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TFSA – 10 Years of Savings

Date posted: January 21, 2019

2019 marks the 10 year anniversary since the Tax Free Savings Account (TFSA) was implemented. During the first few years of the TFSA, there was limited benefits for most, but the increased contribution room each year has allowed for increased benefits to Canadians.

The TFSA provides a tax-sheltered savings vehicle for Canadian. It allows adult (18 or 19 depending on province) Canadians to contribute to their TFSA regardless of their income. Additional contribution room is added each year, allowing for larger tax savings year-after-year. The TFSA allows for the flexibility to make withdrawals with no tax-impact (unlike an RRSP) so you can use your money when you need your money.

The contribution limits by year are outlined below. If you were “of age” when the TFSA was implemented, then your cumulative contribution room would now be $63,500. Annual Contribution Limits:
  • $5,000 – Each of 2009-2012
  • $5,500 – Each of 2013-2014
  • $10,000 – 2015
  • $5,500 – Each of 2016-2018
  • $6,000 – 2019
If you do not use your room, there is no need to panic as the annual increases accumulate.

Strategies For Saving:
  • Gifts to Family: If you have used all of your TFSA contribution room and your spouse, parent, or child has not, you can gift them money for them to contribute to their TFSA. This strategy will save the family money. You may not contribute to their TFSA nor loan them the money to contribute – it MUST be a gift so make sure this is something you want to do before you do it
  • Name A Successor Holder / Beneficiary: For spouses, naming a successor holder is a must as it allows a surviving spouse to hold both their own TFSA as well as their late spouse’s TFSA. This will allow for additional tax-sheltered income for the life of the surviving spouse. Successor holders are only allowed for spouses, so naming a beneficiary should be done if you do not have a surviving spouse. Named beneficiaries help minimize probate fees and simplify executors responsibilities
  • RRSP Contributions To Generate Refunds: In some situations, people may decide to contribute to their RRSP instead of their TFSA to generate a refund on their taxes. They can then take the refund and contribute this to their TFSA.

Things to watch out for:

With all of these benefits, CRA has strict rules that must be followed. As long as you follow the rules, you have nothing to worry about. If you break any of the rules, you should look to correct it as quickly as possible since most of the penalties are charged monthly.
  • Do Not Overcontribute: Pay close attention to your maximum allowable contribution as anything in excess has a penalty of 1% per month for as long as the overcontribution remains. The ‘months’ are also calculated by any day in that month, so if you overcontribute on June 30 and correct the issue on July 1 you will be charged 2 ‘months’ of penalty.
  • Withdrawals Are Recognized By CRA Only On January 1: CRA only updates their records as of January 1 each year. This means that CRA will not acknowledge any of your withdrawals until January 1. If you have maximized your contributions and have to withdraw the funds on January 5th (eg to purchase a house), then you have to wait until January 1st of the next year to re-contribute the funds. If you know you will need to make a large withdrawal of TFSA funds early in a calendar year, it could be beneficial to make the withdrawal in the prior calendar year due to this rule.
  • Non-Residents: Non-resident Canadians are allowed to have TFSA accounts, but are not allowed to contribute while they are non-residents of Canada. Any of these contributions are treated as overcontributions and are penalized 1% per month.
  • Investing vs Trading: The TFSA is a savings account (as in the name). As such, CRA wants you to save (or invest) in this account – they do not want stock traders generating income in this account. The CRA considers people who trade stocks often as a person who is carrying on business within their TFSA (which is not allowed). They do not have any black and white rules for who they consider to be carrying on a business and who is just saving, but they have the authority to tax any income or gains within your TFSA if they rule you as carrying on a business in your TFSA.


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What are Registered and Non-Registered Accounts?

Date posted: January 29, 2018

Registered accounts are investment accounts that have advantages to them and therefore have a limit to the amount you can contribute to them. Non-registered accounts are normal investment accounts which have no limit to the amount you can invest in them and are taxed normally. Below are brief explanations of four different types of registered accounts.

Tax Free Savings Accounts (TFSAs):

Amounts held within a TFSA are completely sheltered from any sort of taxes. There is an annual contribution limit increase which is set each year. If you withdraw funds in the year, you will have to wait until January 1st of the next year to regain the contribution room.

There are two ways you can be penalized/taxed: (1) if you over contributed; or (2) if you are ‘carrying on business’ within your TFSA. CRA has not been clarified these terms, but has shown that they will go after people who are making too many trades within their TFSA. They have considered individuals who do this as in the business of trading which can be taxed fully.

