Category Archives for "Personal Income Tax"

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

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