Category Archives for "Personal Income Tax"

What Determines Tax Withholding Amounts?

By Randall Orser | Personal Income Tax

The Canadian Parliament and Provincial Legislatures establish federal and provincial tax-withholding rates. Procedures for determining your withholding amounts vary by tax. Sometimes withholding amounts depend on the type of wages being deducted.

TD1 Form

Your TD1 form helps your employer to determine the amount of federal income tax to subtract from your wages. For this reason, your employer must give you the form to complete when you're hired. Your withholding amount depends on the number of credits and filing status you claim on the form. Each credit gives you a sum that reduces your wages subject to taxation. The more allowances you claim, the less tax you pay; the fewer allowances you claim, the more tax you pay.

Note there are a Federal and a Provincial TD1, and you, the employee, must fill out both.

Taxable Wages

Federal income tax withholding is also based on your taxable wages. The more you earn, the more tax you pay; the less you earn, the less tax you pay. To arrive at your taxable wages, determine your gross pay, which is your entire pay before deductions. Then subtract nontaxable wages, such as qualified business expense reimbursements, and pretax deductions, such as qualified health insurance, from your gross pay.

CRA Guide T4032 Payroll Deductions Tables

Once taxable wages have been determined, withholding depends on CRA Guide T4032 Payroll Deductions Tables. Apply the withholding table that goes with your filing status, taxable wages, pay period and number of allowances. The table gives the exact amount that should come out of your paychecks. The CRA updates its tax tables periodically, typically semi-annually, so use the tax rate that applies to the tax year in question.

Flat Percentage Rates

Canada Pension Plan (CPP) and Employment Insurance (EI) are federal payroll taxes that are withheld at flat percentages of your wages. These rates are subject to change, usually annually. For 2018, Canada Pension Plan tax is withheld at 4.95 percent of your taxable wages, up to the annual wage maximum of $55,900. Employment Insurance is withheld at 1.66 percent of taxable wages to a maximum of $51,700.

Supplemental Wages

Supplemental wages are payments you receive from your employer that are not regular wages. They may include overtime pay, bonuses, commissions, severance pay, sick pay, awards, prizes and retroactive pay increases. For federal income tax purposes, if supplemental wages are paid in addition to regular wages, they’re taxed as though the total were a single payment for the regular payroll. If supplemental wages are paid separately from regular wages, federal income tax may be subtracted at a flat 25 percent. If supplemental wages exceed $1 million for the calendar year, the excess amount is taxed at 35 percent.

Provincial Taxes

Every province has an income tax rate and the amounts differ from Province to Province. If you are using CRA’s tax tables then both the federal and provincial amounts will show and are added together. Some Provinces do have additional taxes, such as Ontario’s health tax. Quebec has different rates for CPP and EI.

What Is the Disability Tax Credit (DTC)?

By Randall Orser | Personal Income Tax

The disability amount is a non-refundable tax credit used to reduce income tax payable on your income tax and benefit return. This amount includes a supplement for persons under18 years of age at the end of the year. All or part of this amount may be transferred to your spouse or common-law partner, or another supporting person.

The disability amount is for those individuals who have a severe and prolonged impairment in physical or mental functions. You do have to file a form, of course, it is government and they thrive on paperwork. You file a T2201 Disability Tax Credit Certificate with Canada Revenue Agency (CRA); a qualified practitioner must fill out the medical portion of the form.

You are eligible for the DTC only if CRA approves the T2201 form. A qualified practitioner has to complete and certify that you have a severe and prolonged impairment and its effects. To find out if you may be eligible for the DTC, check out the self-assessment questionnaire which is on the T2201 form.

Do you receive Canada Pension Plan disability benefits, workers’ compensation benefits, or other types of disability or insurance? If so, this does not necessarily mean you will qualify for the DTC. These other programs have other purposes and different criteria for qualifying, such as your inability to work. You may not be able to work; however, your daily living may not be severely affected.

