Archive for the ‘Taxes’ Category

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.

Maximize Income Tax Returns – Be Generous and Keep Your Money in Your Pocket

Thursday, March 25th, 2010

Taxes in Canada are a real financial issue for many Canadians. As a Canadian you pay out large amounts of cash every year for Income Tax and will usually see little or no return. Very few of us are financially free and you may well have to consider extending your working life or, worse, having to deny your family those little important things on a daily basis just so you can meet your mortgage payments.

Ring any bells for you? It did for me.

During the last 5 years, together with my wife, I have been researching ways to be financially free. That is, to find ways for me to live the kind of life I want and deserve. We started looking into the ways we could maximize our income and reduce our expenses, which is when we came across the figures outlining the crazy tax burden of Canadians.

Whereas most Canadians pay $500,000 in tax over their lifetime, their average savings stand at only $5000 at the age of 65. Does this seem right? I am not saying we should not pay taxes; we have a healthcare and education system most of the world does not. It is just that during my research I also found out that 99% of Canadians are not using the tax system legally to get everything we are entitled to. It is this that made us focus on reducing the Canadian Income Tax burden for us.

Your money….in your pocket

Although the Canadian Revenue Agency does not advertise this fact, if Canadians make charitable donations intelligently they can maximize Income Tax returns for their benefit. This really blew my mind at first so I will explain it as clearly as I can. I discovered tax shelters. This is NOT tax evasion, which is entirely illegal (otherwise known as tax fraud); this is tax avoidance, which is what the rich use to get richer.

The details…how it works

Basically:

· Tax shelters are ways, thought up by very smart lawyers and accountants, to use the tax system legally to benefit you.

· Under the terms of Canadian law we are all expected to save as much tax as possible, even if the tax man doesn’t like it.

· This is the legal principle which allows tax shelters to function, much to the frustration of the Canadian Revenue Agency.

There are many different types of tax shelters, as with any industry, some are really not a good idea and you should really do some good research before deciding on a particular shelter. After a lot (really a lot) of research my wife and I went for an Open Market Structure program, one of the main reasons for this decision was:

· This shelter uses fair market value, which means that, when an item is donated to charity, they get an independent evaluator to make an appraisal of the item, rather than someone connected to the program. So far, only tax shelters that have not followed this rule have ended up in court. Make sure your program does not have this issue.

Below I will try and outline the principle as I understand it:

· I want to buy 100 laptops for children in India. So, I go to a bank and I ask loan for the money for the 100 laptops.

· The loan will be for 4 years and I will immediately pay off the interest for 3 years of the loan. I then go to a technology company who give me 100 laptops.

· I get an agreement from them that I can return the same item back to them and get the full money I spent returned to me.

· I now donate the 100 laptops to a registered Canadian charity and get a donation receipt for the amount I paid. I attach this to my tax return and get 50% tax credit.

· 3 years and 1 day later I take my 1 year’s worth of interest payment I have remaining and go to the overseas market and buy 100 laptops much cheaper than I could get from the Canadian technology company.

· After returning these to the technology company, they give me back my money which I use to pay back my loan in full.

· My tax benefit is bigger than my cost, which is the definition of a tax shelter in the Income Tax Act of Canada.

Actually, the tax shelter program does all of this process for me, so all I really had to do was to pay the pre-paid interest on the initial loan.

It worked for me!!

This is the system me and my wife used last tax year and received a big, fat cheque from the Canadian Revenue Agency for our efforts!

I chose this system after a lot of due diligence research, a lot of which I have included in my blog (details below), so please feel free to use this as a spring board for your own research!

Remember the only thing stopping you from being financially free is your dedication to being financially free; use financially intelligent solutions to increase your income and minimize your expenditure. Live the life you deserve!

Resource box:

Taxes in Canada can be reduced! A free, easy to follow, step-by-step guide is available on my website at http://www.mytaxmoneyback.com

Income Tax FAQ:

Question: When doing income taxes in Ontario, where should Alimony be claimed?
My fiancee has all of his paper work to claim the alimony he pays his ex, and we were told he is allowed to claim it but we cannot figure out where it should go on his return? We are doing our income taxes ourselves and using Studio Tax 2009.

Answer: Support payments made go on lines 220 and 230 of the tax return (in the “Net Income” section of the T1 General).

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.
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: I am working in Canada. My son is in the Philippines. Can I claim him on my taxes as I send money to support?
I send money back to the Philippines regularly to pay for schooling and upkeep of my son. Where can I claim this on my income tax?

Answer: Unfortunately, if you are a Canadian Resident, you can’t. To be considered a dependant, your son must live with you (even if he goes away to school).

If CRA considers you a Deemed Resident, but your tax home is in the Philippines, and you maintain a home there with your son, then you can claim him as a dependant. If you are not filing as a Deemed Resident, this is not the case.

Question: QuickTax – First time filing taxes online (Canada)?
My dad’s accountant usually filed taxes for me but I didn’t like his new accountant so I thought I would try it myself this year. Anyone have any experience with Quick Tax? I chose this option only because you can do it online (ie. I don’t have to go and buy a program to download to my computer). I don’t have very complicated taxes. Pretty much just my income tax and I’m a home owner…which leads me to my other question. Anything I should look to claim being a home owner? So far I know:
- Property Tax
- Home Renovation Tax Credit and that’s it!

One more question, I hear you have to have a U File number to file online – how do I go about getting this?

Answer: Quicktax is great and handles very very complicated taxes. The interview will guide you through all the things you need to claim.

I think you mean “NETFILE”, not “U-File”. Your four-digit access code that enables you to use NETFILE is printed on the information sheet of your T1 personal income tax return package.

Question: When was income tax introduced in Canada? date?

Answer: July 25, 1917. It was introduced as a temporary measure, “the War Tax Upon Income.”

Question: Taxes and Bankruptcy (Canada)?
My husband filed for bankruptcy last year and is discharged. Any refund he gets from this tax season will go to his trustee. As his income is lower he would normally claim the children (there are 3 of them). If I claim the children my refund goes up. (Yeah) If he claims them my refund goes down and his goes up and straight to his trustee. Who should claim the children, me or him? Is it mandatory that the lower income earner claim the children?

Answer: There is no rule as to who must claim them as long as they all lived with both of you the entire year. Either one of you can claim them, so long as that one person claims ALL of them. You can’t split children.

Question: Do I have to pay tax in Canada if I made under $20 000 and am a full time student?
I am a student and I made under $20,000 last year, I did my return on quick tax and I’m told I have to pay but when I did it last year with similar income I got a refund. Does anyone know why?

Answer: It depends on what kind of income you got. Student loans are not taxable, but scholarships are, and having a higher proportion of your income as working income will also change your return. So, if you got more scholarships/grants and worked more, you could end up owing more even if the income is technically the same.

If you had unused tuition and education amounts from last year, they can be carried forward to this year to reduce your tax owing. You file an adjustment request to do this.

Question: Income tax in Canada?
I’ve turned 18 last November, live in British Columbia. I was told that this year I am required to do income tax return before April. Last year I’ve only earned about $500 from a summer job. Is it definitely required for me to file the income tax return? If so, could you tell me how/point me to some website that have guides?

Answer: You should check out the CRA website. It has general info about taxes, and info about doing your taxes.

You aren’t required to file, but it is a darn good idea. You’ll qualify for GSTC after you turn 19 next November. If you file now, you’ll get GSTC starting the payment after your birthday. They go out quarterly.

Generally, a person is only required (under the income tax act) to file if they owe money, or if they are asked to file. If you don’t owe, it is usually a good idea to file so you can get any credits, refunds or refundable tax credits you’re entitled to.

Lots of people pay to have their taxes done, or buy software to do them. You don’t really need to. The forms have instructions right on them, and there is a guide. It does seem daunting at first, but just follow the forms, and read the relevant section of the book if there’s something you don’t understand on the form.

How to Maximize Your Tax Deductions

Saturday, February 27th, 2010

Spring is a beautiful season. It’s a season where the temperature slowly rises, the snow begins to melt and flowers start to bloom. Summer is fast approaching and for the majority of Canadians, we cannot wait!

Spring also signifies that Tax Season is in full swing. We hear the advertisements on the radio, television, read them in the newspapers and see them on our favourite websites. The advertisements are generated by Accountants and companies producing tax software. Most Canadians do not like paying taxes and hate filing their taxes annually. They procrastinate and put off their tax filing until the very last minute on the annual deadline of April 30.

