Category Archives for "Personal Income Tax"

How Long does it Take to Get Your Tax Refund?

By Randall Orser | Personal Finances , Personal Income Tax

The time it takes to get your tax refund depends on how and when you filed your income tax return.  

According to the CRA when you file your tax return on or before your filing due date, they will issue you with a Notice of Assessment and any refund that they owe you as follows: 

  • Within two weeks of receiving your return if you file it electronically
  • Within eight weeks of receiving your paper return
  • Within sixteen weeks of receiving your non-resident paper filed return

Tax returns that are filed electronically are processed faster than paper returns, often within as few as eight business days. The CRA also says that if you use direct deposit into your bank account then you could get your refund faster.  However, it is realistic to expect your tax refund after the end of February because even if you filed in January the CRA does not begin processing income tax returns until mid-February.

How to Check the Status of your Tax Refund or Return 

There are several ways to check on your personal tax return.

  • You can use My Account for individual returns including partnerships and sole proprietorships.  You will be able to see the status of your return, set up direct debit information, make payments, get information on your RRSP and TFSA as well as submit documents and update your contact information.
  • From mobile devices you can use the MyCRA app for individual tax returns that allows you to view the status of your return and your notice of assessment, your TSFA/RRSP contribution limits, manage direct deposits and update your contact information.
  • You can call the CRA Telerefund line at 1-800-959-1956 or the Tax Information Phone Service (TIPS) line at 1-800-267-6999.  To be able to access your tax information you need to be able to provide the following to identify yourself.
    • Social insurance number
    • Full Name
    • Date of Birth
    • Details from your account or a previous assessed return

The earliest you can expect information to be available via Telerefund or TIPS is mid-March if you filed before mid-February.  Otherwise you need to wait four weeks after filing between mid- February and mid-April and at least six weeks after mid-April.

Your Return/Refund May be Delayed:

  • If your contact information has changed and you do not update the CRA.  If they need to verify information, it will take longer to process your return.
  • If there are errors on your return. Misreporting income or expenses can delay your return and put you at risk of an audit.
  • You have large changes in your deduction claims year over year
  • Your tax history, if you have previously been reassessed or penalized
  • Your return has been randomly selected for review 

You May not get the Refund you are Expecting if the CRA keeps some of it: 

  • To cover a balance owing from previous years.
  • You have a garnishment order under the Family Orders and Agreements Enforcement Assistance Act
  • You owe other federal, provincial or territorial government debts such as student loans, employment insurance and social assistance benefit overpayments, immigration loans and training allowance repayments.
  • You have an outstanding GST/HST payments from a sole proprietorship or partnership
  • Your refund is $2 or less.

Do you Have to Declare Hobby Income?

By Randall Orser | Personal Income Tax , Small Business

Did you know that what you think is a hobby the CRA may see as a business?  If you are making a profit from your hobby, then it is a defined as a business by Canada Revenue.  It does not matter if your hobby is small, you still have to declare any income from it on your tax return.

However, it may not always obvious to you whether your hobby is taxable or not.  For example:  

  • Producing crafts to sell at a Christmas sale might be seen by the CRA as a business, but if you are actually spending more on the materials to make the crafts then you ARE NOT making a profit, so you don’t have to declare any business income.  
  • However, in a second example you may be buying items at clearance or garage sales, marking them up and reselling them on-line.  In this example you ARE making a profit, so you need to declare this as income.

The income you make must be reported on Form T2125 Statement of Business or Professional Activities, which is included with the T1 income tax return package.

Doing this extra paperwork does have some major advantages.  You can write off your business expenses against income, including business-use-of-home expenses, meals and entertainment expenses, motor vehicle expensesetc.  You can also use the Capital Cost Allowanceto annually write off a portion of assets.  To claim these expenses, you must keep track of all your sales and expenses and all of your receipts.

If you have income from a regular job, the net loss from your hobby gets deducted against your total income which may result in a lower tax bill.   However, there are limits: you cannot continue to write off losses from your hobby year after year without the CRA using the profit test to see whether or not your activities are conducted with a “reasonable expectation of profit”.

 From an article by Susan Ward

 

5 Early Steps to Get Ready for Tax Time

By Randall Orser | Happy New Year , Personal Finances , Personal Income Tax , Small Business

HAPPY NEW YEAR

While you are nursing that hangover or catching up on sleep might not be the best time to remind you that the last year is over and that you need to start thinking about filing your taxes! but here it is!

You are probably not too excited about filing your taxes but look at this as a great opportunity to review your finances and getting organized early will save you the pain and hassle of doing everything at the last minute.  