The DTC starts from the day the physical or mental impairment began. You can apply at any time and re-file any tax returns for years that the DTC would apply. For example, you apply for the DTC in 2013 for an impairment that began in 2010; CRA approves the DTC for 2010 and future years. You can now apply for an adjustment for tax years 2010, 2011 & 2012.

Some Definitions

Inordinate amount of time – is a clinical judgment made by a qualified practitioner who observes a recognizable difference in the time required for an activity to be performed by a patient. Usually, this equals three times the normal time required to complete the activity.

Life-sustaining therapy – You must meet both the following conditions: the therapy is required to support a vital function, even if it alleviates the symptoms; and, the therapy is needed at least 3 times per week, for an average of at least 14 hours per week.

Markedly restricted – You are markedly restricted if, all or substantially all of the time (at least 90% of the time), you are unable, or it takes you an inordinate amount of time (defined above) to perform one or more of the basic activities of daily living, even with therapy (other than therapy to support a vital function) and the use of appropriate devices and medication.

Prolonged – An impairment is prolonged if it has lasted, or is expected to last, for a continuous period of at least 12 months.

Qualified practitioner – Qualified practitioners are medical doctors, optometrists, audiologists, occupational therapists, physiotherapists, psychologists, and speech-language pathologists. The table below lists which sections of the form each can certify.

Significantly restricted – means that although you do not quite meet the criteria for markedly restricted, your vision or ability to perform a basic activity of daily living is still substantially restricted all or substantially all of the time (at least 90% of the time).

Type of impairment each qualified practitioner can certify:

Qualified practitioner:

Can certify:

Medical doctor

All impairments

Optometrist

Vision

Audiologist

Hearing

Occupational therapist

Walking, feeding, dressing, and the cumulative effect for these activities

Physiotherapist

Walking

Psychologist

Mental functions necessary for everyday life

Speech-language pathologist

Speaking

If you find yourself with any kind of a severe impairment, you need to look at the DTC. Currently (2017), the disability amount is $ 8113, which can be significant. Also, with the number of children being diagnosed with autism, you can have your child file a T2201 and will more than likely qualify for the DTC, which can then be transferred to one of the parents. Look at other potential disability credits that you may qualify for tax purposes too.

When to Hire an Accountant to do your Taxes

By Randall Orser | Personal Income Tax

Do 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.

Why are my support payments taxable?

By Randall Orser | Personal Income Tax

There are two kinds of support payments: child and spousal. Child support payments are those payments that you and your spouse have agreed on, or are court ordered, to help cover the cost of raising the children by the one spouse. Spousal support payments are those payments that you and your spouse agreed on, or are court ordered, that cover that spouse’s own maintenance (living expenses). Generally, the agreement or order must stipulate whether the payment is a child or spousal support payment.

Your payment is considered a support payment if the following five conditions are met.

  • The payment must be made under the terms of a court order or written agreement.
  • If the recipient is the payer's current or former spouse or common-law partner, the payer must be living separate and apart from the recipient at the time the payment was made because of a breakdown in the relationship. Otherwise, the payer must be the legal parent of a child of the recipient.
  • The payment is made for the maintenance of the recipient, child of the recipient, or both, and the recipient has discretion as to the use of the amount.
  • The allowance must be payable on a periodic basis. The timing of the payments must be set out in the court order or written agreement.
  • The payments must be made directly to the recipient.

For tax purposes, child support payments are not taxable income to the recipient. However, they must be laid out in the court order or agreement as child support payments. If your order or agreement predates May 1 1997, then the recipient would have to include the payments as income, and the payer gets a deduction.

Spousal support payments are taxable income to the recipient, and a deduction for the payer. As with anything tax wise, there are exceptions. Child support has priority. If your court order or written agreement specifies child support payments and support payments for the recipient, priority is given to the child support.

This means that all payments made are first considered to have been made toward child support. Any amount paid over and above the child support amount is considered to be support payments for the recipient. All child support payable to a recipient must be fully paid before any amounts paid as support for the recipient can be claimed as a deduction. Any arrears in the amount of child support is carried forward and added to the next year's support payable. The priority of child support does not apply when the child support and spouse or common-law partner support are payable under different court orders or written agreements and the recipients are different people.