Most Canadians are employed in a full-time job and are limited to the amount of tax deductions they can take advantage of. With proper planning and a bit of knowledge you will be able to Maximize your Tax Refund.

Here is a list of some tax tips:

-Read and keep your notice of assessment. There may be some tax credits carried forward which are available to you such as tuition, capital losses, medical, etc… The notice of assessment also tells you how much you may contribute to your RRSP.

-Every year the Government of Canada spends millions of dollars in advertising the latest tax credits available to you. Pay attention. Were you aware of the 2009 Home Renovation Tax credit?

-Hire a professional Accountant to prepare your taxes. Accountants keep up to date with the latest tax changes from the current budget. They will ask you about your family situation and financial situation. They do charge fees for their work, but believe me, its money well spent.

For example, when was the last time a Government official called you at home to advise you that if you had contributed an extra $1000 to your RRSP, you could have saved $400 in taxes? Your Accountant will.

Better Tax Services
http://www.bettertax.ca

Tax Deductions FAQ:

Question: I am employed as a visiting nurse in Ontario Canada. What can I claim for tax deductions?

Answer: If you have been employed as an employee then your options for deducting are limited. You would have to get a form from your employer detailing what you were responsible for. This form is called T2200 conditions of employment.

If you created your own business and were providing services on a contract, a number of deductions open up: office expenses, supplies, motor vehicle.

Question: In Canada are private school tuition fees a tax deduction either in part or in whole?
Will I be able to claim some or all of the fees paid for tuition for my kids private school on my tax return?

Answer: Mostly not. If there is a childcare component to the fees, that is potentially a deduction for child care expenses. If it is entirely tuition for school, it isn’t deductible, unless it qualifies as a tuition and education deduction for post-secondary education or trades training.

If it is a special school due to medical needs or disability (for instance, ADHD) then it may qualify as a medical deduction.

Question: Canadian income tax question re: deductions for separated dad’s?
I am getting shafted by Revenue Canada. I pay support, have my 2 boys for 50/50 custody. Claims are disallowed for dependents (even one ), and being told to pay out thousands in taxes, and the interest is usurious! Any advice out there?

Answer: If you are ordered to pay support for a child, you cannot claim that child as a dependent under any circumstances. This applies even if the support is not deductible, which it wouldn’t be if the order is written after April 1997.

It might not seem fair, and I’m not going to get into whether the law is fair, but it is the law. It’s written into the Income Tax Act as section 118.3, and the rules are not negotiable. Also, Revenue Canada is only following rules, not making them. That would be the Department of Finance.

Question: At what income figure you start being taxed in Canada/Quebec?
I have a decent income while my wife has a very small income. This is about my wife’s income, I am wondering how much would she have to earn per year in order to start getting taxed. Example: My wife makes 5k a year from baby-sitting, will that be taxed? Continuing with the example, if we declare 5k for her, will I get an additional 4k of tax deduction from my income? (I understand that it’s 9k per dependent, so 9k – 5k = 4k)

Am I somewhat correct or am I terribly confused?

Answer: $5000 is under the Personal Non-refundable tax credit of $10320 for 2009, so she would not have a balance due on her return. As for your return, you are talking about the Spouse Non-refundable Tax Credit on line 303. It’s not “9k”, it’s $10,320 less the amount of her income on HER line 236. You are terribly confused, what you need is to sit down with your tax preparer and have a long talk.

Question: How to file taxes as independent worker/contractor in Canada?
I worked from October till end of December as what they would call an independent contractor. I wasn’t a contractor but that’s what I’m considered. I have no idea how to file my income tax, or what deductions I can include. Can anyone help me? I can’t afford to go pay an accountant to do all of this. My income is only around $3,000 for the year. Every year I do my taxes online by myself and this year I’m having troubles because I worked as an independent contractor. I am again working as an independent contractor as of last week so I really want to know how I do my taxes and even what I should be saving for deductions for next years taxes.

Answer: If you done your taxes before it is pretty much the same thing except you will be reporting your income on a business statement called a T2125. This form allows you to declare your income than deducted expenses then the net amount is carried over to line 135 of your T1. The form has a list of deductions that you can claim. This year if your total income for the year is $3000 than you wont be taxable and you don’t have to worry about your expenses, but remember if your income goes up another year you will be liable for your taxes and as a self employed individual there’s no deductions at source. You will also be responsible for paying CPP on any income over $3500 which is charged at a rate of 9.9%.

Question: Can I get my Pay-stubs re-printed for an entire year.?
I Just received my T4 slip for the year, and I am almost positive that the amount of deductions has been altered, alot. Is there anyway I can get a reprint of all my paystubs for the last year, and possibly even farther back so I can calculate the actual deductions taken off of my paychecks. I am only seventeen, and live in Canada. I should be getting all my income tax back, and I have been losing a large chunk of my income to deductions.

Answer: You can ask you employer, they may or may not want to share. You should be given a paystub with every cheque. The employer is obliged to give you a pay statement with every cheque, but there is no obligation for them to give you new copies.

If you think the amounts are wrong, you should tell your employer, and they can review the amounts. Most employers are reasonable, and will co-operate.

If your employer is not willing to discuss the matter with you, and you really think the amounts are incorrect, you can call CRA and tell them you think the T4 is wrong. If they think there is something worth looking into they can send an auditor to review the employer’s records. If they find errors in the T4 slips they will make corrections and issue revised T4 slips.

Question: I have a work opportunity in Canada but i keep hearing about their Extreme taxes?
It can be said that the average deductions in the US are about 30%, what is Canada’s average? Would I have to file a tax return for Canada for this year? It is a three month job for about 35k gross.

Answer: If you are an USA resident, and would be working here temporarily, then you would report it on both a US and Canadian return. We have a tax treaty with the USA, and you would get back the Canadian tax that was withheld, and would pay USA tax on the income. If the USA tax is lower than the Canadian tax, I think we might keep the difference. If the income here is exempt from USA tax, you would pay tax here.

Our tax rates seem extreme compared to USA, but low compared to Europe. Our taxes are lower than what most Americans pay for tax plus healthcare. Our taxes include healthcare.

Question: In Canada, is international volunteer work tax deductible like in the US?
I’m looking at volunteering next year in Cambodia or Tanzania and the organization I’m currently reading about claims that all volunteer expenses (including airfare, accommodations, etc) are 100% tax deductible in the US. I’ve tried to find information online about Canada’s volunteer tax deductions but I haven’t been successful. Just wondering if anyone out there knows if/what any options for Canadians wanting to volunteer abroad are!

Answer: The only time expenses are tax deductible by an employee is when your employer completes the form T2200 that stipulates that they are employment expenses. However, if you are a volunteer and not being paid, there is no income to deduct the expenses from. Also, because it is for outside of Canada, it would have to be recognized by the Government of Canada, ie: UN worker.

There is no such thing as a “volunteer work tax deductible”.

Strategies to Avoid Paying Capital Gains Taxes

Tuesday, February 16th, 2010

A successful self directed investor which has made gains during the year should strategically plan against paying capital gains taxes. Understanding the mechanics of the capital gains tax itself is very important. Following is the way capital gains tax is calculated and what my policy is to keep the share that the tax man is supposed to get.

Capital gains is the difference between the book value and the market value at the time you have disposed of an asset. For example, if you paid $10.00 per share and you purchased 1000 shares the book value would be $10,000.00. If the share value increases to $15.00 per share and you sell your 1000 share position, the (market value) or sale price is $15,000.00. Using these values, your capital gain would be the increase in value between the $10,000.00 purchase price and the sale price of $15,000.00 which is $5,000.00. The capital gain tax applies in the following manner, the first half of the gain ($2,500.00) is free of taxation and the capital gain tax is payable on the ($2,500.00) remaining half. The actual amount payable is figured according to your present income bracket for that calendar year.

Now this is how I save paying tax on the remaining $2,500.00. I immediately transfer the funds into my retirement savings plan (RSP) and defer the tax until retirement. Now I not only get to keep the full $5,000.00 but I have generated a tax deferral at tax time. I may have even generated a tax refund when filing my income tax return. Depending on how much time the funds remain in my RSP it may multiply over and over again.