Registered Retirement Savings Plans / Registered Retirement Income Funds (RRSPs/RRIFs):

The idea behind RRSP contributions is to receive tax reductions and tax deferrals. You would contribute to your RRSPs at the time when you are earning the most. You would receive a deduction on your taxes for this amount, thereby reducing your taxable income when you are paying tax at the higher tax rate. Later in life, you would convert your RRSPs to a RRIF and be taxed on it when you are earning less and are in a lower tax bracket.

Many younger people are told to contribute to their RRSP’s without any thought. It is advisable to only contribute to your RRSP’s for two reasons, as withdrawals are often unadvisable:
  1. If you are indeed saving for retirement and intend to keep the money in the account until retirement
  2. If you are saving to purchase a home, you can save this money tax on a tax-deferred basis in an RRSP. You can use the Home Buyers Plan (HBP) to withdraw up to $25,000 from your RRSPs when purchasing a home. This withdrawal is a tax free withdrawal provided the total amount is repaid to your RRSP within 15 years, according to CRAs rules
Withdrawals can also be made under the Lifelong Learning Plan (LLP) without tax consequences, provided you meet all of the requirements. You can withdraw up to $10,000 per calendar year from your RRSPs to finance full-time training/education for you or your spouse. This would have to be repaid to your RRSP within 10 years, according to CRAs rules.

Registered Education Savings Plans (RESPs):

RESPs were designed to assist with saving for a child’s post-secondary education. There are a number of benefits of RESPs including:
  • The initial capital put into the RESP is not taxable coming out
  • Canada Education Savings Grant (CESG): the Canadian government will match 20% of your annual contribution, to a maximum of $500 per beneficiary per year, and a lifetime limit of $7,200. The Canadian government will provide an additional CESG for qualifying low-income families
  • Income earned in an RESP is sheltered from taxes until it is withdrawn (similar concept to RRSPs)
  • When money is withdrawn from an RESP, it is taxed at the beneficiary’s tax rate. Because of this, there is often little to no tax to be paid on the income earned (as the beneficiary generally has a lower income and may have more tax credits than tax payable)
The main drawback to the RESP is if the beneficiary does not pursue post-secondary education. In this case, the CESG would have to be repaid and tax would be paid by the contributor on all income earned (plus a 20% penalty). Note that you can keep the account open for 35 years so it is advisable to not collapse an RESP if the beneficiary may want to pursue this education in the future.

Registered Disability Savings Plans (RDSPs):

RDSPs provide people with disabilities (and qualified for the disability tax credit) a subsidized savings plan. Anyone (family, friends, and strangers) can contribute to an RDSP for the disabled person. For every dollar ($1) contributed to these accounts, the federal government will contribute up to three dollars ($3) – this is the Canada Disability Savings Grant (CDSG). Contributions can be made until the end of the year in which the beneficiary turns 59 and are limited to a lifetime contribution limit of $200,000. The income earned in a RDSP grows on a tax-deferred basis until the funds are withdrawn. Similar to RESPs, withdrawals of the initial capital are not tax deductible.

RDSP individuals may also be eligible to receive the Canada Disability Savings Bond (CDSB) which pays up to $1,000 per year. The CDSB is eligible for lower income families – it is based on family income, not individual income

All of these accounts noted are much more complicated than the descriptions above. To avoid any possible penalties related with these accounts, you should have more information. Please contact us if you wish to learn more.

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Small Business Tax Revisions – The Latest

Date posted: December 20, 2017

On December 13, 2017, finance minister Bill Morneau announced his latest revisions to the tax changes he proposed earlier this summer. Many are questioning the timing of this announcement as this was the last day the Parliament would meet preceding a six-week recess. The rules outlined in this announcement are to take effect on January 1, 2018.

The latest announcement addresses income-sprinkling – The prior announcements addressed passive investments in corporations and lifetime capital gains exemption changes.

The income-sprinkling changes are intended to target individuals who pay family members (through salary or dividends) an unreasonable amount based on the family members contribution to the business. There are a few situations in which business can be exempt from these new rules:
  • The family member is 18 or older and has made a significant labour contribution to the business (defined as an average of at least 20 hours of work per week during the year or any of five previous years)
  • The family member is 25 or older and owns a 10% or greater share of the business (service-based and professional corporations do not qualify for this exemption)
  • The family member is the business owner’s spouse, the business owner is 65 or older, and the business owner meaningfully contributed to the business

  • Those not falling into one of the above categories may also be able to be exempt from these new rules provided they pass a reasonableness test. The end result of these changes means increased recording obligations for businesses – work hours for related parties should be carefully recorded. You will need to have detailed hours recorded in case of a CRA audit.

