more about them. 

A RESP is a powerful way to save for your child’s education.  It’s an investment account similar to your RRSP that allows your deposits to grow tax free.  Though you will not receive a tax refund on your contributions as with your RRSP, you will pay no tax on capital gains, or income tax on interest and dividend payments. The biggest benefit is that you get a boost of up to $7200 per child from as the government pays you to invest.

The sponsor of the plan (a parent or guardian) can start saving as early as they want to after a child is born.  As they contribute to the plan the government kicks in 20% up to a maximum contribution of $2500 per year, (that’s up to $500 per year in free money!). This contribution is known as the Canadian Education Savings Grant, it goes to the beneficiary’s account and the sponsor can invest it anyway they wish.  Investing is usually done similar to a RRSP or TFSA in cash, stocks, bonds, GIC’s, mutual funds and foreign investments.

Families with an income less than $45,916 get an additional 20% on the first $500 contributed, a total grant of 40%.  Families with incomes more than $45,916 but less than $91,831 get an extra 10%, a total grant of 30%.  If you can’t contribute the $2500 needed to get the full grant, unused grant room can be carried forward and used in future years, but $1000 is the maximum that can be claimed in any one year.

So, it makes sense to open a RESP rather than saving in your own TFSA where you will not get the government grants.  When your child does go on to higher education, they can start to withdraw the money and as they will probably have a low income, they will pay either little or no income tax.  RESP’s can remain open for 36 years so there is lots of time for kids to make a decision about their education.

It’s easy to open a RESP, you can either do it through your bank or financial planner as a self-directed RESP, or you can use a RESP provider.  However, a self-directed RESP is the lowest cost and simplest option.  To get the maximum government grant you need to contribute $208.33 per month, but even an amount of $25 per month will add up over the years.

If you have more than one child, you can start a RESP family plan which works like an individual account with the same contribution limit ($50,000 per child). You need to take this limit into account should grandparents also start a plan for your child, otherwise you will be penalized by the government with a tax of 1% per month on the excess money.

To get the government grant your RESP provider will apply for it on your behalf, sometimes once a month or once or twice a year.  You should ask your provider how often you will receive the grant.   

If you child decides not to go on to further education, your original investment can be withdrawn tax free, but all interest, capital gains and income from dividends will be taxed in the year that you receive it and is subject to an additional 20% penalty.  All grants received must be returned to the government.  To avoid this tax hit you can transfer an amount up to $50,000 to your RRSP, as long as your child is over 21 and the RESP has been open for at least 10 years, and if you have the room to do so. If you don’t have the room, you can delay the transfer until it becomes available.  

For more information on RESP's check out the Government of Canada website at: 
https://www.canada.ca/en/services/benefits/education/education-savings/resp.html

Should You Pay Yourself Salary or Dividends When You Incorporate Your Business?

By Randall Orser | Business Income Taxes , Personal Income Tax , Small Business

Once you incorporate your business you need to decide which is the best way to pay yourself, a salary, dividends or a mix of both. There are advantages and disadvantages to both salary and dividends for business owners.

Business Salary

Advantages:

  • If you are paid a business salary, then you will be paying into the Canada Pension Plan.  This is an important consideration for the future as the amount of retirement benefits that you will get depend on how much you have paid in and for how long.
  • Your salary or bonus will be a tax deduction for the corporation.
  • As well as paying yourself you can also do some income splitting with your spouse or children.
  • You will also be able to contribute to RRSP’s or TFSA’s for your retirement.

Disadvantages:

  • You will have a personal income which is fully taxable unlike dividends which are taxed at a lower rate so your tax bill may be greater.
  • For the Canada Pension Plan, you will have to pay both portions as you are both an employer and an employee.
  • You will have to do payroll and set up a payroll account with the CRA and file all the related paperwork.
  • If your business profits vary from year to year, paying yourself a salary will mean that you will not be able to carry back a business loss for future years which you could if you are paid by dividends.

Payment by Dividends

Advantages:

  • Dividends are taxed at a lower rate than salaries so you may pay less personal tax.
  • Dividends can be declared at any time which means that you can optimize your tax situation.
  • Not paying into the CPP will save you money.
  • It is easy to pay yourself dividends, you just have to write a cheque to yourself from the company and at the end of the year update the corporation minute book and prepare a director’s resolution for the dividends paid.

Disadvantages:

  • Not paying into CPP will lessen the amount of CPP you are entitled to when you retire.
  • Being paid by dividends does not allow you to contribute to an RRSP as you do not have any income and can mean that you cannot claim other personal expenses. 

Payment by a Mix of Salary and Dividends

Whether payment in a mix of salary and dividends is the best way to go for a business owner is dependent on their personal circumstances including income level, cash flow needs, and the corporation’s predicted income for the next year.  The owner needs to understand if he needs to have room to contribute to his RRSP and if income tax deductions are important.  The decision to pay in a mix of salary and dividends should be made after discussions with an accountant or financial planner.   

Sometimes a mix of salary and dividends is paid out by the company to ensure that it does not earn over $500,000 as this is the limit up to which a privately-owned company pays the lower rate of income tax. If earnings are greater than this, it can be better to pay the owner a salary thereby reducing the corporate income.

Sole Proprietorships or Partnerships

As these types of businesses are not owned by shareholders, they cannot issue dividends and the owners cannot be salaried employees with payroll deductions.  Business income and personal income become the same thing, so you have no choice but to report your earnings on a T1 income tax return.