Payments made after the death of the recipient are not deductible by the payer. Whether the payments are made to the estate or the children, these payments would not meet the conditions of a support payment. Payments made by the estate of a payer to the recipient are neither deductible nor taxable. The amounts do not meet the conditions of a support payment because an estate cannot have a spouse or common-law partner.

If you have to claim support payments you received, then it’s because they are for spousal support. Check your agreement or court order to ensure you are doing this correctly, and keep track of your child support payments as you may not have to claim the support payments if the child support is not paid in full.

Where Does Our Tax Revenue Go?

By Randall Orser | Personal Income Tax

People 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. We did search for more current figures, however, the government doesn’t seem to put this information out as much as it used to in the past.

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)

Let’s Get Ready for Taxes!

By Randall Orser | Personal Income Tax

It’s hard to believe that another tax season will soon be upon us. Wouldn’t it be great if you were ready to do your taxes before the deadline of April 30th? I’m sure your tax preparer would be delighted to get everything ready and organized before then. Now is the time to be thinking about your income, deductions, and whether or not you’ll be owing come April 30th.

Income

What is your income this year? Just from T4s then you probably won’t be owing. However, add in other income from things such as interest, investments, rental or small business and you will probably end up owing. The amount and types of income will determine your tax owing. Most ones mentioned before are taxed at 100%; however, capital gains and dividends are taxed differently (capital gains are 50% of the gain and dividends you get a tax credit).

The amount of income you earn will determine which tax bracket you fit, and then how much tax you pay. It’s best to figure out what your income is early enough so you can estimate your tax bill and be ready to pay it by the deadline of April 30th. For small businesses, even though your return is due June 15th, the tax is due April 30th.

You can find a complete list here of all income that should be included on tax return along with the line number on the tax return.

You do not have to report certain amounts in your income, including the following:

  • any GST/HST credit, Canada child benefit, or Canada child tax benefit payments, including those from related provincial and territorial programs;
  • child assistance payments and the supplement for handicapped children paid by the province of Quebec;
  • compensation received from a province or territory if you were a victim of a criminal act or a motor vehicle accident;
  • most lottery winnings (Income earned on any of the above amounts, such as interest you earn when you invest lottery winnings is taxable);
  • most gifts and inheritances;
  • amounts paid by Canada or an ally (if the amount is not taxable in that country) for disability or death due to war service;
  • most amounts received from a life insurance policy following someone's death;
  • most payments of the type commonly referred to as strike pay you received from your union, even if you perform picketing duties as a requirement of membership;
  • Elementary and secondary school scholarships and bursaries;
  • Post-secondary school scholarships, fellowships, and bursaries are not taxable if you received them in 2016 for
    your enrollment in a program that entitles you to claim the full-time education amount in 2015 or 2016, or if you
    will be considered a full-time qualifying student for 2017; and

Deductions

The amount and type of deductions will also determine your balance owing. The more deductions you can come up with, legitimate ones of course, the lower your amount owing will be. The first one most people think about is RRSPs as that’s a straight deduction off your income as is support payments, union dues, company pension contributions, employment expenses, childcare expenses, moving expenses, and more. The more of these kinds of deductions the lower your taxable income. The other kind of deductions are actually tax credits and include, working income tax benefit, medical expenses, donations, political contributions, CPP and EI premiums, disability tax credit, and others.

The more deductions the better off you are tax wise, however, make sure you have all your receipts for anything you’re claiming. Canada Revenue Agency (CRA) is checking a lot of these deductions now, especially if they are large amounts. Keep your receipts by deduction and year, and you should have no issue when it comes to a review of said deduction.

There are also various provincial deductions you can claim. British Columbia has the home renovation tax credit, sales tax credit (PST), training tax credit. Ontario has the children’s activity credit, co-operative education tax credit, healthy homes renovation tax credit, to name just a few. Check with the CRA website here for a complete list of provincial credits.

What your tax bill will be come April 30th, can be somewhat estimated earlier based on your income and deductions, and isn’t it better to be prepared for that than find out on the 29th what you actually owe.