    The specifics on many of these measures will be released in the 2018 budget.

    The Senate’s national finance committee issued a report on December 13, 2017 as well, recommending that the tax plan should be delayed or withdrawn in its entirety. The committee says that the unclear rules could lead to arbitrary decisions by CRA and lead to tax appeals. The committee recommends the government do a comprehensive review of the entire tax code – something which hasn’t been done in 50 years.

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    Your Retirement Cash Flow

    Date posted: December 13, 2017

    Retirement planning is something everybody should spend time doing, and the plan should be reviewed periodically to make sure the estimates used still hold true. Having a retirement plan not only saves you and your family headaches, but can also save lots of tax money. If you want to retire at 55 or at 85, you will need a plan in place to save you money.

    In retirement, your cash flow will come from different sources than those sources when you were working. There are differences in how these amounts are taxed and what tax credits you are and will be receiving.

    Assuming you will be receiving CPP and OAS in retirement, you will want to fund many of your expenses with these payments. The same will hold true to any company pension you will receive. The reason to do this is because you know these items are going to be taxed. Funds in registered accounts will be the last places you will want to draw funds from as these registered accounts are sheltered from being taxed.

    Depending on your situation, you may consider partially converting your RRSP’s to a RRIF at 65 even if you are still working. The two biggest reasons to do this are:
    1. When you are 65 or older, RRIF income qualifies for the (up to $2,000) pension income credit. If you do not have other private retirement plans, it may be beneficial to try to get this credit
    2. Your RRIF income qualifies for income splitting

    You should be aware that once you turn 71, you are required to convert your RRSP’s to RRIF’s. If you do not do this, the balance of your RRSP’s will be included in your income and you will be taxed on the entire amount.

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    Morneau’s Mistake – Proposed Small Business Tax Changes

    Date posted: November 23, 2017

    The recent changes to income tax provisions affecting Canadian businesses and tax strategy are misguided but they will affect business investment.

    You must remember these provisions have been created by overpaid civil servants (studies indicate they are paid 10% more than the private sector equivalent) and they also have golden pension programs, but they are jealous of the successful businessman/businesswoman.

    Trudeau and Morneau have declared they are fighting for the middle class, but these proposed changes will condemn the middle class to always stay in the middle class.

    Income Splitting

    The strategy of paying spouses and children salaries that are not equated to services provided will not be deductible to the business but will be taxable to the recipient.

    This provision regarding unreasonable expenses was already in the Income Tax Act (Section 67) but was not usually applied; this will now change. You will have to prove that the wages paid are reasonable as it relates to the services provided.

    Section 67 of the ITA reads “In computing income, no deduction shall be made in respect of an outlay or expense in respect of which any amount is otherwise deductible under this Act, except to the extent that the outlay or expense was reasonable in the circumstances”

    Passive Income in Small Businesses

    We are not sure what this will entail until specifics are provided in the next budget. At present, passive income derived from funds not required for the business will attract a higher tax environment whether it is a higher tax rate or the removal of the refundable portion of the higher tax rate currently applied to this income.

    There is a grandfathering provision from which details are not available: it has been stated that there will be a $50,000 exemption (being 5% of $1,000,000). This is the businessman’s pension issue vs the civil servants indexed golden pension.

    In addition, if the corporation has significant passive assets, it will not qualify for the capital gains exemption on the sale of a Qualified Small Business Corporations shares.

    Conversion of Income to Capital Gains

    There will be new provisions precluding the accumulation of income in a corporation and then selling the shares whose values are inflated by the retained investment income thereby avoiding a dividend distribution.

    It should be pointed out that it is rare that a purchaser of shares would give fair value in the purchase price since they will bear the tax cost of recovering the asset and also they will inherit any hidden problems of the purchased corporate vehicle.

    Capital Gain Exemption

    This has remained untouched after the backtracking of the Finance Minister.

    In summary, the proposed changes are still undergoing scrutiny and the needed details will not be revealed until the next budget is available.