Here are some simple steps to help you to reduce your stress and get yourself on track for filing your taxes by the end of April or even a little earlier!

  1. Make an Account List:  Start by making a list of all your financial accounts. If you have a small business, you need to create both a personal and a business account list.  Include bank accounts, credit cards, investments, retirement, and every other financial account you have. Unused but still open accounts should be included on your list.  If these accounts are old and inactive now is a good time to close them. Make sure all of your accounts are accounted for in your bookkeeping software, so you don’t miss any transactions. If you forget to write off an eligible business expense, that is money you are giving money to the CRA that should be in your pocket!
  2. Get your Bookkeeping up to date:  If you have been ignoring your bookkeeping for a while, it’s time to get caught up! You’ll need copies of your annual income statement, which is the core document used to prepare your business taxes.  You might also need your balance sheet and depending on the registration of the business you run, you may also need to list assets and liabilities on your taxes, which comes from the balance sheet. Remember that errors in your bookkeeping can lead to errors on your taxes. You don’t want to pay too much and lose out on profits you should keep. Similarly, you don’t want to underreport and find yourself on thewrong side of an audit, fines, and penalties. Making sure your books are done, and done accurately, is key to tax season success.  If bookkeeping is not your thing, it might be a good idea to enlist the help of a professional bookkeeper who will keep your records in order for you so that everything is ready for tax time.
  3. Put Together a Tax Form Checklist:  Make a list of all the sources that you expect to get tax forms from.  These can be from bank accounts, investments, educational institutions and the government. You can put your checklist in an Excel spreadsheet or Google Sheets for easier access using your phone. Whichever method you use, make sure you have all the forms you need before you file your taxes, or you will have to file an update to your return if something is missed and this can be a big hassle.
  4. Create a Tax Form Folder (digital and physical):  When the forms arrive, it is easy to set them aside to open later then misplace them.  Train yourself to open everything right away and file it in a folder either physically or digitally.  You can use Dropbox to store digital copies and add in scanned paper copies so that you have everything together.
  5. Choose your Filing Method:  Decide whether you want to do your taxes yourself online, or you want to hire a bookkeeper or accountant to do them for you. Think about how knowledgeable or comfortable you are about doing your taxes.  If the answer if not very, you should use a professional to avoid making mistakes or missing deductions.

Taxes don't Have to be Terrible! 

You may dread tax season, but taxes don’t have to be a horrible part of your finances and your business. You do them every year, so find ways to make the process easier and faster.  Preparation well in advance can be the key to a successful filing and just think how satisfying it is when it is all done for another year! 

From an article by Eric Rosenberg

Have you Made Your New Year Financial Resolutions Yet?

By Randall Orser | Happy New Year , Investments , Personal Finances , Personal Income Tax

Looking forward to the new year, some of us like to make New Year’s Resolutions – some we keep, some we don’t, but how many of us make Financial New Year’s Resolutions?  It might be something that you want to think about for 2019.  

Resolve to do Better– we all start off the new year gung-ho about our New Year’s Resolutions then we get disheartened when we don’t see instant results, and we fall off the wagon.  The solution is to start small and be happy with small results rather than expecting a major overnight change in your money situation.  Resolve to manage your money better than you did last year. 

Identify Your Financial Goals– before you can make any progress towards your goals you need to know what they are – repay your car loan? buy a new home? retire early? To increase your chance of success you need to be specific about your goals then outline a plan of attack. Look at your financial performance last year and be honest - did you overspend or overborrow? Reconsider your financial mistakes and resolve to do better in 2019 and it is important to continue to review your progress periodically throughout the year.   

Get a Support System, your spouse should always be part of your team as you should be working together towards your financial goals.  Taking a personal finance class together will help you recognise where you are damaging your finances.  Share money saving ideas with family and friends.

Here are the Five Main Financial Goals that you should consider for the new year.

Start to Budget – Start tracking your spending because before you can commit to sticking to a budget you need to know exactly where your money is going, see where you are overspending and plan to reduce the cash leak in that area.  Use Personal Finance software to help you to easily track your finances.  

Get out of Debt – this is a key goal to taking control of your finances.  Prioritize your debts – organize your debts by their interest rate, pay them off in order of the highest ones first.  Fast track your debt payoff goals, instead of saying “I am going to pay off all my debts this year” which is a big goal, commit to contributing a little more to your monthly payments.  An extra $50 a month can make a big difference.  Think about ways of raising extra money to pay off debts maybe selling unwanted items or taking as second job.

