Category Archives for "Personal Income Tax"

Who Should File a Tax Return in Canada?

By Randall Orser | Personal Income Tax

Even if you have no income there are good reasons as to why you should or are required to file an income tax return; 

  • You owe tax to the government or have to repay any of your Old Age Security or Employment Insurance benefits.
  • You are self-employed and have to pay your Canada Pension Plan employment insurance premiums.
  • You are your spouse want to split your pension income.
  • You are a participant in the Home Buyer’s Plan or Lifelong Learning Plan and have repayments due.
  • You disposed of capital property for example you sold your home.  In this instance you must file a return even if you don’t have to pay capital gains on the sale under the principal residence exemption.
  • You have received a Working Income Benefit advance or payments in 2018.
  • The CRA has sent you a Request to File, or a Demand to File in which case they are serious about your lack of filing, so you had better get on it!

Whatever your residency status in Canada, you have to file a return especially if any of the above criteria apply to you.  

If you live abroad but receive income from a business that you own, investments or property you own in Canada you will need to file an income tax return.

There is no age exception - if you meet one of the criteria above you need to file.

Students are not exempt, if you earned over $3500 in 2018 you will need to file a return even if you are still in school.

Even if you are not required to file it is usually in your best interest to file anyway;

  • If you want to claim a refund
  • If you are eligible for certain benefits programs.  Even with no income you may qualify for GST payments.
  • Your RRSP contributions limit increases as soon as you have any income which may benefit you in the future when you are able to contribute.
  • If you want to claim tuition credits you need to declare the amounts on your tax return.  It may not result in a refund this year, but you can apply these unused credits to a future return.

From an article by Turbo Tax Feb 2, 2019

 

What’s New for the 2019 Tax Season?

By Randall Orser | Personal Income Tax

Did you know that according to a report on Global news we pay 42.5% of our income in tax?  That's a sobering thought so we need to make sure that we know about any new deductions that can be claimed on our return. 

The 2019 tax filing season was off and running on February 19th, the official day when the CRA began processing returns. According to the CRA, improvements have been made to ensure that tax-filing is a user friendly, fast, easy and secure process.  There have been improvements to their call-centres, featuring improved accessibility for callers.  When you call you will now get an estimated wait time, so you can decide to wait, call back or use the self- serve options that are available.  Call-centre agents have also received improved training to enable them to better answer questions from callers.

For most of us the filing deadline is April 30th but If you are self-employed you usually have until June 15th to file. However, as this date falls on a Saturday, you get two extra days! Returns are due by midnight July 17th; however, any balance owing is still due by April 30th.

So, what else is new for individuals and families in 2019?

  • Increases to the Canada Workers Benefit– for an individual this increases to $1355 for a single person and $2335 for a single parent or couple, this is an increase of between $300 and $400.
  • Climate Action Incentive– an extra tax credit for Canadians living in Saskatchewan, Manitoba, Ontario and New Brunswick to offset the cost of the carbon tax in provinces that have not established a carbon price of their own. 
  • Medical expense credit for service animals – Canadians suffering from severe mental impairment are now able to claim the cost of caring for a service animal as a medical expense.
  • Accelerated capital cost allowance rates – If you are a business owner or are self-employed you may be able to get more money back for the cost of your business equipment and office furniture bought after November 2018.  The former amount you can claim in the first year has increased by 50%. Unfortunately, this change will only apply until the end of 2023 and will be phased out between 2024 and 2027.
  • Lower Tax Rate for small businesses – The federal small business tax rate which applies to business incomes up to $500,000 has dropped from 10.5% to 10% in 2018 and dropped to 9% in January of 2019.
  • Pay your taxes with an app – You can now pay your taxes through your phone.  The        MyCra web based app lets you view and pay your tax balance with Interac, or Credit card or by pre-authorised debit.

For more information about filing your taxes in 2019 see the CRA website at https://www.fin.gc.ca/n18/data/18-123_1-eng.asp

How Far Back can a CRA Reassessment go?

By Randall Orser | Personal Finances , Personal Income Tax

After you file your taxes you will receive a Notice of Assessment which details the amount of tax that you owe or the refund you will receive.  Sometimes you will be asked to do a preassessment review in a situation where the CRA will ask you for additional information or documentation. The CRA can reassess your taxes after they have sent out your Notice of Assessment.  This usually happens later in the same year.  You should respond to the CRA by the deadline (usually 30 days from the date of the letter) with the information requested. 