Will I Have to File a Tax Return for This Year?

By Randall Orser | Personal Income Tax

2017 is pretty much done, and it’s time to start thinking about taxes (it comes sooner than you think). You’re wondering if you need to file a tax return, and more than likely you do. Here’s eighteen reasons to file a 2017 tax return come April 2018.

Do you have to file a return?

You must file a return for 2016 if:

  • You have to pay tax for 2016.
  • Canada Revenue Agency (CRA) sent you a request to file a return.
  • You received working income tax benefit advance payments in 2016.
  • You disposed of capital property in 2016 (for example, if you sold real estate, your principal residence, or shares) or you realized a taxable capital gain (for example, if a mutual fund or trust attributed income to you, or you are reporting a capital gains reserve you claimed on your 2015 return).
  • You have to repay any of your old age security or employment insurance benefits. See line 235.
  • You have to contribute to the Canada Pension Plan (CPP). This can apply if for 2016 the total of your net self-employment income and pensionable employment income is more than $3,500. See line 222.
  • You are paying employment insurance premiums on self-employment and other eligible earnings. See lines 317 and 430.

Even if none of these requirements apply, you should file a return if:

  • You want to claim a refund.
  • You want to claim the working income tax benefit for 2016.
  • You or your spouse or common-law partner want to begin or continue receiving Canada child benefit payments, including related provincial or territorial benefit payments.
  • You have incurred a non-capital loss (see line 236) in 2016 that you want to be able to apply in other years.
  • You want to carry forward or transfer the unused part of your tuition, education, and textbook amounts. See line 323.
  • You want to report income for which you could contribute to an RRSP and/or a pooled registered pension plan (PRPP) to keep your RRSP/PRPP deduction limit for future years current.
  • You want to carry forward the unused investment tax credit on expenditures you incurred during the current year See line 412.
  • You receive the guaranteed income supplement or allowance benefits under the old age security program. You can usually renew your benefit by filing your return by April 30. If you choose not to file a return, you will have to complete a renewal form. This form is available from Service Canada.

Really, there’s every good reason to file a tax return for 2017 even if you’re not working.

What Does the Tax Rate Really Mean?

By Randall Orser | Personal Income Tax

Many people get confused over what tax rate they’re actually paying. We hear about tax brackets and the rates within, but what rate are you actually paying? The Canadian tax system is based on marginal rates in tax brackets, and you’re taxed based on the income and the rate in that bracket.


What is a 'Marginal Tax Rate'

A marginal tax rate is the amount of tax paid on an additional dollar of income. The marginal tax rate for an individual will increase as income rises. This method of taxation aims to fairly tax individuals based upon their earnings, with low-income earners being taxed at a lower rate than higher income earners. You’re taxed on each additional dollar of income

Your marginal tax rate has important implications for financial planning. You need to know your marginal tax rate to calculate what amount of your raise or bonus you’ll get to keep after taxes or whether it is worthwhile to contribute more to your RRSPs.

What is an ‘Average Tax Rate’

The average tax rate is pretty simple as it’s the total tax paid divided by your total income. The average tax rate reflects the total tax you are paying to the government.

The current federal rates are below (provincial rates are different for each province, so we won’t go into those right now).

Federal tax rates for 2017

  • 15% on the first $45,916 of taxable income, +
  • 20.5% on the next $45,915 of taxable income (on the portion of taxable income over $45,916 up to $91,831), +
  • 26% on the next $50,522 of taxable income (on the portion of taxable income over $91,831 up to $142,353), +
  • 29% on the next $60,447 of taxable income (on the portion of taxable income over $142,353 up to $202,800), +
  • 33% of taxable income over $202,800.

For example, James has an income of $75,500 for the 2017 tax year. His total federal tax would be $12,952.12. He’s taxed on the first $45,916 at 15% = $6,887.40 and the next $29,584 at $20.5% = 6,064.72. His average rate would be $17.15% which is the federal tax divided by total income ($12,952.12 ÷ $75,500.00).