There are many ways to defer paying capital gains taxes but this is just one of my strategies. Plan ahead and generate a larger RSP portfolio and pay less tax.

I would now like to invite you to visit http://www.FinancialInvestmentSecrets.com where you can receive a free course on basic self directed investment strategies. Also, please visit our home page at http://www.InvestorsGroupInternational.com

From Charles H. Mutrie of InvestorsGroupInternational.com

Capital Gains Taxes FAQ:

Question: Capital gains on property sale in Canada?
Purchased a lot 2 years ago, and recently sold it at a profit. The land was never lived on, built on, or modified in any way (not sure if that matters). Will I be subject to capital gains tax on the sale? Or will it count as ‘regular’ income for tax purposes?

Answer: Yes you will be subject to tax on the capital gain on the sale of your property. Capital gains are taxable at 50%. So for example, if you earned $50,000 on the sale of the property, you will be taxed on only $25,000.

Question: Canada CRA Individual Tax Reporting of Capital Gains?
CRA information is very unclear as to how dividend income (on purchased securities) and securities options (transactions) are supposed to be reported. My assumption is that they are ‘grouped’ under Capital Gains and reported on Schedule 3 and on Line 127. Is that correct? Or are dividends and options gains/losses reported elsewhere and taxed differently?

Answer: No dividends are considered income as they are earned by owning not selling the security. How they are reported by you depends if they are Canadian or foreign. If they are Canadian you would report on schedule 4 and claim the dividend tax credit on line 425 of schedule 1. This information would be reported on either a T5 or T3 and it would state whether they were eligible or regular dividends. Foreign dividends and foreign tax withheld would be reported as foreign income.
Stock options can be considered capital gain loss/loss if the same method is all ways used for tax purposes. If the option is exercised it is not considered a sale there for no transaction is considered to have taken place and the cost of the option would be added to your adjusted cost base or premium received would be used to lower your adjusted cost base. All capital transactions are reported on schedule 3.

Question: Can you do house flipping in Canada?
I heard that if you do not reside in the property or if you buy it and sell it within 2 years you must pay capital gains tax. This is to stop people from flipping houses as a business. Is it true? What province in Canada are better to real estate stuff? Don’t take recession factor please! I know now is bad market but I want to know about flipping houses in Canada.

Answer: There is no market for flipping in this economy. For flips to work buyer demand must be very high and selling prices must be on a rapid increase. Flipping might not be economically feasible again for many years if ever

The RECESSION factor is CRITICAL – if there is lower demand for houses, you could be waiting many months to sell, and you have to be making mortgage payments and property tax payments while getting no rental income from the property – you could wind up losing money on the deal if you EVER sell it – you could buy a house, put $10,000 of work into it and still not be able to sell it for even a $10,000 increase – and you would actually have to sell it for more just to cover your sales commission costs also and every month that goes by that the house isn’t sold is another mortgage payment YOU have to pay and that much profit is now gone for good – the average house is taking 7 months to sell, down from 11 months.

Flippers only ever make money if they can buy, renovate and sell within 30-60 days and that is totally unrealistic anymore

Question: If you turn your principal residence to an income property, how do you calculate capital gains tax in Canada?
If I’m moving to a new principal residence and want to keep my current condo as an income property and eventually sell the income property, does the capital gains tax get calculated from when I bought the place or when it became an income property?

Answer: The Capital Gain tax would be calculated from the date of the change of usage. You need to get the Condo appraised as at the date you have changed it’s usage. This year on your Tax return you could show the Deemed disposition of your Condo (Tax Free as it was your Principal Residence). The Deemed selling price (appraisal value), becomes the ACB (Adjusted Cost Base) of the rental property. When you sell the Condo you use that value.

Question: How much is capital gains tax in Canada, BC for properties?
I have an investment property I am selling in Vancouver, BC, Canada (also where I live). I am selling it for approximately $450,000 and making approximately $100,000 profit. How much capital gains tax do I have to pay? Is it on the profit, or total amount? Do I have to pay it at the end of the tax year, or on sale of the property? Any further information anyone can provide will be useful, as I have never sold property in Canada. I am a new (18 months) permanent resident of Canada.

Answer: 50% of the $100,000 profit is taxable as income on your tax return, and how much tax you pay will depend on your tax bracket or marginal tax rate if you have other income in the year. The tax is payable upon filing your tax return of the year (12 months ending Dec 31 for individuals), with filing deadline being Apr 30 of the following year.

Question: In CANADA, if inheriting your parent’s primary residence, do you pay capital gains tax on it? If so, how much?
Can a home pass from parent to child in Canada without tax being paid? If there is tax, who pays it? When do they pay it? And how much is it? I know that if the owner sells their primary residence they are not taxed on it. But what about when the child inherits it?

Answer: Their estate pays any taxes (including capital gains) due, but there are no taxes due on a principal residence. Hence, no tax.

Now, if it becomes YOUR principle residence, you will also have no tax owing when you eventually sell it. If you do NOT take it as your residence, you will pay tax on an increase in value from their date of death to date of sale. If you’re not going to use it as a principle residence, you should have an appraisal done on it as if the date of death, and keep it for future reference.

Question: Capital Gains Tax in Canada?
My mother owns two homes. She lives in one and recently gave away the other house to her grand daughter. Is capital gains owed on the second house?

Answer: Yes, she is taxable for a capital gain on the transfer of the 2nd house, deemed sold at fair market value on day of transfer even though it was a gift without monetary consideration. The reason is that the house she lives in is her principal residence – one per taxpayer – and is tax free upon disposition, and the 2nd house is a taxable property upon disposition.

Hope her grand daughter uses that house as a principal residence. Otherwise, her cost base that house is zero, which will trigger a huge capital gain at a later day.

Question: Please explain capital gains tax in Canada on stocks?
Also, if possible I’m trying to figure out how tax works on interested accumulated from money sitting in my bank account?

Answer: Capital Gains on stocks: If you hold individual stocks (not in a mutual fund) you must keep track of your own ACB (price you bought it for) and you r own sale price (price when you sold it) It will appear in a summary on your broker’s annual statement. You don’t need to pay capital gains until you actually sell the stock (unless we are talking stock options- but we aren’t).

When you do sell, the difference in price is the capital gain. You will pay tax at your marginal tax rate (rate for your last dollar of income earned in the year) on HALF of this gain. So, if you had a marginal tax rate of 25% (we wish!), and your capital gain was $100, you would pay 25% tax on HALF the capital gain, so you overall that is $12.50 of income tax due on a $100 capital gain.

For interest income, it simply 100% taxable at your marginal tax rate in the YEAR IT IS EARNED, not when you sell it. So, with same example above, $100 of interest will result in you paying $25.00 in income tax. Very compelling reason to invest in stocks isn’t it?

Of course if you put it in an RRSP the tax angle becomes moot. FYI: RRSP withdrawals are 100% taxable (like interest) regardless of whether the income earned in the RRSP was capital gains or otherwise.

Home Business Income Taxes in Canada

Monday, February 8th, 2010

Working from home is an easy commute in the morning and since it is your principal place of business, you may be able to claim some of your home expenses. As a home based-business, you are self-employed and report your business income and expenses in the same way as any other business. Depending on the amount of space you use for business and/or client meetings, you can claim a prorated portion of your utility payments, property taxes, mortgage interest and maintenance costs. It is important to remember, only mortgage interest is deductible – not your mortgage principal.

In Canada, self-employed people do have a little bit longer to file a tax return – until June 15. However, if you owe the government money and file after April 30th, they will start adding on the interest. As you prepare your paperwork for your tax return, here are some deductions to keep in mind:

Office supplies like paper and staples are fully deductible. Bigger items such as computers and office furniture must be depreciated over a number of years according to the Capital Cost Allowance (CCA) rules. CCA rate for computers and computer equipment was increased to 55% effective March 19, 2007. Don’t forget you can only deduct half the annual rate in the first year. So if you purchased a computer for $1,000, you would only be able to deduct $275 against your business income in the first year. In the second, you can deduct 55 per cent of the balance remaining, or $398.75 (calculated as $725 x 55 per cent).

For 2009, computers may be written off 100% in the first year as part of Canada’s economic stimulation package.