A CRA reassessment or audit can be very worrying for most taxpayers and a common question is “How far back can the CRA reassess me?”  There are limits as to how far back the CRA can go to reassess someone’s taxes returns and the usual time limit is three years from the date your return was filed.  However, they can extend the reassessment period if they believe that you may have carelessly or willfully misrepresented your tax situation, or if they suspect fraud. In order to reassess the CRA must prove that fraud, neglect or willful fault occurred. This does not mean that you made a simple mistake on your return but that you made a serious misrepresentation such as in reporting your income.  

It is important that you keep all your tax information and documents for six years in case they are requested by the CRA.  Should you be subject to a reassessment or audit it would be difficult to prove your case without supporting receipts.  The CRA must have proof of your financial and tax situation and if you are unable to provide the documentation then you could end up dealing with a lengthy audit.  

If you are being audited there is nothing that you can do to stop it, and the worst thing that you can do is to ignore communications from the CRA.  The best thing you can do is to get organized with your paperwork and receipts and to be as cooperative as possible.  Also, it is advisable to get professional help as soon as you get your audit letter so that you can prepare a better case. 

An audit can be a “desk audit” which is common if you have business income and declared losses, or, if you have real estate transactions reported on your return.  In a “field audit”, the taxman will show up at your home or place of work. 

For more information on CRA Tax Audits visit: 

https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4188.html

Who are the Canadians Most Likely to be Audited by the CRA?

By Randall Orser | Personal Finances , Personal Income Tax

Every taxpayer’s nightmare is to get a notice from the CRA that you are going to be audited.  Around 30,000 such letters were sent out in 2018 (according to tax lawyer David Rotfleisch) so we are right to be afraid!  

So, who are the people most likely to be audited?

  • Those who are self-employed.  Tax returns for self-employed people are usually more complicated as there is no paperwork like a T4 for the CRA to confirm the income that you have declared.
  • You work in construction, retail or the restaurant industry.  These industries have been singled out by the CRA as they are often heavily cash based and there are high rates of tax evasion.
  • You keep reporting rental and/or business losses. The CRA will wonder if you are really losing all this money or if you are stashing it away in a tax haven.
  • You report drastic swings in income especially if you are self-employed.
  • Your income does not match your postal code. If you are making less than your neighbours, the CRA might begin to wonder how you can afford to live where you do.
  • You have offshore assets.  Owning assets offshore can lead to unwanted scrutiny.
  • You receive wire transfers from abroad of $10,000 or more.  Since 2015 all financial institutions must report to the CRA all international funds transfers of $10,000 or more. 

It is important to really understand the letter that you get from the CRA if it wants to review your taxes.  A tax review notice is not an audit letter.  

Tax reviews are quite common, and it means that the taxman wants to check the records and receipts that you used to report income and to claim expenses.  Reassessments can be done randomly or because the numbers received from other sources does not match with your numbers.  Usually you show them the paperwork and the matter will be over.  However, if you do not respond to the CRA or they do not like your responses to their questions then your review may turn into a full-on audit.

From an article by Erica Alini on www.globalnews.ca

 

Don’t Miss These Six Home Business Tax Deductions

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

Running a home-based business is just the same as running any other business in Canada for income tax purposes.  If you are making money from your home-based business, then you can claim tax deductions.  However, there are some additional deductions that you can also claim.

1. Vehicle Expenses – You may use your car both for business and personal use, but you can claim the business portion of your car use expenses.  This includes the following:

  • Fuel and oil, registration and insurance.  Supplemental insurance for business use is fully deductible, but if you do not insure your vehicle for business use and have an accident then your insurance company may deny your claim.
  • Maintenance and Repair
  • Interest on money borrowed to purchase a vehicle that you use to earn income, but there is a limit to the amount of interest you can deduct for a passenger vehicle
  • Leasing costs
  • Accident Repairs – if the accident happens while you are driving for business purposes you can claim the entire cost of the repairs.