Your total income is not taxed at the marginal rate but each dollar is taxed at the rate that your income fits as in the above example.

Of course, the above doesn’t reflect the actual tax paid, this is just an example, as your total tax bill will be depending on many factors such as RRSP contributions, donations, medical and more.

Will You Owe Tax at Tax Time?

By Randall Orser | Personal Income Tax

Whether or not you end up owing tax depends on many factors. If you’re employed, and don’t have income other than from your employment, then you probably won’t end up owing anything. On the other hand, if you’re self-employed, more than likely you’ll end up owing something at tax time.

Employed Person

While being an employee and getting a T4 slip at the end up of the year, you may not think you’ll end up owing on your taxes, but that may just not be the case. Do you have other income such as investments (dividends or capital gains), or withdrawals from an RRSP? Maybe you have a rental property?

Any income you earn outside of your job will cause you to owe money at tax time. How much you’ll owe will depend on what your employment income was. You have to be careful and monitor your other income during the year, so, if you do owe tax come April it’s not a complete surprise and you’ve saved up for it. Or, you’ve made instalment payments to your income tax account with CRA and you don’t have to worry about a payment in April as it’s already paid for.

Your other income may actually put you into another tax bracket, so be careful when withdrawing RRSPs and such. For 2017, the federal tax brackets are:

  • 15% up to $45,916
  • 20.5% on $45,917 to $91,831
  • 26% on $91,832 to $142,353
  • 29% on $142,354 to $202,800
  • 33% above $202,800

Where is your employment income now? And, what will your additional income be? Where does it fit into the above scale? Your tax rate will change depending on the level of income.

If you have a total income of $107,000 then you’re in the middle tax bracket of 26%. You don’t pay 26% on the full $107,000 you pay approximately: $6887(15%) on the first $45,916, $9413 (20.5%) on the next $45,915, and $3,944 (26%) on the rest for a total of $20,244.

Your employment income may have only been $85,000 and federal tax on that would be about $14,899. In this case you pay about $5,345 on the additional income of $22,000.

As you can see having that additional income can me quite a bit more tax when it pushes you into a higher tax bracket. You may be wondering how to alleviate this tax, and the best way is RRSPs. Take your profits from the other incomes and put that into RRSPs, at least you can reduce the tax you owe.

Self-employed Person

As a self-employed person, you pay income tax based on your net income (revenue less expenses), so your tax owing can vary quite a bit from year-to-year depending on how your business is doing. Any year you have a loss, it will be first applied against any other income you have, and the balance will be carried forward to the next year; you can also carry a loss back if the prior year was profitable.

Where your income fits in the above brackets is how you will be taxed. The more you make, the more you end up paying in taxes. You can alleviate tax owing by doing RRSPs, and other deductions such as spousal (if you spouse’s net income is low); tuition credits for yourself, spouse or children; child care expenses; and more.

Ideally, the goal with a business is to get the income as low as possible for tax purposes. Though, be warned, this could bite you later when trying to get personal loans or mortgages as your income may be too low for the banks.

The following, as per Canada Revenue Agency, may be considered when determining operating expenses:

The above are based on what CRA has classified as expenses per the T2125 Statement of Business or Professional Income, which you file with your personal taxes each year. The links are to CRA’s definition of that expense. You can deduct other expenses as will fit into your business, however, CRA may not allow it for tax purposes. For example, speeding tickets, parking fines are not allowed as a deduction for tax purposes, though in your books you can write those off as they are considered a part of doing business.

Note: the above calculations are for federal tax, every province and territory also levies an income tax. Those rates can be found here.

Whether or not you owe tax at tax time will depend on many factors, most notably what are your total income from all sources for the calendar year. It may be a good idea come December to figure out what your total income is, estimate your taxes owing, and make an instalment payment to cover the taxes rather than owe at amount at tax time.

Does Canada Revenue Agency Have Your Current Information?

By Randall Orser | Personal Income Tax

Yes, it’s only November, however, it is a good time to think about tax-related issues. One of those is, does 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.

Move

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 have 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.

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