Start Saving Money 

  • Reduce your grocery bill and stop eating out.
  • Find ways to save on utilities, cut ties with cable and start streaming.
  • Close any bank or credit accounts you don’t need, this could save you bank charges.  
  • Call your credit card company to try and negotiate a lower interest rate.
  • Boost your retirement savings and set a monthly savings goal.  
  • Automate as many monthly payments as possible. In this way you make payments without thinking about it, so it becomes a habit to expect these deductions from your bank account each month.  
  • Commit to no-spend days or weekends.  Make this a time when no money at all leaves your bank account, eat at home, find free entertainment and skip shopping.  
  • Get healthy without joining a gym – try doing on-line exercise videos for free and get outside for walks and hikes.  
  • Collect your change – try and use cash to pay for things and keep your change. Throw it into a jar. It is amazing how much you can accumulate over a year, and this money can go towards paying off a debt.

Learn about Money and Finances - Subscribe to a financial podcast (Randall does one every Friday at 11am).  Increase your financial knowledge by listening to the experts.  Alternatively commit to reading at least one personal finance book this year (there are lots to choose from at your local library for free!)   

Learn about investing or re-evaluate your investment portfolio – sit down with your financial advisor to see if your current plan is meeting your goals or if you need to make changes.  Make it a goal to invest a certain amount each month.

Some great ideas to get you started on the road to financial recovery, good luck in 2019.

How to Protect Your Records in Case of Emergency

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

When putting together an emergency plan should the “Big One” happen, food, water and shelter will usually be the priorities. However, protecting your most important family documents should also be part of that plan.  

In the aftermath of any emergency event some documents will be immediately important, for example insurance policies.  You can keep physical copies, store electronic copies on a USB, DVD, or remotely and there are free apps on your phone where you can record copies and email them to yourself or a relative.  

For birth certificates or licenses and other one-page documents you can take a picture on your phone, although these will not have legal standing, they may make it easier to replace them. 

The best way to protect your documents is at either at home in a grab and go waterproof and fireproof container (easy to buy), or off-site in a safety deposit box at your bank or at the remote home of a friend or relative.   

What Documents Need Protecting?

  • Government issued Vital Records - such as birth and marriage certificates, passports, citizenship papers, drivers licenses, and social security documents. You should also keep pet ID’s and records.
  • Home and property information, deeds, mortgage information, car titles and appraisal documents for jewelry and other valuables.
  • Insurance Policies – you will need policy numbers and contact information for your homeowners, renters, flood, earthquake, auto, life, health etc. policies. Make sure you read your policy well beforehand so that you know what your coverage is.  It is also a good idea to take photographs or do a room by room video to help you make an inventory your possessions.
  • Medical information – including prescriptions (drug name and dosage), health insurance numbers, physician name and contact information, powers of attorney and living wills.
  • Estate Planning documents, wills, trusts, funeral instructions, and lawyer information.
  • Financial records including tax returns, credit card and bank account numbers and financial contact information.

Having this information easily accessible will make getting your needs met after a disaster a lot easier when many providers will be overwhelmed.

For more information on making an emergency plan visit http://getprepared.ca/

Are you Planning to Give Gifts to Your Employees this Holiday Season? Do You Know What is Taxable?

By Randall Orser | Business Income Taxes , holiday season , Payroll , Personal Income Tax , Small Business

At this time of year many employers give a Christmas or annual bonus – did you know that this is a taxable benefit if paid in cash or a cash equivalent such as gift cards?

You might think about giving your employees gifts instead of cash bonuses so that both of you will benefit on your Canadian income tax.  Employers can use the total cost of the gift as a tax deduction and employees do not need to declare the cost of the gift as part of their taxable income.

Under CRA rules all gifts to employees are considered to be taxable income except for the following exemptions:

1.   It is non-cash and less than $500 in fair market value per year and only given for the following reasons:

  • A Religious or other special event
  • Birth of a child
  • Wedding
  • Birthday

2.   It is a non-cash long standing service award valued at less than $500, this can be given once every five years.

3.   An Award for an employment related accomplishment.  These are allowed when:

  • It has clearly defined criteria
  • A nomination and evaluation process
  • Limited number of recipients

4.   Employer provided parties or social events where the cost is $100 per person or less.

5.   Meals or other hospitality services at work-related functions such as meetings or training sessions.

6.   Valueless items such as tea/coffee, snacks, t-shirts, hats etc.

There is no limit to the number of gifts an employee can receive in a given year as long as the total value is not more than $500.  Small gifts such as mugs or chocolates etc. are not included in the $500 limit.