Important to know:  You can only deduct a portion of your vehicle expenses, so it is important to keep a record of the mileage you drive in order to earn income.   Your expenses are prorated for the business portion of the total kilometers you drive in a year.  For further information see:    What Motor Vehicle Expenses Can You Claim on Income Tax in Canada?

2. Insurance – You should be able to deduct insurance premiums for your home-based business.  However, home-based business insurance is seen as commercial insurance and is entirely separate from your home insurance.   If you are running a business out of your home and you do not have this separate insurance, then you may not be covered at all as your insurance may be invalidated as you did not inform your insurer that you were running a home-based business.

Important to know:  You may also be able to write off part of your home insurance if your home-based business meets the conditions for claiming business-use-of-home conditions.

3. Office Expenses: Even if your “office” is just a desk in a part of your home, you will still be able to claim office expenses, but you will need to separate your office expenses from your home expenses.  You will be able to claim for depreciable assets such as your computer, filing cabinet, phone, printer and other equipment under the rules of Capital Cost Allowance.  As these assets depreciate over time you can only claim for part of their original cost each year.  The CRA has categories for depreciable assets with different rates of Capital Cost Allowance. For more information see: Capital Cost Allowance and  Capital Cost Allowance hub.  

Important to know: You don’t have to claim Capital Cost Allowance in the year that it occurred, you can roll it forward and claim in a year when you have a higher income.

4. Mortgage interest and Property Taxes– As long as your home-based business expenses meet the requirements for business deductions you can claim your mortgage interest.  You must use the work space in your home as your principle place of business to earn income, and you regularly meet clients, or customers there. You can also claim your property taxes or the cost of your rent.  

Important to know: You can only claim a deduction dependent on how much of your living space and time is devoted to business use.  For more information see Calculating the Home-Based Business Tax Deduction

5. Other Business-Use-of-Home-Expenses – these include:

  • Water
  • Maintenance and Repairs
  • Cleaning Materials
  • Telephone
  • Internet Connection

Important to know:  The CRA allows you to deduct “any reasonable expense you incur in order to earn business income” but your expenses must be supported by a receipt or invoice.

Carry Forward of Unused Work Space in Home Expenses – business use-of-home expenses cannot be used to create or increase a business loss.  Should you have more expenses than income for your home-based business then you will have unused Work Space in Home Expenses which like the unused Capital Cost Allowance you can carry forward to use against a higher income in a future year.

It is important that you keep good records and that all your expenses are documented with receipts so that you can claim them against your business income.

How to Maximize Tax Deductions for Your Small Business

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

Like most small business owners, you are probably thinking about your tax return for this year and wondering how you can maximize your tax deductions. The most important thing is to have all your business-related receipts, as all your expenses must be backed up with receipts. You also need to keep receipts for six years in case the CRA ever asks for them. 

Remember to ask for a receipt for any business-related transaction throughout the year and make sure that they are legible with the vendor’s name, the date and what the receipt is for. This information will help you when inputting the receipt into your record keeping system and this should be done as soon as possible so that the purchase is fresh in your mind. 

In addition to your purchase receipts here are some more business expenses that you must make sure not to overlook.

  • Annual membership dues for business-related organizations 
  • Interest you have paid on money borrowed for your business, you can also deduct related fees such as one that you might have paid to reduce the interest on your business loan.
  • Insurance premiums that you might have paid on the building or equipment you use in your business
  • All relative maintenance and repair expenses for your business 
  • Office business expenses and supplies 
  • Home business expenses such as a portion of your utilities, home maintenance and property repairs, a cleaning service or cleaning materials, house insurance. You can also deduct a portion of your property taxes and your mortgage interest.  
  • Capital cost allowance – this is an expense for depreciation on business property such as furniture, computers.  
  • Automobile expenses – the cost of fuel, the license and registration fees, insurance, maintenance and repairs, and the interest on your car loan can all be claimed as business expenses.  However, you need to distinguish between business use and pleasure use because you can only claim for the business use of your vehicle.  To help you with this it is important to keep a mileage log.
  • Travel - if your travel was related to earning business income then you can deduct part of the cost of meals, entertainment and the cost of transportation and accommodation.  You can deduct the cost of attending two conventions per year as long as they are directly related to your business.
  • Employing a spouse or child in your business – this would make them an employee and you can deduct their salary as a business expense just as any other employee and you will need to issue them a T4.
  • Advertising – you can only claim for advertising in a Canadian newspaper or on a Canadian tv station or radio station, and only in an E-zine or website that originates in Canada.
  • Accounting and legal fees are all tax deductible, and this includes getting professional advice about maintaining your books and records.

