Archive for April, 2010

Tax Season – Ways You Can Spend Your Returns

Thursday, April 15th, 2010

For most people, tax season can be a dreadful time. The new changes in the tax code and trying to make sure you have all of the essential items such as important documents and receipts can make the tax filing process very frustrating and time consuming. Most experts say that you can make the filing process much easier if you take the time to prepare instead of waiting until the very last minute. However, there is a light at the end of the tunnel. The average tax refund that Canadians receive is approximately $1,400.

Many Canadians will use that money to go on a holiday or have a shopping spree; however, there are many other ways that you can put your tax refund to use. Your tax refund can help you get ahead with your personal finances.

Here are several, useful things you can do with your tax refund.

1. Invest it
Why not put the money you just got back and invest it on your own future? Invest it into your mutual funds, or put it away into your retirement fund. Grow a nest egg that you can enjoy when you finally go into your well deserved retirement.

2. Pay Off Debts
Owing money to creditors can bring a lot of unwanted stress and pressure. Use your tax refund to pay off debts and get your finances back in order. Even if the money isn’t enough to clear all your debts, the money will reduce the principal and bring you that much closer to being debt free.

3. University Fund
It’s never too early to start saving for your children’s education. Put it away into an RESP. With the rising costs of tuition, this may be one of the smartest moves you’re doing to secure a bright future for them. In addition, it’s a valuable lesson for your kids to plan ahead. As a result, when they find out they have a nice fund waiting for them to complete their education; they can focus on what’s important, learning.

4. Home Improvement
Have you been waiting for the right time to do that perfect renovation? Why not spend your return on improving your home? You can renovate your kitchen, change the bathroom, even change the overall theme of your house! This is a great way to breathe new life into your home, while increasing its value.

5. Save it.
If all else fails, you can always first put it into a savings account, and worry about it later. At the very least, it will still earn some interest (even if it is at historical lows), and in the long run, compound interest will take its effect.

The number one reason why people file their taxes in the first place is so they can get their tax returns. Use the windfall to pay off some debt, save it for the future, or even dabble in some investing. This money is yours to spend as you will; however, using it wisely can help towards gaining greater financial stability.

Adriana Noton is a freelance writer who writes on a variety of financial topics including credit card debt. For more information about personal finance and credit counselling, ConsolidatedCredit.ca is a tremendous resource on the topic for Canadians.

Taxes FAQ:

Question: Providing childcare and paying taxes in Canada?
If you provide childcare from your home, how do you pay in your cpp or EI or do you even have to? Or do you end up having to pay in during income tax season? Also if I were to do childcare from home and was considered self employed, if I were to have another child would I still be able to get Maternity leave or EI?

Answer: If you provide day from your home you are considered self-employed and would only have to pay CPP and taxes if any. You would not pay into EI and so would not be able to collect EI.
The government has changed this for EI where self-employed can also pay into EI if they want. You would have to look at what it cost, to see if is worth it.

Question: Canadian Tax Season?
I’m new to Canada and have the following questions:

1. What are the dates for the Canadian Tax Season (I know it ends April 30th for those with employers and June 15th for self-employed folks, but when is the deadline to receive your T4? Is it the end of February?)

2. A person receives a T4 from their employer and files a T1? Is this correct?

3. What do corporations and sole proprietorships receive and file (i.e equivalents of T1s and T4s)?

Answer: 1. T4s due to be mailed: Feb 29th. T5′s due end of March. Payment of the balance owing (above the installments for self-employed people) is due April 30th as well; it is just the return that can wait until June 15th.

2. Yes

3. A corporation doesn’t receive anything, they prepare their financial statements and file a T2. Along with the T2 are a number of schedules that they use to report various things as well as bringing their accounting income to taxable income.

For a sole proprietor, they too prepare their financial statements and transfer these amounts to a T2124 (statement of business operations or professional operations). This then gets reported through the T1 (individual) return that they would file.

Question: Leaving Canada on Feb, 11th, is there any way I can get my tax return from 2009?
I worked for a company in Canada the entire year 2009. Now I am going back to my country since my work permit gets expired on Feb 11th, 2010. But I really want to get my tax return back before I go back because I paid pretty big taxes about $5,000. But I have no idea of how to get it back, the problem is, people say tax season is between February and April and I am going back in the early of February, so I have no idea what to do.

Answer: Check with your employer for the T4 slip (W2 equivalent in Canada). You can then visit H&R Block or some other preparer that gives instant cash back. If the employer won’t have your T4 in time (Feb 28 is the deadline) you can use the amounts from your last pay stub if their aren’t any taxable benefits but I don’t think they will do the cash back without the actual T4 slip. You can file from out of the country if needed.

Question: Canadian Citizen working on OPT, do I file US or Canadian tax return?
I just graduated in May 2009 from a University in Connecticut. I am originally from Canada, but I am currently work in NY state on OPT (Optional Practical Training). The company I work for is going to sponsor me for a TN-1 Visa come May 2010, when my OPT expires. I want to know what I have to do come tax season? Do I file both US and Canada Tax returns? Or just one?