If you want to give your employees gifts that are tax deductible for your company, you need to be careful what you give.  Items that can easily be converted into cash such as gift cards or stocks will be considered to be taxable employee benefits as will some performance related awards and bonuses.  Included under this rule are:

  • Gift Cards
  • Rewards that include employer-provided meals or accommodations such as trips
  • Cash or non-cash awards from manufacturers that are given to employers then passed onto employees
  • Points for travel, accommodations or other rewards
  • Gifts given by manufacturers to employees of dealerships

If you want to give Cash Bonuses or near-cash bonuses such as gift cards to your employees, it must be through payroll and must have taxes deducted.

For full list of taxable or non-taxable benefits and allowances visit the link below:
CRA's Benefits and allowances chart


How Can You Participate in the Government’s Home Buyer’s Plan?

By Randall Orser | Personal Income Tax

The Home Buyers Plan is a government program that allows you to withdraw up to $25,000 in a calendar year  from your registered retirement savings plans (RRSPs) to buy or build a qualifying home for yourself or for a related person with a disability.

How to Participate in the HBP:

  • You must be considered a first-time home buyer, this is a person who has not occupied a home that you, your spouse, or common law partner owned in a four-year period prior to withdrawing funds.  
  • You must have a written agreement to buy or build a qualifying home for a related person with a disability or to help a related person with a disability buy or build a qualifying home.
  • You or your related person with a disability must intend to occupy the qualifying home as your principle residence within one year of building or buying it and it must also be occupied as a principle residence.
  • You may be able to participate again if your repayable HBP is at zero at January 1stin the year of your next withdrawal

To Meet the Withdrawal Conditions:

  • You must be a resident of Canada at the time of the withdrawal
  • You have to receive all withdrawals in the same calendar year
  • You cannot withdraw more than $25,000
  • You can only withdraw from your own RRSP, but you can withdraw from more than one RRSP and your RRSP issuer will not withhold tax on withdraws of $25,000 or less
  • Usually you cannot withdraw from a locked-in RRSP or a Group RRSP
  • Your RRSP contributions must stay in the RRSP for at least 90 days before you can withdraw them under the HBP or they may not be deductible for any year
  • Neither you nor your spouse or common-law partner or the related person with a disability can own the qualifying home more than 30 days before the withdrawal is made.
  • You have to buy or build a qualifying home before October 1st of the year after the year of the withdrawal.
  • You have to fill out Form T1036, Home Buyers' Plan (HBP) Request to Withdraw Funds from an RRSP for each eligible withdrawal.

You have to make sure that all HBP conditions are met otherwise your withdrawal may not be considered eligible.  You must include part or all of the withdrawal as income on tax return for the year that you received the funds. 

For more information visit the Government of Canada webpage at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/what-home-buyers-plan.html

Buying or Selling a Home? Tax Information You Should Know

By Randall Orser | Personal Income Tax

If you buy or sell your principal residence in Canada, since 2016 you have to report the sale on your income tax return.  This ensures that only those who are entitled to the principal residence exemption can claim it. 

A principal residence can be any type of housing unit including a house, cottage, condo, apartment, trailer, mobile home or houseboat. It qualifies as a principal residence if you own the property alone or with another person, you, your spouse or children lived in it for some point during the year and you designated the property as your principle residence.

You can only have one principal residence at a time. If you sell your principal residence and buy another in the same year you can use the “plus one” rule when calculating the principal residence exemption amount.  This allows you to claim for both properties but only one can be designated as your principal residence.

What is the Principal Residence Exemption?

When you sell a housing unit you may realize a capital gain which can be taxable.  However, under the Principal Residence Exemption rules this capital gain may be reduced or eliminated if the property was your principal residence for all the years that you owned it.  If it was not your principal residence at any time, then you may have to report capital gains.   

What Happens if you Don't Report the Sale

If you do not report the sale on your income tax, or don't make the designation then you will have to ask the CRA for an amendment to your return for the related tax year.  The CRA may accept a late designation but you may have to pay a penalty.

For more information on buying and selling your principal residence visit: https://www.canada.ca/en/revenue-agency/news/newsroom/tax-tips/tax-filing-season-media-kit/tfsmk27.html

Renting Out Your Mortgage Helper? – The Taxman Cometh

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

Once you start renting out that mortgage helper you will need to include rental income on your tax return, using form T776 Statement of Real Estate Rentals.

You must keep accurate records of your rental income and expenses each year and retain them for six years.  These records help you figure out your net profit for the year. The tax you pay will depend on the net income from the rental; any losses will be deducted from your other income and if you have no other income will be carried forward to the next year. Whether a long-term or short-term rental, most rental receipts are considered income for tax purposes.