For more information on tax deductible expenses visit https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/business-expenses.html

Can you Amend Your Tax Return After Filing?

By Randall Orser | Personal Finances , Personal Income Tax

There are many things in life that you cannot change, but luckily your tax return is not one of them.   If you have made an error, it is quite easy for you to correct it, but the most important thing is to not file another tax return for the same year.

You should wait for your Notice of Assessment before requesting any changes to be made and you can only request changes as far back as 10 years.   

There are two ways to request amendments to your return: it can either be online or by mail, and both have their own rules and limitations.

Online:

This is usually the easier option all you have to do is to log into your CRA My Account and click “change my return”, however you cannot make changes to any of the following:

  • A bankruptcy return
  • A tax return where there are 9 reassessments for a particular tax year
  • A tax return that has not been assessed
  • A tax return prior to the year of bankruptcy
  • Carry back amounts such as capital or non-capital losses
  • An elected split pension amount
  • A return of an international or non-resident person (including residents of Canada, newcomers to Canada and individuals who left Canada during the year).
  • A return where you have income from a business which is permanently established outside your province or territory of residence

The processing time for an online request is usually two weeks unless it is sent in spring or early summer, or if it needs further review, or the CRA has to contact you for more information or documentation.

By Mail:

You will have to complete a T1-ADJ T1 Adjustment Request. You can download a copy of it from the CRA website.  Alternatively, you can submit a signed letter with the following details:

  • The years of the returns to be changed
  • Your social insurance number
  • Your full address
  • A telephone number where you can be reached during the day

The processing time for a mailed in request is usually eight weeks unless the same conditions apply as with an online request. 

Once your review is complete you will receive either a Notice of Reassessment from the CRA or a letter explaining why the changes that you asked for were not applied. 

So, you don’t need to worry if you have made a mistake on your tax return, it is relatively easy to make any changes.

 

 

Why you Should Always File Your Income tax Return on Time

By Randall Orser | Personal Finances , Personal Income Tax

Every tax season, we see a number of new clients who have several years of returns to file. Often, they have not filed their returns because they think they owe money but if this is the case avoiding your taxes will do you more harm than good.

The CRA views overdue items in two distinct ways – a) compliance and b) collections. The first option requires you to file your return on time. The second results in two different charges – late filing penalties and interest.  If you are late filing and owe money you could be liable for both.

  • 5% of the balance owing as late filing penalty

  • 1% of the balance owing as additional penalty for every full month you’re late (up to a maximum of 12 months)
  • Interest charged on the above penalty
  • Additional compound daily interest on the balance owing based on prescribed rates by the CRA.

If you avoid filing your taxes on time it could actually make the charges increase rather than minimize them. For example, if you file 12 months late, you’ll be charged 17% on the balance owing, plus interest on penalties dating back to the original deadline. 

If this is your second offence and you have been late filing in either 2013, 2014, 2015 or 2016, the current penalty may go up to 10% of your 2018 balance owing, as well as an additional 2% for every month you’re late up to 20 months maximum.  Payments that you do make will be applied to the previous years that you owe first.  If you have a balance owing for 2018, your payment has to be received by the Canada Revenue Agency on or before the tax deadline in Canada on April 30, 2019. 

If you do miss the April 30 Tax Deadline but don’t owe any taxes, you won’t have any late filing penalty or interest to pay, but that still means that the CRA will hold your refund until you actually file.

So even though you may dread owing the CRA money, do not avoid filing on time so that you can save yourself from having to pay more.

Do you Know the Difference Between Tax Havens and Tax Shelters?

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

Though both tax havens and tax shelters are used by wealthy people to reduce their income tax payments there is a big difference between the two.

Tax Haven is a locale anywhere in the world that has lax tax laws.  This country will often charge very low or very reduced tax rates.  Many multinational corporations take advantage of the benefits of tax havens creating subsidiaries to shield their incomes from taxation. Tax havens can also provide offshore banking services to non-resident companies and individuals.  Foreigners can easily form an international business corporation or offshore corporation which will often be given tax exemption for a set period of time.  