You are allowed to claim a portion of your auto expenses that relate to the home business. This includes gas, maintenance, auto club membership, license fees and insurance. It is important to document vehicle use for both personal and business travel so invest in a log book or record system to keep track. The rules may change for 2008 based on the last Federal Budget. There are limitations on how much you can claim for luxury vehicles. The ceiling on CCA claims for 2007 is $30,000 plus GST and PST. And if you want to lease, the ceiling is $800 per month plus GST and PST.

Insurance and health benefits are another concern for self-employed people including those in a home business. If you opt to pay for a private health service plan, you may be able to deduct the premiums as a business expense. To qualify, either your self-employment income must be 50 per cent of your total income or your income from other sources must be $10,000 or less. The maximum deduction is $1,500 for yourself, $1,500 for your spouse or common-law partner, and $750 for each or your children under 18.

Remember to keep all your receipts, just in case you are ever audited. Some sort of accounting software is highly recommended to help you to keep track of your revenue and expenses in an orderly manner.

And watch those deadlines to ensure that you do not have any interest or penalties on any tax owing.

Mark Styranka writes on a variety of topics primarily relating to small business. To learn more, Mark recommends that you visit: http://www.MajecAccounting.com
http://www.MajecAccounting.com/blog

Income Tax FAQ:

Question: Currently on welfare, do I get any money back when doing my income tax?
I moved out of my ex’s place last year with my son, and currently going to college. I was on social assistance starting July 2009. When I file my income tax, will I be getting any money back or not?

Answer: When I lived in Ontario, had dependents and was on welfare (15 years ago) I did get back a small amount. It was like $300 for claiming my rent receipts. You can figure out yours, for free, at ufile.ca, without filing. Low income families can file for free too.

Question: I live in Ontario Canada and wondered if anyone knew if you can claim an adult child at home with no job?
I have a 22 year old son living at home with no income. If anyone knows about claiming them on their income taxes please send me a link to the government website to where I can find this information.

Answer: You can only claim him if he is a full time student or disabled.

Question: Investment in U.S. Securities and paying taxes in Canada?
If one’s employed in Canada (Canadian Citizen) but invests in U.S. securities, such as stocks, how are the gains (Capital and Dividend) treated for tax purposes?
Of course, the funds are traded in U.S. Dollars and the gains are also in U.S. Dollars; would the U.S. gains be considered differently as U.S.Income at a different Marginal Tax rate or will they be taxed at the same Marginal rate as the Canadian Dollar Income?

Answer: While there is US withholding on dividends paid, there is none on capital gain. This is the rule for ALL US Dollar income: you convert the US Dollars to Canadian Dollars at the rate in effect on the day of buy, sale, or dividends paid. Then you report it, on the appropriate lines of Schedules 3 or 8. You are then taxed on your TOTAL world income, at one tax rate.

Question: Can I claim the tax credit for supporting my parents?
My parents are living with my family and have no financial income. I’m in Ontario, Canada.

Answer: The information is at the CRA website in the General Income Tax Guide under line 315 of Schedule 1. You’re looking for the Caregiver amount.

If your parents are over 65 and have income of less than $16,000.00 or if one or both of your parents are under 65 but qualify for the disability tax credit you or your spouse (if you have one) may be able to claim one or both. See your tax preparer for more information.

Question: Reporting Income (foreign income and T2125 self employed)?
I live in Canada and am self-employed. I work in the USA most of the time, therefore I pay taxes to the IRS (I do a US tax return). When I report my income, which is foreign income, do I report on line 104 other employment income and/or on T2125 as income as well? Also, same questions for tax paid to the USA, where on the Canadian forms do I report this as a self-employed person? I would like to deduct some of my expenses, I assume I do this on T2125.

Answer: You’re self-employed, so the income and deductions are most definitely reported on a T2125. The net result is written on your return at line 135.

When it comes to the income taxes paid in the states, there is a tax treaty between Canada and the US that basically prevents double taxation of your profit. However, the US probably has first crack because that’s where you earned your income. Fill in a form T2209 in order to claim foreign tax credits. In addition, you may need a form T2203 in order to avoid paying provincial taxes on the amounts of income if your business was permanently established outside the country.

Question: Canadian Taxation for a Temporary Resident?
I want to know what happens to my income deductions as a Temporary resident? I am an Australian on a Working Holiday visa being paid a full-time employee in Toronto, Canada, and apart from the Federal Income Tax, I have 1.7% and 4.7% being deduced from my gross income for EI and CPP. What happens if I never claim my EI before I leave Canada? What happens to my CPP? I do not envisage at this stage retiring in Canada, so can I claim some of that back?

Answer: EI is the insurance you paid for your Employment. It is not refundable. CPP can be withdrawn if Australia has a treaty with Canada regarding it. Check with a professional to find the right answer.

Question: Business Tax Question, I need help please!?
I opened a business in October, online retail, so my investment in the business was about $30 000.00. Since it recently opened it’s profit has only been around $200.00. How will taxes work, will I owe, get back, etc? I am in BC Canada. Also, the business is solely in my name, so how will it effect my husbands taxes? Up until now he had been able to use me as a deductible, will he still be able to because I have not made an income, or not?

Answer: You need to sort out what part of this $30K is expenses and what is start-up costs. Expenses are directly deducted from income. Start-up capital costs, such as franchises or licenses are not; they are depreciated over time.

If, after this, you still have a profit in the business, it will be deducted from your husband’s Spousal Amount of Non-Refundable Tax Credit.

Question: U.S.-Based Gift contributions (Donations) in Canadian Taxing System?
I’m aware that donations made to a U.S. registered charity organization are tax-deductable from U.S.-Income even for a Canadian Citizen. I’m not sure how this is classified though.
Assume one makes monthly donations to a particular registered institution in the states but earns income in Canada and in the Canadian Currency(CND) but also invests in U.S. equities and earns some U.S dollars. Now will the deductions work towards the U.S dollar income earned through equities? or there are other criteria to consider?

Answer: If your US dividends are US income, yes, you can deduct up to 75% of that as charitable contributions. You will be converting everything to CAN$ on your return, so what currency is earned is not the issue. Line 2 on Schedule 9 will need an attached explanation of how you computed allowable donations.

The Home Renovation Tax Credit and Condominiums

Monday, February 8th, 2010

The 2009 Tax forms are out and instructions on claiming the credit for the new Home Renovation Tax Credit can be found on page 38 of the 2009 General Income Tax and Benefit Guide. To begin, you list your expenses on Schedule 12. For condominium owners, this may include amounts spent by the Corporation, in addition to your personal expenditures.

One of the qualifying conditions for condominium owners is if “the condominium has notified you in writing of your share of the expenses”. This places the onus on the Corporation to calculate and report to the owners their share of eligible expenses.

My recommendation to my condominium boards is to calculate the eligible expenses, copy all the necessary invoices, then to advise each homeowner of their shared based on the same proportionate percentages used to calculate their common element fees, and include copies of the invoices.

There has been some pondering over how to distribute the eligible expenses for those condominium units that have changed ownership during the year. In my opinion, this can be accomplished by the following method:

The eligible period for expenses is after January 27, 2009 and before February 1, 2010, this is a total of 369 days. If you divide the total expenses by the number of eligible days, then multiply that number by the days an owner was in possession of the unit, that should be the amount they are eligible to claim. For example, for a condominium spent $9,000 on repairs and an owner whose proportionate share is 3.687% of the total expenses purchased and closed their unit on November 1, 2009, the calculation could be as follows:

$9,000 x 3.687% = $331.83 / 369 = $0.90 x 92 = $82.73 (92 being the number of days from November 1, 2009 to January 31, 2010). This owner would be eligible to claim $82.73 towards the Home Renovation Tax Credit.

In the absence of clear direction from the Canada Revenue Agency on how to deal with the issue of unit sales, his solution is clear and, in my opinion, is the most fair way of distributing the credit.

About the Author
Tracey McLellan has over 25 years experience in the Condominium management industry. She also teaches financial management and budgeting to prospective property managers and board members at a local college, in addition to sitting as a volunteer on a local community board of directors. Visit our website at http://www.traway.com to discover additional tools to assist you in managing your community!

Home Renovation Tax Credit FAQ:

Question: Canada’s Home Renovation Tax Credit Question?
Who should claim? The higher earner in a home, the lower earner, or split it in some way?

Answer: It doesn’t change the amount of the credit if it is claimed by the lower or higher income person. It is a straight 15% of the amount spent over 1,000 up to 10,000.