From an article by Susan Ward

The Personal Tax Filing Deadline is April 30th – Some Last Minute Reminders

By Randall Orser | Personal Finances , Personal Income Tax

The deadline for filing your personal taxes April 30th is almost here.  Here are some things to remember before you start the filing process.

1.  Most Canadian residents need to file an income tax return for the previous year to pay the correct amount of income tax owed, pay back overpayment of benefits or to claim benefits.

2.  If you file late and owe money the CRA will charge you interest and penalties on the unpaid amount.  So even if you know that you will have to pay, help yourself by at least filing on time.

3.  Before you tackle your income-tax return be sure that you have all the following information on hand.

  • Information from the CRA including your notice of assessment from the previous year.
  • All your tax information slips such as T4’s from employers, as well as your investment information slips and RRSP contribution receipts from your bank.
  • Information on other income such as self-employment income.
  • Receipts for tax deductions such as medical expenses and donations.

4.  Decide how you are going to file your taxes either a paper copy or online using NETFILE, and make sure that you have the correct tax package for your province. The advantage of using NETFILE is that you get immediate confirmation that your return has been received and if you are owed a refund you will get it much faster, sometimes within two weeks of filing.

5.  If your taxes are complicated for example if you run a small business it is often better to use a tax professional to prepare and file your return, however to save yourself some money you should still spend time sorting your receipts and getting everything ready for your accountant.

6.  There are a few different ways to pay any income tax due; by mailing a cheque to the CRA, using online or telephone banking, using the CRA’s My Payment Service or making a payment at your bank.  If you have to pay your taxes by installments you can set up a payment arrangement with the CRA.

7.  Set up a direct deposit with the CRA so that your tax refund and any benefit payments are deposited directly to your bank account.

Need Help With Your Return? Where to Get Answers to Your Income Tax Questions

By Randall Orser | Investments , Personal Finances , Personal Income Tax

The April 30th deadline is rapidly approaching.  If you are in a panic about your tax return and need answers to some questions, here are some places you can go for help.

1.  If your tax return is complicated it is always best to get a tax professional such as Number Crunchers® to complete it for you. We know all the ins and outs of tax returns and we can answer your questions and make sense of the chaos.

2. If you still want to go it alone, get a Canadian Income Tax Package.  This used to be mailed out but can now be downloaded and printed from the CRA Website.  The package includes line by line instructions to help you to fill out your return.

3. Head to the CRA website at http://www.cra-arc.gc.ca/formspubs/tpcs/menu-eng.html to find forms and publications by topic.

4. The CRA has an automated Tax Information Phone Service (TIPS) for personal and general tax information.  To find out more go to http://www.cra-arc.gc.ca/esrvc-srvce/tps/menu-eng.html.  Before calling you need to make sure that you have the following information on hand: your social insurance number, your month and year of birth and the total income that you recorded on line 150 of your 2017 return.

5. Tax information for individuals, businesses, charities and trusts can be found at http://www.cra-arc.gc.ca/ndvdls-fmls/menu-eng.html

6. Phone Inquiries – you can reach a CRA representative by calling 1-800-959-8281 but expect to wait a while to talk to someone, they are extremely busy at this time of year.  They do have extended evening and weekend hours up to April 30th, (9am to 9pm local time during the week and 9am to 5pm Saturdays local time) and they do suggest calling Thursday or Friday when the phones are usually less busy.

7. For help with CRA online services you can go to their E-Service Help Desk at http://www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/menu-eng.html.

8. If you need help with a very basic return that does not include bankruptcy, deceased individuals, capital gains or losses, employment expenses or business or rental income and expenses there are Volunteer Income Tax Preparation Clinics offered by the CRA.  These are only to help people who meet their basic eligibility requirements such as maximum income levels.  For more information about locations go to http://www.cra-arc.gc.ca/tx/ndvdls/vlntr/menu-eng.html

What is CRA ReFile and How Does it Work?

By Randall Orser | Personal Income Tax

The CRA ReFile service allows you to send online adjustments for income tax and benefits returns using certified Netfile software and Efile software.  You or your tax service provider can send adjustments for 2018, 2017, 2016, and 2015.

Advantages of ReFile:

  • You will know how much you owe or what your refund is much quicker than making adjustments on paper.
  • It saves you money on postage and you use less paper
  • It is good for the environment as you use less paper
  • It is really easy to do

You must use ReFile with the same certified Netfile software that you used to file your income tax and benefit return.  If you filed a paper copy of your return then you will need to mail a paper form             T1-ADJ - T1Adjustment Request to the CRA.

You Cannot Use ReFile when:

  • You are amending an election, or you want to make an election for example on the Disposition of Property by a Taxpayer to a Taxable Canadian Corporation, (transferring eligible property to the corporation for consideration such as shares of any class in that corporation).
  • You are applying for child and family benefits.
  • You are allocating a refund to other CRA accounts.
  • You are applying for the disability tax credit.
  • You have a reassessment in progress.
  • You have a first return that has not been assessed – check on your MyAccount or have a notice of assessment paper copy to show that your return has been assessed.
  • You have to pay taxes in other provinces or territories.
  • Your first return was filed by the CRA as a 152(7) assessment.

You cannot use ReFile to make changes to personal information you need to use MyAccount to make the following changes:

  • Marital status
  • Address
  • Direct deposit details
  • Email address

The ReFile system only allows you to make nine adjustments per year.  If you go over that then you will get an automated response saying the limit has been reached and you will then have to file a paper request.

 

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