Answer: You file in the country you are residing. Since you are residing in the US and not Canada, you will file US tax return. (Residing means that you are living there for 6 months or more for tax purposes).

Question: When do I need a tax lawyer versus needing an accountant?
Tax lawyers and accountants can both be helpful allies during tax season. But what is the difference between them? When would a person consult one over the other?

Answer: Accountants can help you prepare tax returns and plan strategies to pay less tax. But if you find yourself facing an audit, a reassessment or an investigation by the CRA and want to fight it effectively, you need the legal and confidential protection of a tax lawyer.

Question: It’s Tax Season, What else can I claim?
I just received my T4 Tax slip so I am planning on filing my taxes very soon. Now I know I can claim Rent, Medical bills and Charity receipts. Is there anything else I can claim to maybe get a bigger refund? Does it make a difference if common law?

Answer: The hydro and gas bills can only be claimed if you use a portion of your dwelling in order to earn income. Same for the expenses for your car. In order to verify, your employer would be required to fill in a form T2200 and give it to you for your records.

The claim for rent will be affected by your marital status. When married or common-law, the claim for rent can only be done by one of you, and the calculation will involve the combined amount for your incomes.

Question: I didn’t do my last year taxes but I need to have done them to apply for subsidy?
Is there any way to do them before tax season next year? When is it by the way? I don’t know how it works I’m in Ontario Canada.

Answer: You can file a past-due tax return at any time, as long as it is within 10 years from the date. CRA will likely arbitrarily assess you before the 10 year period is up, meaning they estimate your return based on the information that was provided to them from your employer(s), etc.

You can order the forms yourself at www.cra.gc.ca, or go to any accounting firm or tax preparation office; most are open year-round.

Question: Questions about Canada?
My questions:

What are the seasons like?
Is the cost of living high or low?
Healthcare?
Taxes?

Answer: Seasons
Depends on the area you’re talking about. Canada has many geographies and climates across the country… some seasons are very “pronounced” others take place at different times in different parts of the country.

Cost of Living
Again, that depends on where you’re going. It’s generally similar to the US, maybe a little higher cost of living in some parts. But that’s like the US in that respect too… it costs more to live in Toronto that it does in Saskatoon, for example.

Health Care
I’ve never had a problem with it. It varies from Province to Province, since health is in Provincial jurisdiction. For more information, look up each Province’s health care system.

Taxes
Typically Canadian taxes are higher than their American counterparts, but not as high as their European counterparts. Different Provincial tax rates really effect things. For example.. I’m in Alberta, we don’t pay PST or many of the taxes our neighbours do.

How the New Mortgage Rules Affect House Prices

Monday, April 12th, 2010

On Tuesday February 16th, 2010, Canada’s Finance Minister, Jim Flaherty, announced that the Government will be changing Canada’s mortgage regulations in effort to prevent potential mortgage borrowers from acquiring mortgages that they cannot afford. Due to the increasing concerns about consumers being attracted to low mortgage interest rates, especially borrowers who are securing variable-rate mortgages starting at very low levels, there are worries that many mortgage holders may not be able to afford the monthly mortgage payments which could result in a housing bubble. Flaherty announced that the Government will be implementing tougher restrictions regarding how banks go about approving mortgages. For people looking to purchase a new home, it is important to understand how the government mandated mortgage rules will affect home prices.

The goal of the new mortgage rules is to make sure borrowers are not taking on more debt that they can manage. Many experts believe that in the next couple of years home prices are likely to decrease thereby increasing the need for stricter mortgage regulations. Many economists note that the recent low home prices and low interest rates are eventually going to increase, but these new rules basically ensure the likelihood that the lower house prices will continue into 2011. In the coming weeks, it is expected that many people will hurry to acquire a mortgage before the rules kick in as the date the regulations come into effect is April 19th, 2010. After that, the housing boom will likely slow down as the market adjusts.

If you are in the market for a new home, this may be a good time to acquire a mortgage. It is important to remember that interest rates will eventually increase so you should create a long term financially stable mortgage repayment plan, especially if you have an adjustable interest rate. For instance, if you get an adjustable mortgage rate at 2% and in two years it rises to about 5.5%, this will cause a drastic increase in your monthly mortgage repayments. If possible, many real estate experts recommend a fixed rate mortgage with a larger down payment so that you will not be negatively impacted when rates increase.

The recent economic crisis has resulted in Government intervention in order to make sure the housing market does not crash. As the housing market stabilizes, home prices will eventually begin to rise. As well, as the economy rebounds, the current low prices being offered on many homes throughout Canada will not last. If you plan to purchase a home after April 19th 2010, it may be more difficulty to secure a mortgage as you will have to meet criteria that includes: a minimum down payment of 20 per cent will be mandatory for government-backed insurance property, the maximum you will be able to withdraw when refinancing your mortgage will be 90 per cent of the property’s value, and you will have to meet specific qualifying criteria for a five-year fixed rate mortgage.