It does need to be claimed by someone who has tax payable. Since it is a non-refundable credit it won’t reduce tax payable below zero.

Question: Home renovation tax credit?
After spending the $1000 minimum for the HRTC, is the tax credit applicable back to dollar 1 or just on the amount spent after the initial $1000?

Answer: After the $1000 deductible.

Question: Home Renovation Tax Credit?
Who can take advantage of new HRTC? What is the deadline? If I live in a condo am I still eligible?

Answer: The home renovation tax credit in the Jan. 27 budget applies to condominiums and even to eligible work undertaken by condo corporations. In a typical condo arrangement, each condo-unit owner pays a monthly maintenance fee, which typically goes into the condo corporation’s general or reserve fund, from which the condo corporation would pay contractors’ renovation bills on behalf of the unit owners.

However, the credit is only available to individuals, not corporations, so, the condo corporation is not entitled to the credit. Instead, the draft legislation provides that a condo owner can claim the credit for qualifying renovations made on his or her own unit, as well as for his or her share of renovations of the common areas made by the condo corporation.

Check the CRA website for the documentation requirements to support claims for renovations made to the common areas of a condo building.

Question: Is a new detached garage included in the Canadian HRTC?
I built a garage this summer that set me back $11,600 total cost due to the fact that I done all the labour. Can I claim my detached garage with the Canadian Home Renovation Tax Credit?

Answer: This is a good question since a detached garage is not a permanent fixture to the dwelling. Check with CRA to be sure but in the mean time hold on to your receipts. Also, your accountant should have an answer for you when you file your income tax.

Filing Canada Income Tax Return Online – An Easy Guide

Monday, February 8th, 2010

If you wish to file your Canada tax return to the Canada Revenue Agency (CRA) before the deadline, you should know how to do it accurately.

It is the middle of February, when the Canada Revenue Agency begins the process of Canadian income tax return. You should file your taxes early so that your return may get processed early. You have to wait for at least four weeks to check the status of your refund. You will not be able to know about the status of your tax refund until the middle of the March.

It is really difficult to learn about the processing time taken by the CRA for your return because it depends on the way you file your taxes and the time when you submit your return file. If you file your return before the 15th April and you choose paper filing then you will get your return processed within four weeks. If choose TELEFILE, EFILE or NETFILE for your return, then your file will be processed within two weeks.

And, if you file your income tax return after 15th April using paper filing method, then you will have your return being processed within six months. For TELEFILE, EFILE or NETFILE return will take two weeks to get your file processed.

There are certain things you should remember while filing your Canadian taxes online. You should pay the exact amount of tax you owe. You can also benefit from certain things like HST/GST Credit or the Guaranteed Income Supplement under the Old Age Security Program.

You should not miss the deadline for paying taxes set by the CRA. The deadline for filing tax return is 30th April. Generally, Canadian individual returns for any specific year must be filed by April 30 of the subsequent year. If you file your income tax return after the deadline, then the Canada Revenue Agency will charge you a penalty and interest on your unpaid amount.

Jesika William is an expert tax preparer. Learn how to File Canadian Taxes Online accurately and quickly. You’ll know that it’s really easy to file Income Tax Return to the IRS.

Income Tax FAQ:

Question: Income tax BC on earnings less than 30,000 CAD?
I am thinking of starting a business, with myself as the sole proprietor. I do not need a business license as I will be running the business entirely under my first and last name. Will my earnings, that will come to less than 30,000 CAD per year, be subject to income tax? Or will these earnings under Canada BC laws be tax free?

Answer: The $30,000 threshold applies only to whether or not you are required to collect GST/HST on your sales. At that level of income, you will be subject to income tax, both at the federal and provincial level, and you will also be required to pay into the Canada Pension Plan. So, breaking it down:

CPP starts when your income is over 3,500 dollars at a rate of 9.9%. You would be exempt from this only if you are under 18, or over 70, or if you are currently collecting CPP retirement or disability benefits.

Federal Income tax starts when your income reaches 10,385, at a rate of 15%.

Provincial tax starts at 11,000, at a rate of 5.06%.

Keep in mind that this is based on your profit, not the revenue. You would be taxed on the profit realized after expenses. In addition, neither the federal or provincial governments have tabled their budgets yet for 2010. All the numbers shown above are subject to change.

Question: Do native Americans in Canada have to prepare an income tax return even if they live and work in the reserve?

Answer: They don’t call themselves American in Canada. The income tax exemption applies only to income that is earned on the reserve. They would have to include any amounts that were earned off reserve, and also investments, in certain cases. Also, people with native status can still qualify for GST credit cheques and payments for the Child Tax Benefit. For these things, a tax return is required, even all income is exempt from tax.

Question: Can I still claim my tuition on my Canadian Income Tax Return in this case?
I took classes in the US for 2 months (9 weeks to be exact) and these were classes that were NOT going towards any kind of degree. I was also NOT a commuting student. From what I understand I cannot claim the tuition I spent there because of 2 reasons: 1-the courses were not for a degree, 2-I was not a communiting Canadian, meaning I was not living in Canada while commuting to the US everyday for class. Is this right?

Answer: You are correct. You would either have to be a commuter, or be enrolled full time for at least 13 weeks. In your situation, you cannot claim the tuition and educations amounts

Question: US-Canada Tax Treaty?
I got a small amount of pay in January for my work in US. I immigrated to Canada in January. What is the best way for me to file my returns? Can I file as a resident in both countries and thereby not declare one’s income in the other country? Or am I required to declare US income in Canada (and vice versa)?

Answer: The CRA pamphlet “Newcomers” tells you exactly what to declare in the year of your landing. You should take a look at it on their website.

You only report to Canada income for the period AFTER you landed. As a US Citizen, you declare worldwide income and file taxes in the US regardless of your residence. You can take a Foreign tax credit on the US taxes for taxes paid to Canada.

Question: Have qualified for disability tax credit from the past 10 years?
How does the CRA calculate this for the reassessment of my income tax for those years? Does the amount of income tax paid those years have a grand affect? From Ontario Canada and years 1999-2009.

Answer: The disability tax credit has nothing to do with the amount of tax you paid. The federal part is the same no matter where in Canada you live, the provincial part may be different, for Ontario in 1999 the federal and provincial amount was worth about $1,200.00 more of a refund, each year it went up a little bit. For the 10 years you are looking at a refund of about $12,000.00 plus interest.

Question: Someone stole my friends Canada income tax refund. Will she ever get the money?
It was stolen and cashed by someone. They sent her a copy of the signature, and she doesn’t recognize it. Also the cheque contains other numbers like driver’s license and SIN number, but they are not hers. The cheque was cashed in a city she’s never been in. Will the government eventually give her the money, how long will it take?

Answer: The CRA has a procedure for replacing payments, even if the original cheque has already been cashed. Step one is that they will normally have her sign an Undertaking and Indemnity. It’s a standard form that they send, probably already filled in with some of the vital information like the amount of the cheque and the cheque number. That gets sent back to them and they investigate.

If they find that the cheque has already been cashed, a photocopy of the cheque is sent along with an affidavit. This one has to be sworn before a Commissioner of Oaths that they did not get any advantage from the refund.

I had to go through this when one of my EI cheques went astray years ago, and I did eventually get my money, but it took a while, nearly two months from start to finish.

Question: How much is income tax in toronto canada?
I am married and have 2 kids. My wife is a housewife. I wanted to know how much tax I will pay on 110K base salary. Are there any standard deductions? How much will be the take home?

Answer: You need to look at the Canada Revenue website and look under the Ontario Province tax breakdown. Off the cuff though I believe it’s 30% but in Ontario there is a host of things you can claim as expenses especially with children so it’s worth while to investigate all of them! Your financial advisor or accountant may be able to help you with deductions you qualify for.

Question: How are U.S. Income tax-deductable charity contributions treated in the Canadian Income Tax system?
I’m making monthly contributions to a charity organization in the U.S. and the gifts are tax-deductable for U.S.-Income. Are they also tax-deductable in Canada? How will they be treated?

Answer: According to CRA, generally if you have U.S. income you can claim any gifts to U.S. charities that would be allowed on a U.S. return. You can claim the eligible amount of your U.S.. gifts up to 75% of the net U.S. income you report on your Canadian return. However, you may be able to claim the eligible amount of your gifts to certain U.S. organizations up to 75% of your net world income. You can do this if you live near the border in Canada throughout the year and commute to your principal workplace or business in the United States, and if that employment or business was your main source of income for the year.