Because of the strict privacy laws enforced by most tax havens owners of these “shell” companies often remain unknown.  Although tax havens are technically legal the CRA frowns upon them and the public has a poor view of companies carrying out offshore banking activity.  Switzerland is the most well-known tax haven, but others include the British Virgin Islands and Luxembourg.

Tax Shelters are commonly used by all taxpayers as a method of legally reducing their tax burden through the use of specific investment types or strategies.  These are often temporary and require a future income tax payment, but they are useful for those wanting to reduce their tax payments during the years when their earnings are highest.  The two most popular tax shelters in Canada are Tax-Free Savings Accounts (TFSA) and Registered Retirement Savings Plans (RRSPs). 

The TFSA was started by the government in 2009 and it allows anyone over 18 to earn investment income tax free up to a set maximum per year.  In 2009 you could contribute up to $5000 which increased to $5,500 per year in 2013 with and $10,000 for one year in 2015.   This allowance is cumulative so that if you had not contributed by 2017 you could invest up to $52,000 and in 2019 your total investment allowance Including an increase to $6000 per year will be $63,500. You can withdraw from your account anytime during the year, but you cannot replace it until the following year unless you have sufficient contribution room for it to be considered an additional contribution.

RRSPs - You can contribute to your RRSP each year up to a limit based upon your income and deduct it from your taxable income.  You will only pay income tax on your investment and the interest it earns when you make withdrawals from your RRSP.  If you have a properly structured investment portfolio you will be able to take advantage of the low tax rate on capital gains and dividend income outside of your RRSP while it shelters your higher taxed investment income.

RRIFs - A Registered Retirement Income Fund is a tax-deferred retirement plan for your RRSP. RRIFs are used by those who do not plan to withdraw their RRSP as a lump sum when they retire but take smaller withdrawals.  RRIFs offer more flexibility and tax savings than lump sum withdrawals, but you must withdraw a minimum each year and report it for tax purposes.  You may withdraw more if you wish at any time.  The CRA will set your minimum withdrawal for each year according to a schedule which will start at 5.28% at age 71 in 2019.

For more information about TSFA’s, RRSP’s or RRIF’s consult your investment advisor or the CRA website 

 

Best Business Opportunities for Retirees

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

Are you getting ready to retire but don’t see yourself filling your days with tv reruns, golf or playing cards?  Already retired but you could use some extra income? These are good reasons to start your own business when you retire.  Here some businesses to consider that can offer you part-time work and can be operated from home.

  1.  Chauffeur – If you are still fit and have an outgoing personality then working as a chauffeur helping other seniors with transportation to medical appointments, shopping and more can be a good option.  You will need to check Provincial licensing requirements, upgrade your driver’s license and maybe do CPR training and have a criminal record check done.
  2. Travel Tour Guide – If you love to travel, being a tour guide and getting paid to travel can be a dream job for you.  All your travel expenses will be paid for and in addition to wages you will also get tips. Contact the International Tour Management Institute for more information.
  3. Hauling – If you have a truck or a van hauling can be a good business for you.  There is always a demand for people to take away garden waste, trash and discarded household items.
  4. Painting and Interior Decorating – If you have a good eye for colour and are creative, why not share your skills?
  5. Translation Services – Good at languages? then being a translator could be ideal for you. You will need excellent writing skills, and knowledge of a particular industry can allow you to specialize.
  6. Arts and Crafts – If you are skilled at making pots, painting or creating wooden items you can sell your creations at local craft fairs or create an on-line store to sell your products.
  7. Tutoring – If you have teaching skills then becoming a tutor could be ideal for you. In addition to in-home tutoring, on-line tutoring is now becoming very popular.  One area particularly in demand is teaching second languages, or teaching English as a second language at home or even as a teacher in another country.
  8. Pet Services – There is always a demand for reliable people for dog walking and pet sitting.  Many people prefer to keep their pets at home rather than put them in a kennel and are willing to pay for a pet sitter who will also keep an eye on their home while they are away.
  9. Security services – Trained security personnel are always in high demand especially those who are retired police officers or members of the armed forces. 

These ideas are not likely to make you lots of money but they are inexpensive to start and will keep you active and give you purpose in your retirement.

From an article by Susan Ward

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