Category Archives for "Personal Income Tax"

What should I do if I haven’t filed taxes for a few years?

By Randall Orser | Personal Income Tax

Rip Van Winkel has not filed taxesWell, the first thing is don’t panic. If you are employed and haven’t been contacted by Canada Revenue Agency (CRA) yet, then it’s more than likely you don’t owe them money and will be getting refunds. CRA has already done an estimate on your return based on the slips that were filed by your employers, and others.

If you’re self-employed and haven’t filed since starting the business, you more than likely have been asked to file by CRA, especially if you have to file GST/HST returns. CRA knows you’re sales based on what you filed with those GST/HST returns. If you haven’t been asked to file, then you’re just not on their radar yet, and it’s best to get caught up before you do.

Of course, it also depends on how long you haven’t filed your taxes. A couple of years probably won’t be as big a deal as, say 10 years, however, it will depend on how much you owe. If you haven’t filed in 10 years, then you definitely need to look at the voluntary disclosure program which allows you to come forward and file taxes or adjustments to prior years without incurring penalties or being prosecuted. This program applies to income tax and GST/HST.

If you have been assessed by CRA for your income tax or GST/HST, then it’s best to get everything caught up ASAP. As far as CRA is concerned you’ve filed and are now owing this balance, whether it’s right or not. You will more than likely not owe as much as CRA thinks.

The first thing to do is contact a tax preparer/accountant, as I’m assuming you’re behind because either you don’t want to do it or am just not able to do them. The good ones, such as myself, won’t chastise you (well not too much) and will guide you through what they need to get your taxes done.

Now, if you are employed and can’t find your slips, then call CRA (1-800-959-8281) and you can get copies of your slips for the years you need to file. You could also go back to your employer(s), etc. and get copies from them. Once you have all that information you can get all the returns prepared. Also, let CRA know that you are getting all the information together so you can file the back returns and get caught up on all your taxes.

For the self-employed person, it’s a little more complicated. You can also go to CRA and get all slips filed, however, you also have to gather up all your receipts for the business, and, hopefully, you have all of those.

I’m Moving; Can I Deduct My Moving Costs?

By Randall Orser | Personal Income Tax

Happy family with kids moving into a new homeYou can deduct moving expenses when you move to start a new job, business, expand your existing business or are going to school. However, as with everything taxes, there are restrictions. You must have moved at least forty (40) kilometres closer to the new place of business, work or school. So, if you move from Vancouver to Surrey in British Columbia where I’m from, that’s actually only thirty (30) kilometres and you cannot deduct your moving expenses. Now, if you moved from Vancouver to Maple Ridge, you can, as Maple Ridge is forty-five (45) kilometres away.

You cannot deduct your moving expenses from any other type of income, such as investment income or employment insurance benefits, even if you received this income at the new location.

If you received a reimbursement or an allowance for your eligible moving expenses you can only claim your moving expenses if you include the amount you received in your income or if you reduce your moving expenses by the amount received. Canada Revenue Agency (CRA) may ask you to provide a letter from your employer stating that you were not reimbursed for the moving expenses you are claiming.

You need to fill out form T1-M Moving Expenses Deduction and file that with your return. If you electronically file, you don’t need to send receipts; however, keep your receipts just in case CRA asks to see them.

If your net moving expenses (line 21 of For T1-M) that you paid in the year of the move are more than the net eligible income (line 22 of Form T1-M) earned at the new work location in that same year, you can carry forward and deduct the unused part of those expenses from your employment or self-employment income earned at the new work location in the following years. If your eligible moving expenses were paid in a year after the year of your move, you can claim them on your return for the year you paid them against employment or self-employment income earned at the new work location. This may apply if your old residence did not sell until after the year of your move. If this is the case, CRA may ask you to submit Form T1-M with the receipts and explain the delay in selling your home.

You cannot carry back moving expenses to a previous year. For example, if you paid moving expenses in 2013 for a move that occurred in 2012, you cannot claim the expenses paid in 2013 on your 2012 return, even if you earned employment or self-employment income at the new location in 2012.

What are Eligible Moving Expenses?

Transportation and storage costs (such as packing, hauling, moving, in-transit storage, and insurance) for household effects, including items such as boats and trailers.

Travel expenses, including vehicle expenses, meals, and accommodation, to move you and members of your household to your new residence. You can choose to claim vehicle and/or meal expenses using the detailed or simplified method.