Death and Taxes – Estate Planning Mistake #3

Wednesday, January 20th, 2010

There’s a lot of misinformation floating around about how certain assets are taxed when the owner dies. I’ve heard that RRSPs are not taxed if beneficiaries are named on the RRSP application. This is only partially true and if you think you’ll be able to leave RRSPs to your adult child with no tax consequences, they are in for an unpleasant surprise.

I’ve also heard that the principal residence passes free and clear to the named beneficiary. This is also only partially true. The principal residence isn’t taxed at death but it is still part of the estate and thus subject to probate fees. There will very likely be some price to pay on the principal home.

Let’s start with RRSPs. RRSPs aren’t just passed to the beneficiary tax-free unless they qualify as one of the following:

Your spouse
Your financially dependent child or grandchild under 18 years of age
Your financially dependent child or grandchild, of any age, who is physically/mentally disabled

We’ll call the people in this category “qualifying beneficiaries.”

When you pass away your RRSP assets are deemed disposed, meaning that you have sold all of your RRSP assets at their Fair Market Value (FMV). The entire amount of your RRSP savings is then added to your income for the final tax return. Your estate is then responsible for paying the taxes on that RRSP. If you have been a diligent saver and have a large amount of RRSPs to pass on, they will likely be taxed at a high marginal tax rate (MTR). One of two things will happen:

The other savings/investment assets in the estate will have to be used to pay the tax bill first, before being passed on to your non-qualifying beneficiaries; or
The tax bill will be subtracted from the RRSP assets

Either way, Canada Revenue Agency will get its share.

Next, your principal residence. This situation gets messed up when people try to avoid paying a bill. Your principal residence is not taxed when you pass away. If you leave your principal residence to your children, they will not get a tax bill. However, the residence is part of the estate, so there will be probate fees. In Ontario, those fees are 0.5% on the first $50,000 of estate assets and then 1.5% on any amount over $50,000.

Example: if your entire estate is valued at $500,000, you can expect to pay $7000 in probate fees.

In order to avoid paying the probate fees, it has become popular to name children and other beneficiaries as joint tenants. This is where people often get burned. When you name a non-spouse as a joint owner on your property, they are now a 50% owner of that property, meaning that you have just given away half the ownership rights of that property. If you sell the property and your adult child doesn’t live in the home with you, they are on the hook for the taxable capital gains resulting from the sale. Normally, a principal residence exemption would apply on capital gains resulting from the sale of the home. However, that exemption becomes totally non-existent for your joint owner’s half of the interest in the home for every year the joint owner does not live in the home with you.

Additionally, if they have outstanding debts, their creditors can now come after their interest in the property. Your property. Worst of all, if your adult child gets taken to the cleaners in a divorce case, their 50% interest in the home is fair game for the ex’s lawyers.

And all of that doesn’t even consider the cost of the legal paperwork to put their name on your home. Ask yourself if all of this risk is worth avoiding the probate fees.

Here’s an example of how an “equal” share of assets in a will can quickly become unequal:

Jim, a resident of Ontario, passes away. He owns a mortgage-free home worth $500,000, a mutual fund portfolio worth $500,000 and an RRSP portfolio worth $500,000. The adjusted cost base (ACB – the net cost of building that portfolio, including contributions) of his portfolio is $250,000. He sets up joint ownership on the house with his son Jack, leaves his RRSP portfolio to his daughter Jill, and his non-registered mutual fund portfolio to his other son Jesse. Here is a basic rundown of what will happen (not including deductions, credits, etc.):

Probate fees on $1,000,000 estate: $14,500

Tax payable on $500,000 RRSP portfolio (46.41% MTR): $232,050

Tax on $250,000 capital gain in the mutual fund portfolio (46.41% MTR): $58,012.50

The taxes and fees payable ($304,562.50) will be subtracted from the non-registered mutual fund portfolio.

So Jack will receive the $500,000 home, Jill receives the $500,000 RRSP portfolio, and Jesse receives only $195,437.50. Granted, it’s nearly two hundred thousand more than he started out with, but this kind of unequal distribution is what leads to nasty estate disputes (and even lawsuits) between family members. Is that really what Jim wanted for his children?

Is that what you would want for yours?

Many Blessings,

Andray Domise

Independent Financial Advisor

Change your life one dollar at a time, with REAL help for building wealth and reducing debt: http://www.andraydomise.com

Estate Planning FAQ:

Question: What do you think about this type of estate planning?
My grandfather says that houses can only stay in the family for so long because once a family gets too big, it’s hard to share it… (like a summer house). So, can you keep a house in a family for more than 2 generations? Of course it depends on how big the family is; ours is really big! The descendants become like strangers I guess because they are far removed from the original owners (grandparents). So, it there a way to improve/fix this dilemma so the house can stay in the family indefinitely?

Answer: Most likely your grandfather is alluding to the fact that it is difficult to have a house in which everyone owns a piece as the family grows from one generation to the next. Sooner or later there will be family members who aren’t interested in the house and wish their share in cash. Someone has to inherit the property. If it goes to one child then the others usually get money instead or something of equal value. If all children get a share then the problem starts as they pass their share on to their children until it becomes impossible.

Question: Financial Planning versus Estate Planning, which is the higher priority?
If you had an extra $1000 and all things being equal, which is more important at this moment, meeting with a financial planner or getting your estate planning documents in order (trust-we have one child, will, durable power of attorney and HCPA/AMD) for my wife and I? The idea being that on average a good fee-only financial planner or attorney to do either thing will cost $250-$300/hour (in the Washington DC area).

As far as financial background, we have life insurance, we contribute monthly to a 401K and Roth IRA and I have a defined benefit pension (yes they still exist). We are paying down debt, but I still feel that we could use a good financial review (not to sure about our allocations in the Roth and IRA’s). We DO NOT HAVE A WILL or other estate planning documents… and this is beginning to concern me… should it?

Answer: All the financial planning in the world isn’t going to be worth squat if you don’t have the legal power to protect it.
You need a will, living will, power of attorney etc. If you are seriously hurt in a automobile accident and are not able to communicate, your spouse has very few choices without the power of attorney and the living will. You may end up as a “turnip” in a nursing home spending all that money you have worked to save, just to care for you.
Or, if you and your spouse somehow are both killed, what will happen to the child? Think about your family and your spouses family and image that there could be conflicts over who should be in charge, and who will control the finances. Who will be the legal guardians? Who will help your child decide what happens to all the money you have amassed? Who will control that child’s future? Without a will, living will, and power of attorney, there will be problems.
Take care of this planning. Once this is done, then continue your progress on financial planning.

Question: Will and estate planning with a baby?
Did you have a will or other estate planning documents done after your baby was born? Did you see a lawyer, and if so, what documents did you have done? I am most concerned about choosing someone to take care of my son if we both die; can you offer any advice?

Answer: You should definitely meet with an attorney and get your affairs in order. Talk to your husband about who you would want to name as guardian in the event that something were to happen to you, and find time to sit down and speak with the person or couple and make sure that they are willing to be your child’s guardian.

Decide what you want to do with your assets, including any property, life insurance, investments, and retirement funds. You can set up a trust that will help your guardians with the expenses of raising your child, provide for college expenses when the time comes, and the rest can remain in the trust until your child reaches a designated age (usually 25 or 20, depending on your wishes). If you have several children, you may want to provide a sum of money up front for the guardians, because the expansion of their family might require a move to a larger home to accommodate everyone. And then you can set up the trust to provide a monthly payment to the guardians while your child is still living in their home.

Keep in mind that you can name a separate person (or more than one person) as the trustee, which is often advised, so that there is no conflict of interest. So you may also want to give some thought as to who you would want to control the funds in the trust. If there is nobody in your family you would want to name, you can designate your attorney.

You can set up an initial meeting with an estate planner to determine what your options are, and he can also advise you as to whether you have sufficient insurance and investments to provide for your children.

Question: How to deal with a Borderline Personality with regards to Estate planning?
One of my siblings is unfortunately a Borderline Personality,what is the best way for my parents to plan their Estate (Will) with this situation in mind. My parents reside in Quebec, the sibling in question resides in the USA.