If you have a secure job, good credit rating, and can afford the monthly mortgage repayments even when interest rates rise, this may be a good time to purchase a new home before the new mortgage rules become compulsory.

Analysts are expecting mortgage rates to rise and GIC rates to drop within the upcoming year. Read more about it on our blog.

Canada Mortgages FAQ:

Question: Why does mortgage payment history not appear on credit reports?
Curious – my Canadian mortgage does not appear on my credit report. I contacted the mortgage company, and they said they do not report, nor do most other mortgage companies in Canada. Surely, with a mortgage being the biggest thing we buy, our good payment history should be recorded? I’d imagine they would be quick to report any delinquent payments or foreclosures!

Answer: In Canada your mortgage history does not appear on your credit bureau unless it is setup as a line of credit. This shows up as a revolving credit line that is tied to the value of your property. Basically think of it as a large credit card but your house is the asset.
Your good payment history with a mortgage is shown when some lender may ask for a mortgage rating or current mortgage statement.
In most cases if your payments are going to be late on something, I’ve found that the last thing people want to be late on is their mortgages. People let credit card payments or loan payments slide or be late but most of the time unless things are in real trouble, your mortgage is usually the last thing you will be late on.

Question: How do I increase my Mortgage payments if the bank my mortgage is with is different from my regular bank?
If my regular day to day bank is though TD Canada Trust but my Mortgage is with Scotia Bank do I have to call someone to request doubling up on payment etc.

Answer: Register your account on the Scotia Bank website. The site will take you through the steps to pay your mortgage online electronically via your regular bank. If you have trouble registering your account, call the contact number listed on the website.

When online, you can make extra payments if you wish. Most banks also allow you to specify how to direct your extra payments, whether you wish to apply it to the principle of the loan or the escrow account.

Question: Can I file a quick/quit claim deed to remove my name from my parents house and can I do this from Canada?
My parents aged 55 and 60 are looking to release equity from their home using a life mortgage, so I need to be off the title, as the youngest applicant needs to be at least 55.

I am living in Canada now and my parents are in London.

Answer: The true answer here is that your parents will have to either call or visit the local municipality where the deed will be recorded and ask a very simple question, which is, what will they accept. The recorder of the deed will have the final say as to what they will accept to record the deed. With you being out of country, they may require you to actually show up at a consulate or embassy to get an official seal put on the deed. Make sure your parents tell whomever they ask specifically that you are in Canada getting a deed notarized and if the Canadian notarization will be sufficient to get the deed officially on record

Question: How to get ex to take over mortgage, she is not willing?
handed over the house, completely hers and she will not take my name off the mortgage. Can I force her to sell, can I stop paying the mortgage and let the bank take the house from her? There is a fair bit of equity in the house so the bank will get all of their money if they foreclose. And how many payments do I have to miss before they actually foreclose on the property? We are in Ontario, Canada. My lawyer was crap!

Answer: Those issues should have been settled with the divorce. My ex had to sign over a quit claim deed, but I couldn’t get his name removed from the mortgage until I refinanced. Banks don’t have to release you from the mortgage.

Question: Can I claim the mortgage interest in my tax return?
I’m in Ontario, Canada. I also want to know if I can claim the home and car insurance as an expenses. My main income is from rental properties.

Answer: It all depends, are you renting some or all of the house. If you are renting some or all you can claim part of the amount you are renting out (20%, 30%, 50% or 100%) you get the idea. If you are not renting out any portion of the house then mortgage interest on a principal residence is not a tax deduction in Canada.

As for the car if you have more than one rental unit in more than one location you could claim a part of the expenses on the car.

You may want to check out the CRA site, it should answer all your questions.

Question: If my mortgage is a variable rate, that is .9 below prime, should I look into locking into a fixed rate with?
Are rates soon to rise in Canada?

Answer: Variable rates are always a risk. Get fixed asap.

Question: Do I get a GST refund for being a first time home owner this year?
I really could do with it to be honest but I don’t know. I’m so new at all this. We live in b.c. Canada.

We bought our rented home. The mortgage is 340,000. We got it January 31 of 2010. Do we get any money back when we do our taxes? How do we find out?

Answer: Did you pay GST? GST is only is charged on new homes. If you were charged usually the builder is a registrant and he can get rebated. If you and your partner have not owned a home in the Five years prior to the purchase than next year you can claim the Home Buyers Tax Credit.

Question: Military draft In Canada?
What happens to an individual’s financial obligations (Mortgage Payments,Court Payments,Debts) if there is a military Draft in Canada? Because he/she will be called up, who will pay or take care of the financial obligations?

Answer: There has never been a military draft in Canada and it is anticipated that there never will be. We’ve never needed it before as Canadians have always answered the call of their Nation.

As far as IF there ever was one, the individual is still responsible for their personal debts. When a soldier is drafted they would be paid the wage appropriate to their rank and that is what they have to make due with. It remains an individual responsibility.