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    End of Year Investments Evaluation – Realize Your Gains or Losses

    Date posted: November 8, 2017

    With just over two months left in the year, it is time to get ahead of the game by evaluating your investments. Your portfolio may have some large unrealized gains or losses and you should get a sense of your tax situation before deciding what part of your portfolio you will be selling. Depending on your position, you may want to sell to realize gains or you may want to sell to realize losses. Everybody’s circumstances are different and there is no on-size-fits-all strategy.

    Selling to Realize Gains:

    As far as tax planning strategies, there are few reasons why you want to realize gains. That being said, you may want to sell and realize gains if you are in a lower tax bracket this year, but will have increased income in future years. You also may want to sell to realize gains if you have already realized losses earlier in the year.

    Selling to Realize Losses:

    Selling to realize losses is talked about often near the end of the year, so it is important to make your move before others do. If you are looking to sell to realize a loss, it is likely others are doing the same thing – you want to sell first so the other sellers don’t drive the price down further. If you act first, you will be realizing smaller losses than if you act last.

    Once everybody has done their sell offs at the end of the year, December can be a great time to pick up those securities which have been oversold.

    You should be aware that if you sell and realize a loss, you will have to wait 30 days to buy the security back. If you want to stay in the position (or a similar position), there are a few ways:
    • You can sell an in the money put option
    • You can buy an in the money call option
    • You can buy ETFs where the security you want is strongly weighed
    • You can buy a similar security
    • You can wait the 30 days
    Summary:

    Evaluate your options and make your decisions before others do. Sell now before others and then buy in December late after others have made their sell offs. Always consult an investment advisor or tax professional regarding your specific investment or tax situation.

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    Quick Method of Accounting for GST/HST

    Date posted: October 26, 2017

    If you are collecting GST/HST and do not have many expenses applicable to GST/HST, the quick method of accounting for GST/HST (“Quick Method”) may be for you. This is because you do not need to keep track of your Input Tax Credits (“ITCs”) and instead remit GST/HST based on a fixed rate of your revenues. The Quick Method is usually beneficial to businesses where salaries are the major expense (as salaries are not subject to GST/HST).

    There are some exceptions, but typically businesses can apply to use the Quick Method if the annual worldwide taxable supplies are not more than $400,000. Businesses providing legal, accounting, bookkeeping, financial consulting, tax services, and others are not eligible to use the Quick Method.

    Individuals who may benefit from this can find more information at
    https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4058-quick-method-accounting-gst-hst.html.
    Form GST74 allows businesses to make an election or revoke an election to use the Quick Method.

    Example

    Let’s take a simple example of a business located in Ontario and providing all services to Ontario. This business earned $100,000 and collected $13,000 (13%) in HST. This business had $10,000 of expenses and paid $1,300 HST on those expenses.

    Accounting for HST normally, you would report collecting $13,000 and paying $1,300 in ITCs. The net amount you would have to remit to CRA would be $11,700. Your GST/HST return would look like this:

    Line 101: $ 100,000 Sales and other revenue
    Line 105: 13,000 GST/HST collected
    Line 108: 1,300 ITCs
    Line 115: $ 11,700 To be remitted to CRA

    Using the Quick Method, you would report $113,000 on line 101 of the return. Line 103 would be $9,944 ($113,000 x 8.8%). Line 107 would be the 1% credit on the first $30,000 of eligible supplies, being $300 ($30,000 x 1%). The total payable would be $9,644 ($9,944 - $300). Your GST/HST return would look like this:

    Line 101: $ 113,000 Sales and other revenue (including GST/HST collected)
    Line 105: 9,944 GST/HST collected
    Line 107: 300 1% of the first $30,000 of tax-included revenue for the year
    Line 115: $ 9,644 To be remitted to CRA

    We can see that with this simple example, the fictitious company would save $2,056 by just switching to the Quick Method.

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    Equifax Hack – Protecting Your Personal Information

    Date posted: October 4, 2017

    As you have probably heard, the credit monitoring firm Equifax had a major data breach earlier this summer. The breach exposed personal data of approximately 143 million Americans, as well as a number of others worldwide. Preliminary reports estimate that approximately 100,000 Canadians were affected, likely only those that have dealings in the U.S., but it is not clear that it is limited to those people. The personal information that may have been affected include names, addresses, social insurance numbers, and possibly credit card numbers. Equifax learned of the breach on July 29, though they did not disclose it to the public until September 7.