Answer: There is no simple answer to this question. A lot depends on how much assistance this sibling needs now in his/her financial affairs, and if the parents believe this person can handle finances on their own. Perhaps your parents could require that the BP sibling get good financial counseling upon receiving the bequest at the least, and if they are not confident of this sibling’s ability to handle the money, set up a trust.

Question: Can you suggest a good book or website for estate planning?
I hear that if a grown (adult) child lives at home with the parents for 2 or more yrs that the parents can quitclaim the house to the child. This would be to avoid (legally avoid) estate taxes on the house if it were willed to the kid.

Answer: I would speak with an estate planning attorney. Most good attorneys will do a free consultation, and give a recommendation depending on your specific needs. Each state has slightly different laws and each scenario is different so it is not a good idea to take advice from people on tv/the internet.

Question: Where on line can I find some useful information on estate planning and tax avoidance?

Answer: Schwab has some good free info on its site. However, you get what you pay for. I would suggest a consultation with a good estate planning lawyer. The best advice is usually proprietary.

Question: How is tax burden minimized when using Trusts in estate planning?

Answer: A trust doesn’t reduce the tax issue. The IRS sees revocable/grantor trusts as continuing to belong to the person who set them up. The savings occur with fewer costs at probate and the ensurance that the titles of the assets go to the intended parties. This is good when a husband and wife have, say, 2.5 million assets and the estate would normally go to the other spouse. With proper trusts in place, if the 2nd spouse dies soon after the first, the same asset isn’t subject to tax in both estates.

Question: What is meant by the term “estate planning?”
Does it mean that, with proper planning, with the help of an expert, a person not rich, and not poor but somewhere in the middle, can insure his savings and other assets for his children after his death? In other words, can he “protect” his assets so that his children will be sure to inherent his money?

Answer: You are correct. It is the a plan that protects your assets from probate and inheritance taxes if done correctly. It also ensures your heirs receive what you wish. Eliminates fighting among your children.
The professionals also encourage you to tell your children your decisions once the plan is complete. At any time you can change, alter or eliminate any part of the plan.

The Home Renovation Tax Credit – Canada

Tuesday, January 19th, 2010

The home renovation tax credit – A great way to save on tax if you have planned on a home renovation, now may be the time.

This is a tax credit which means that you receive a 15% tax credit for expenses greater than $1000. To qualify for the maximum $1350 tax credit you must spend at least $10,000 of which $9000 is eligible for the tax credit ($9000 x 15% = $1350). This is a temporary tax credit and home improvements must be completed between Jan 27 2009 and Jan 31 2010. Expenditures made in Jan 2010 must be claimed on the 2009 tax return.

Amounts above $10,000 are not eligible for the tax credit, but depending on your marginal tax rate the home renovation tax credit may be a better alternative than other tax saving measures. For example at a 30% marginal tax rate you would need to contribute approximately $4,500 to your RRSP to generate a tax refund equal to the maximum credit available for the home renovation tax credit.

The renovations must be made to a personal use property such as a home, cottage, or condominium. The types of home renovations that qualify, generally must be of an enduring nature and integral to the dwelling. The expenditures include building materials, labour, equipment rentals, and the cost of permits. Examples given by revenue Canada include Renovating a kitchen or bathroom, new flooring, decks, retaining walls, a new furnace, water heater, or painting the exterior or interior of the house. Expenditures that cannot be claimed include normal repairs, carpet cleaning, furniture or appliances, financing costs, or tools that retain a value after the renovation.

If you are condo owner you might be eligible for the credit even if you don’t spend any money on your unit. The share you have in spending on improvements to the common areas of the condo also qualify for the 15% credit. Ask your condo manager to find out if this applies to you.

The credit is also limited to one per family, which includes the tax payer’s spouse or common -law partner and any children under the age of 18 throughout the year. If the taxpayer who claims the credit cannot fully utilize it the unused portion may be transferred to one or more of the other family members.

To further increase the amount of government subsidies that you could receive, determine if the renovations are eligible for the eco-energy retrofit-homes grant. Grants of up to $5,000 are available to offset the cost of making energy efficient home improvements such as adding insulation, and replacing windows and doors. If you are considering a new energy efficient furnace or heat pump, the home renovation tax credit, and eco-energy grant could result in a big saving.

David Lee is Financial Management Advisor, FMA, and has over ten years of experience as an independent advisor and working with major financial institutions. His goal is help people achieve financial freedom and enjoy the freedom to do what you want, when you want that wealth can provide.

Visit our web site at http://www.manifestingwealth.weebly.com for financial resources and and free reports.

Visit http://www.sailingcharters.weebly.com for our sailing articles, resources, and information on our charters in British Columbia.

Home Renovation Tax Credit FAQ:

Question: Am I eligible for the Canadian home renovation tax credit?
I rent my home and I want to replace the carpet but I don’t know if I’m eligable because I don’t own my home.

Answer: The credit is only for work done to property you own.

Question: How come us Americans can’t have a “home renovation tax credit” like Canadians?
I am currently looking to refurnish my abode. I decided to see if the ikea site in canada had different furnishing. To my amazement, they said you can get a tax credit for buying the stuff for renovating your home!

Now, why can’t our politicians give us deals like that!?

Answer: Under Obama’s stimulus bill, you can get a credit of up to $1500 for energy efficient remodeling.

Sometimes you can get local tax break on your property taxes if you remodel and increase the value of your house. It all depends on where you live.

Question: What do I have to keep/show for Home Renovation Credit for my taxes?
I’m reno-ing a basement and know that this qualifies for the Home Renovation Tax Credit. I’m just wondering what do I have to keep so that I’m not scrambling next tax season.

Answer: Other than keeping all your receipts for your renovations, make sure that the people that are doing work for you, have a GST number or their work won’t qualify for your tax credit. The auditors will really look at all the expenses, so make sure you have qualified people.

Question: Home Renovation Tax Credit Question?
Are these expenses eligible for the HRTC?
1) Adding insulation to a house
2) Repairing crack in the foundation and replacing the drywall around it.
Both were done by a contractor. Thanks!

Answer: Yes, basically if the renovation is permanent it is eligible. Here are examples of eligible and ineligible expenditures:

Eligible
• Renovating a kitchen, bathroom or basement
• New carpet or hardwood floors
• Building an addition, deck, fence or retaining wall
• A new furnace or water heater
• Painting the interior or exterior of a house
• Resurfacing a driveway
• Laying new sod

Ineligible
• Furniture and appliances (e.g., refrigerator, stove, couch)
• Purchase of tools
• Carpet cleaning
• Maintenance contracts (e.g., furnace cleaning, snow
removal, lawn care, pool cleaning)

Question: Canada Home Reno Tax Credit – what do you really get back?
I have been reading and searching for info on the Canada Home Renovation Tax Credit (HRTC) and cannot find an answer to my question.

Tax credits usually work by applying against your income. IE: If you made $40,000 and you put $1350 into your RRSP you get the income tax paid on $1350 back, in other words a $400 tax return. In the case of the HRTC, if you made $40,000 this year and you spent the full $10,000 on renovations the government says you get a tax credit of $1350.

So, the question is: Does that mean you get a tax return of $1350, or does the $1350 apply against your taxable income and you get $400 (or some percentage) back?

Answer: The tax credit is 15% of the amount paid for renovations (up to $9000, for a maximum tax credit of $1350). A little background information: The HRTC is a non refundable tax credit. The implementation of non refundable credits is designed so that all taxpayers get the same benefit, no matter the income. The way that’s done is that, instead of reducing INCOME, they just generate a fixed credit on TAXES, based on the lowest tax bracket (15%).

Thus, the $9000 of spending (the credit applies for expenses between $1000 and $10000) results in $9000 x 15%= $1350.

Question: Is the tax credit for home renovations for each household or each person?

Answer: Home renovations can only be used for the person that has PAID for them on the home regardless who is on the deed to the home. The tax credit can only be used ONCE for each household.

Question: Does getting your drive way paved count for the home renovation tax credit?
I want to get my drive way paved and want to know if that counts for a tax credit refund of up to $1300 in Ontario?

Answer: Yes it does.

Question: What percentage of renovations cost qualify for the HRTC?
I am planning some home reno’s and want to know what percentage of the reno expenses qualify for the new Home Renovation Tax Credit.

Answer: The base of the HRTC is 15% of the renovation expense, on expenses up to $10,000. The first $1,000 is a base and does not receive a credit.