Temporary living expenses for up to a maximum of 15 days for meals and temporary accommodation near the old and the new residence for you and members of your household. You can choose to claim meal expenses using the detailed (keep all your receipts) or simplified (claim a flat rate per person) method. If you choose the simplified method, although you do not have to submit detailed receipts for actual expenses, we may still ask you to provide some documentation to establish the duration of the temporary lodging.

Cost of cancelling a lease for your old residence, except any rental payment for the period during which you occupied the residence.

Incidental costs related to your move, which includes the following:

  • Changing your address on legal documents;
  • Replacing driving licences and non-commercial vehicle permits (not including insurance); and
  • Utility hook-ups and disconnections.

Cost to maintain your old residence (maximum of $5,000) when it was vacant after you moved, and during a period when reasonable efforts were made to sell the home. It includes the following:

  • Interest;
  • Property taxes;
  • Insurance premiums; and
  • Heat and utilities expenses.

Cost of selling your old residence, including advertising, notary or legal fees, real estate commission, and mortgage penalty when the mortgage is paid off before maturity.

Cost of purchasing your new residence if you or your spouse or common-law partner sold your old residence as a result of your move.

Moving can be a costly expense, and it’s good to know that you can deduct your expenses. Just remember to keep all your receipts and check with your tax preparer and let them know you have moving expenses. Your tax preparer will need your old address as that needs to be on the T1-M form.

TFSAs: What are they and do I need one?

By Randall Orser | Personal Income Tax

What is a TFSA?

corporation-Tidbits-2013-10-30-300x188TFSA, short for Tax-free Savings Account, allows Canadians, age 18 and over, to set money aside tax-free throughout their lifetime. Each calendar year, you can contribute up to $5,000, any unused TFSA contribution room from the previous year, and the amount you withdrew the year before. As with RRSPs, the term savings implies it’s like a bank savings account, which it is not. You can invest in a variety of investments, such as cash, mutual funds, securities listed on a designated stock exchange, GICs, bonds and certain shares of small business corporations

The main benefit of a TFSA is that all income earned in and withdrawals from a TFSA are generally tax-free. Plus, having a TFSA does not impact federal benefits and credits. It’s a great way to save for short and long-term goals. The only age restriction is that you must be 18 (or age of majority in your province) or older to contribute to a TFSA; there is no upper age limit so you can contribute until you die.

You can have more than one TFSA at any given time, but the total amount you contribute to all your TFSAs cannot be more than your available TFSA contribution room for that year. As the account holder, you are the only person who can contribute to your TFSA.

So, do you need a TFSA?

A TFSA can be useful in certain situations. You have already contributed the maximum to your RRSP for the year or just don’t have any contribution room left. TFSAs can be a good way to save for a vehicle, appliances, down payment on a house, and more. The TFSA can also be used in lieu of or in combination with the RRSP Home Buyers Plan. If you are no longer eligible to contribute to RRSPs, due to your age, you can still contribute to your RRSP.

A TFSA is a good way to save for a rainy day as you can make earnings in it and when you need the funds you can take it out tax-free. The best part of a TFSA is that the money you take out can be put back into the TFSA next year and you still get your $5000 maximum contribution that year too.

For young people just starting out, in a low tax bracket now, expecting to increase earnings and be in a higher tax bracket in a few years.  At that time, the TFSAs could be transferred to an RRSP, making the contribution when the tax savings is greater.

Over contributing to your TFSAs will incur a 1% tax of the excess amount. There is no grace room like there is for RRSPs. So, if at any time in a month, you have excess TFSA amount, you are liable to a tax of 1% of your highest excess TFSA amount in that month.

The tax of 1% per month will continue to apply for each month that the excess amount remains in the TFSA. It will continue to apply until whichever of the following happens first:

  • the entire excess amount is withdrawn; or
  • for eligible individuals, the entire excess amount is absorbed by additions to their unused TFSA contribution room in the following years.

Should I borrow to finance a TFSA?

Interest on money borrowed to make TFSA contributions is not a deductible expense for tax purposes. If you have a choice between borrowing to make a TFSA contribution or borrowing to make another investment, you should always borrow to make the other investment. The interest paid on the investment loan may well qualify for tax deduction and thus offset the cost of borrowing.

The TFSA can be a good vehicle to saving for the future or those expenses that crop up unexpectedly. It shouldn’t be your only retirement savings vehicle and a combination of the TFSA and RRSP can a very good way to save for retirement. Or, use to save in your retirement, too.

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