    Equifax has taken action to try to mitigate the effect of the breach. Canadians who have been affected will be notified by mail, outlining any steps the individual should take. Equifax is providing complimentary credit monitoring and identity theft protection for 12 months to affected individuals. If you are not contacted by Equifax, but still have concerns, you can reach them at 1-866-699-5712 or at EquifaxCanadaInquiry@Equifax.com. You can also view updates from the company on this incident at
    www.equifax.ca.

    It is good practice to be vigilant with your credit. We recommend to always review your account statements and report any unauthorized activity to your financial institutions. Many financial institutions offer credit monitoring which helps keep track of suspicious activity. You should also obtain a copy of your credit report annually. In Canada, you can contact Equifax and Transunion to obtain a copy of your credit report. You can also set up fraud alerts on your credit reports through these companies.

    If a company asks for your Social Insurance Number (SIN), you should always ask yourself why they would need this information. Anyone can ask for your SIN, but only a few people and institutions are required to collect it. If you do not think the company needs your SIN, you can explain to them that you would rather not provide it and ask if you could provide a different type of identification instead. You should escalate your concerns to a manager if required.

    Because of this incident, you should also be weary if you are contacted by somebody purporting to be from Equifax or another company wanting to help as these people may be scammers. Equifax has noted they will be contacting people by mail, so if you receive a phone call from them it may be an impersonator. Always err on the cautious side.

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    Registered Educations Savings Plan (“RESP”)

    Date posted: September 13, 2017

    The principle behind the Registered Education Savings Plan (“RESP) is a tax deferred savings program in order to assist in funding the costs of a post-secondary education including apprenticeship programs for family members.

    The contributions are not deductible for tax purposes and the income earned on the invested funds are not taxable until removed from the plan. The initial contributions are not taxable upon withdrawal.

    The government will provide a grant of 20% of the annual contribution up to a maximum of $500 annually and $7,500 cumulatively over the life of the plan until the designated beneficiary is 17. The contribution limit for each beneficiary is $50,000. The capital contributions are withdrawn first and then subsequently the funds drawn by the student to fund education are taxable to the student.

    What happens if the person doesn’t go on with extended education?

    Firstly, the plan can continue until the beneficiary is 36 years of age. Once it is determined that extended education is not in the future of the beneficiary,
    1. There can be a transfer of benefits to a related party to the beneficiary who is under the age of 21. The grant money must be refunded to the government if the receiving related party has already reached their cumulative contribution limit of $7,500.
    2. In the event the beneficiary began to attend the extra schooling, there is a six month window to remove the income portion which is taxable to the student and this should be taken advantage of.
    3. If the contributor has the RRSP room, the capital contribution can be rolled over to this RRSP.
    4. In the event that the previous three options are not acceptable, then the cumulative income portion will be paid to the contributor and is taxable to the contributor plus a 20% surtax. In order to take this option, the plan must be 10 years old and the beneficiary is over the age of 21.
    The ordering of options should be executed 1 through 4 in that order.

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    What To Do When Someone Has Died

    Due to length, we have split this article into four sections, one per week in the month of August 2017:
    1. General Knowledge and Resources
    2. Executors Responsibilities
    3. Income Tax Returns
    4. Planning Your Estate
    Part 4: Planning Your Estate

    Date posted: August 23, 2017

    Parts 1 through 3 dealt with steps following death. In Part 4 we will look at things to do before death to set up your estate in the way you want it. Having a will is the most obvious item in this category, and it is advisable to hire a lawyer for this to make sure it is set up proper and conveys your wishes.

    Beneficiaries on bank/investment accounts are just as important as wills and should be updated whenever a will is updated. These named beneficiaries of bank/investment accounts supersede the will and the companies holding these assets are required to distribute the assets according to their beneficiary designation.

    Upon death all assets are considered to have been sold at their fair market value and taxes are paid on the gain on this ‘sale’. This is called a deemed disposition on death. To avoid having your estate pay an oversize tax bill upon your death, it is advisable to spread your capital gains over many years. This is especially advisable if your current income leaves you below the top tax bracket as a large deemed disposition could push you into higher tax brackets. After the deemed disposition, the investments new adjusted cost base would be the deemed disposition sale price.

    There are few exceptions to this deemed disposition rule. If you have a joint tenants with right of survivorship (JTWROS) account with a spouse you can opt to transfer these assets to your spouse with no deemed disposition. This only works if it is with a spouse and the account is set up properly by the financial institution. Sometimes it may be beneficial to trigger the deemed disposition even if the account(s) was set up in this manner. For example, if one spouse dies within the first week of a year, they are most likely not going to have too much income to report for that year.