For example:
Renovation Cost $7000
Base amount -$1000
Eligible Expense $6000
HRTC $900

Since the maximum eligible amount is $10,000 the maximum credit you can get is $1350 (15% of $9000)

Canadian Income Tax Update For 2009

Tuesday, January 19th, 2010

Income Tax Update for 2009

The Canada employment credit increases from $1019.00 TO $1044.00. This credit is available to all tax payers that have employment income. This is a non-refundable credit equal to the amount of the claim times the lowest tax rate. Personal amounts and other Non – refundable Tax Credits are indexed to inflation so that most credits are increased by 2.5%.

The Basic personal amount and spouse or common-law partner amount were increased from $9,600.00 to $10,320.00. The Federal Tax brackets have been increased so that you can make more and pay less in 2009 than 2008. The lowest bracket on which 15% tax is paid was increased from $37,885 to $40,726, and 22% payable on $40,726 to $81,452, 26% on $81,452 to $126,264 and 29% on income in excess of $126,264.

Canada Child Tax Benefit – The net income level at which the Child Tax Benefit, and Disability Benefit Supplement begins to be phased out was increased to$40,726 for the July 2009 to June 2010 benefit year. Because the amount of the benefit is based on income, taxpayers must file returns in order to receive it. If a person is married or living common law, both spouses must file returns. The basic Canada Child Tax Benefit for July 2009 to June 2010 is $1,340 for each child plus an additional $93.00 for the taxpayers third and each additional child. These payments are not included in income and are thus not taxable.

Universal Child Care Benefit – This is a benefit of $100.00 per month for each child under the age of 6 years and is paid for the purpose of reducing child care costs. This is a taxable benefit and must be reported by the Spouse or Common law partner with the lower net income.

Employment Insurance Clawback – The net income threshold at which EI benefits must be paid back is increased from $51,375 to $52,875. An exception is made for first time claimants who are defined as having received less than one week of EI Benefits in the last 10 years. The clawback is equal to the lesser of 30% of regular benefits and 30% of net income in excess of $52,875.

Home Buyers Plan- The maximum that first time home buyers can withdraw from their RRSP under the Home Buyers Plan has been increased from $20,000 to $25,000. The change applies to withdrawals made after Jan 27 2009. The maximum repayment period remains at 15 years.

First Time Home Buyers Tax Credit- New for 2009 for first time home buyers on homes with a closing date after Jan 27 2009 a personal amount of $5,000 may be claimed. This is a non-refundable tax credit and therefore results in (5000 x 15%) a tax credit of $750.00.

Age Amount- This credit was increase by an additional amount of $1000 above the inflation indexed amount and is $6,408 for 2009. Repayment of Old Age Security Benefits- The net income threshold at which the tax payer becomes subject to the clawback is increased from $64,718 to $66,335 for 2009. This is a summary of the major changes for 2009.

David Lee is Financial Management Advisor, FMA, and has over ten years of experience as an independent advisor and working with major financial institutions. His goal is help people achieve financial freedom and enjoy the freedom to do what you want, when you want that wealth can provide.
Visit our web site at http://www.manifestingwealth.weebly.com for financial resources and and free reports.

Canadian Income Tax FAQ:

Question: How many days can a British citizen spend in Canada before they have to pay Canadian income tax?
How many days can I ,a British citizen spend each tax year as a non resident in Canada before the Canadian Tax Authourites judge me to be liable to pay Canadian Income Tax.I am a tax exile from Britain..Also when does the Canadian tax year begin and end.

Answer: Individuals resident in Canada are required to report and pay income tax on their world wide income earned for the portion of the year (calendar) that they were so resident. This period could be a matter of days, weeks or months, there is no minimum or maximum time consideration. The only consideration is the individual’s status as a resident which is a matter of fact to be determined based on the particular circumstances surrounding that person’s presence in Canada.

If as you say, you are a tax exile of Britain and this has caused you to sever all ties to the UK prior to arriving in Canada, you may well have become a resident of Canada at the time you arrived here. In most cases, persons emigrating to Canada are taxed on the income they earned for the portion of the year that they were present in the country.

Individuals who spend an aggregate of 180 days or more in Canada during a calendar year are deemed to be resident in Canada “through out the entire year” and are required to file a tax return for that year and report income for the year from all sources both inside and outside of Canada. Double taxation of income taxed in other jurisdictions is avoided through the foreign tax credit mechanism provied for under the Canadian Income Tax Act in concert with an array of bilateral income tax treaties between Canada and various countries of the world.

More information on the issue of Canadian income tax liability and residential status can be obtained at the Canada Revenue Agency website.

Question: Paying Canadian income tax on income made from the USA?
Kinda of two questions:

1) Do I have to pay Canadian income tax on income made and taxed by the USA?

2) Are American companies required (or do they even do it) to report earnings to the Revenue Canada or is it up to the Canadian citizen to report it?

Answer: If your a Canadian resident, you have to report your world income (income from within and outside Canada).

1) If your US income has been taxed there, the Canada Revenue Agency (CRA) will provide a foreign tax credit for your US income to be reported on your cdn tax return.

2) American companies are not required to report (and they don’t) report their earnings to the CRA. However, the IRS & CRA do have automatic information exchange under the tax treaty that may allow the IRS to provide to the CRA the earnings of Canadians made in the US, and vice versa.

Question: Do I have to pay Canadian income tax if I work and live abroad but own a house in Canada which is used.

Answer: You have to pay cdn tax for your world income if you are considered a cdn resident. You would be a cdn resident if you have a cdn home, have cdn economic and social ties. For example, if you are paid by a cdn employer for temporarily outside canada, and your wife and kids are still in canada living in your cdn house.

On the other hand, if you have cut off all your cdn social and economic ties, and you are paid by a foreign employer, you may be considered as a non resident of canada. In that case, you only pay cdn taxes on your following sources of cdn income: employment income, business income and disposition of taxable cdn property. If you have rented out your cdn home, you also need to pay taxes on the rental income.

Question: Do I pay Canadian income tax on selling a painting that was given to me as a gift?
I am about to auction a painting for alot of money. Initially it was given to me as a present by a friend who is now 20 years later a famous artist. Do I need to pay tax on the money I make selling that painting at auction?

Answer: Yes, it is considered “listed personal property”.

Question: When was the Canadian income tax first introduced and why was it introduced?

Answer: Income tax was introduced in 1917 as a temporary measure to pay for World War One.

Question: I have a canadian income tax questions?
Does anyone know how many years you can go back to claim medical prescription costs for income tax in Canada. I have never claimed my out of pocket expenses on my taxes. I have health insurance which covers 80% but the 20% I pay out of pocket and I am only now finding out that those expenses could be claimed. How far back can I go?

Answer: You may file the medical claim if the payment is within 3 prior years from the earliest date of the notice of assessment to you, i.e., the normal reassessment period for an individual. Claiming beyond the 3 years requires you to have an excuse, i.e., circumstances beyond your control, for example, you were on a extended sick leave, natural disaster had misplaced your medical records, etc. Another opportunity to claim for a tax return beyond the 3 yrs is that the taxable income for that prior yr is NIL, and you have not requested a “loss determination” from the CRA for that tax return.

Note also that for your “unclaimed” 20% medical expenses your medical expenses must total more than $1,926, or 3% of your net income, whichever is less.

Question: Can my ex and I each declare a child on our canadian income tax return?
My wife and I have been seperated for three years now and I was just wondering if each of us can claim a dependant. My son (4) lives with me and my daughter (5) lives with my ex. because of this neither of us pay child support. I have always done my taxes but i’m unsure this year about whether we can each claim for the eligible dependant. The past couple years only my ex has declared a child.

Answer: Yes if you were the primary caregiver of a child that you supported at some time during the year you may claim the eligible child amount Only one person can claim the child so if there was two children and they each lived with one of you then it is possible for each of you to claim a child. Remember though the eligible dependent can only be claimed if you do not have a spouse if you do have a spouse than only the child amount can be claimed on line 367 and not the eligible dependent amount on line 305.

Question: How much can a single guy earn before he has to start paying Canadian income tax?

Answer: The previous amount was $9,600 federally. However, the system does not work such that you make the first $9,600 and pay no tax. If you are paid $400 a week you will be taxed as that amount will be pro-rated (400 x 52 weeks = about $20K) so they will start to deduct taxes from your first paycheque.