If your mortgage helper is for a parent, grandparent, or sibling, they are considered a ‘related person’. You may still have to report the income as rental income, however, if you’re renting below fair market value, you won’t be able to write-off any losses, and will have to report the income differently. 

Airbnb is a big thing now, and you need to realize if you’re doing this regularly, then you need to claim it as rental income. You get the same expenses as if it was a long-term rental, plus you can write off bedding, towels, and soap etc. that you use exclusively for this rental. If you supply meals, then the income may be considered business income and not rental income.

Your mortgage helper can definitely help pay for the mortgage and make your dream home more affordable. With experience, managing the rental side does get easier. Finding a good property manager, lawyer and tax preparer can help you manage the details.

For more information about renting visit https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4036/rental-income-2016.html

Avoid These Common Mistakes When Claiming Charitable Contributions

By Randall Orser | Personal Income Tax

Donating to a charity can be a very feel good experience; as well it can help on your taxes by reducing how much you pay. However, most people make some pretty common mistakes when either donating or claiming the donations on their personal tax returns. We’ll do our best to enlighten you on what to avoid when claiming donations.

Each Spouse Claims Only Their Donations

This is the most common mistake most taxpayers make, each claiming only their donations. As a married, or common-law, couple you can combine your donations. This allows one spouse to take advantage of a higher deduction, or maybe they benefit far greater than the other spouse claiming the donations. Whose name is on the donation receipt is irrelevant. 

You get a higher deduction when claiming more than $200 in donations. On the first $200 of donations you get a 15% tax credit, and the amount over $200 you get a 29% tax credit.  

For Example, Susie has $50 in donations while her husband, Eric, has donations of $190. Separately, they are under the $200, and Susie would get a tax credit of $7.50, while Eric would get $28.50. If they were to combine these donations, one would be claiming $240 in donations. The credit would be $30 ($200 x 15%) plus $11.60 ($40 x 29%) for a total of $41.60. If Eric were to claim the donations he’d get an addition $13.10, and, if Susie were to claim them she’d get an additional $34.10. This may make more of a difference on either’s tax bill depending on their income.

No Receipt For The Donation

This is a common one for people who drop coin or bills into the boxes and cans strewn throughout their city or town. This may add up during the year, however, without a receipt or other proof, you probably won’t get away with the deduction. 

This also occurs when you get people coming to your door, and asking for a donation. If it’s a legitimate charity, you will get a receipt right there and then.

What are donation schemes and why should I avoid them?

People are sometimes approached to donate to charities or other qualified donees through tax shelter arrangements. Before you decide to donate in this way, you should be aware of the risks associated with participating in certain tax shelter donation arrangements including:

  • Gifting trust arrangements;
  • Leveraged cash donations; and
  • Buy-low, donate-high arrangements.

Promoters of such shelters must obtain a tax shelter number from the Canada Revenue Agency (CRA). The CRA uses the tax shelter number to identify the tax shelter and its investors, but offers no guarantee that taxpayers will receive the proposed tax benefits. 

The CRA reviews all tax shelters to ensure that the tax benefits being claimed meet the requirements of the Income Tax Act. The CRA has audited many of these gifting arrangements. Generally, the CRA reduces the amount of the tax credit to no more than the taxpayers' cash donation, and in many cases it is reduced to even less than that. In some cases the credit is reduced to zero. The CRA may also charge interest and penalties.

I have found that when these kinds of schemes go to court, CRA usually wins. I know someone who was caught up in the art scheme some time ago, where you buy a piece of art for cheap and then donate it to a charity at an inflated price (usually way above fair market value). 

What types of gifts qualify for charitable tax credits? 

Examples of donations that do usually qualify for charitable tax credits include:

  • Money;
  • Securities;
  • Ecologically sensitive land;
  • Certified cultural property;
  • Capital property;
  • Personal-use property (such as prints, etchings, drawings, paintings, sculptures, jewellery, rare folios, rare manuscripts, rare books, stamps, and coins); and
  • Inventory (such as art, antiques, rare books).

The following do not usually qualify for charitable tax credits: 

Contributions of services, such as time, skills, effort;

Certain admission fees to events or to programs (e.g., fees for daycare or nursery school facilities);

The purchase price of a lottery ticket or other chance to win a prize, even though the lottery proceeds benefit one or more charities; and

  • The payment of tuition fees (exceptions exist). 

These common mistakes for charitable donations can end up costing you quite a lot in taxes. Always make sure you get a receipt, look at the best possible scenario when it comes to deducting charitable donations, and don’t fall for the schemes that may save you initially but end up costing you way more later on.

 

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