    The surviving spouse will likely be paying higher taxes in this year anyways with the investments moving into their name. If you trigger the deemed disposition gain, you could end up paying a larger percentage of income in a lower tax bracket. For Tax Free Savings Accounts (TFSAs), the beneficiary designation can have great future tax consequences. Specifically, one can name a spouse or common-law partner as a “successor holder” which will allow the surviving partner to effectively have two TFSAs with the contribution limit of both. This only works for spouses or common-law partners and the designation of a successor holder must be set up prior to death. There are many complexities when dealing with a death of a TFSA holder, so please consult your accountant before assuming any of the aforementioned has automatically happened.

    Part 3: Income Tax Returns

    Date posted: August 16, 2017

    In order to process anything for a deceased individual, CRA needs a copy of the will (including any secondary wills) and death certificate on file. We ask for copies of these for our files as well. We also ask for a copy of probate (if applicable), a copy of the last tax return filed, and
    our form filled out by one of the executors. Finally, we get the following three government forms signed:
    • T3APP: this form applies to CRA for a trust number for the estate. In most cases a minimum of one trust return will be required to be filed. CRA’s processing times can be long at times and beneficiaries often wonder why everything has taken so long. We try to keep wait times low
    • T1013 (under the SIN): this form authorizes us to speak (and make changes if the form is filled out in that way) with CRA on the taxpayers behalf. Upon death, CRA cancels all authorizations on file, so we request this form to be filed even if we have previously submitted one signed by the deceased. We ask for authorization so we can check with CRA to make sure all required filings have been made and all debts owed to CRA have been paid
    • T1013 (under the trust): this is the same form as above, but because the estate is a separate legal entity we ask to be authorized on this account as well. We submit this form with the T3APP and will get authorization when they assign a trust number
    A terminal T1 return is required to be filed for the deceased which would account for income/deductions from January 1st to the date of death. Optional returns are also available to complete in the year of death, including a return for rights and things, return for a partner or proprietor, and return for income received from a graduated rate estate. Filing optional returns can greatly reduce the cumulative tax bill because you are able to claim some credits in full on each return.

    In most cases, a T3 trust return will be required to be filed as well. The T3 returns report income earned by the deceased after the date of death. In some cases this would be small amounts based on investments earning income before the executor gets around to selling them. In other cases it may be in the will that the estate remain in existence for many years, in which case an annual T3 return would have to be filed. It doesn’t have to be in the will, but the executor could decide that it is in the estates best interest to keep the estate in existence beyond the first year.

    To file a T3, the trust can choose any date within 365 days of the death to be its year end. The trust would declare itself as the graduated rate estate on its first return and would maintain this status for the first three years after death. If the trust still exists after this time period, one or more stub periods would have to be filed and the trust would then be required to adopt a December 31st year end*.

    When all returns have been assessed and the estate has been wound up, we strongly advise that a clearance certificate be applied for from CRA. The clearance certificate is a document that CRA issues certifying that all amounts for which the deceased is liable to the CRA have been paid. Without the clearance certificate, CRA could find unreported income which the executor would be liable for.

    *This is the general rule, but some exceptions may apply in which the estate could continue to use a non-December 31st year end.

    Part 2: Executors Responsibilities

    Date posted: August 9, 2017

    The executor has many responsibilities including, but not limited to:
    • Arranging the funeral
    • Notifying companies, banks, and government agencies of the death
    • Compiling and filing a list of assets of the deceased at the time of death
    • Maintaining any property of the deceased until it can be sold or distributed
    • Paying all outstanding debts and taxes
    • Disposing of properties and distributing assets
    • Representing the estate in court
    It is advisable to seek advice from or hire a lawyer and an accountant to ensure the proper steps are followed. These professionals will help determine if the estate needs to go through probate, determine the taxability of items (you may have to pay tax on that painting Grandma had on her living room wall all these years), and give you peace of mind. Do not be too hasty when distributing the assets of the estate, even if the beneficiaries are pressuring – it is the executor, not the beneficiary, that will be on the line if proper legalities are not followed.

    The executor should either check with CRA themselves, or have an accountant check with CRA to determine if there are any outstanding tax filings or outstanding balances. Unfiled returns or unpaid balances can deplete the reserves of the estate quickly, and it is important to know about these items early on.

    The executor should notify all financial institutions of the death and it is advisable to centralize the liquid assets of the deceased into one bank account and (if applicable) one broker account. A list of assets at the date of death should be created which would include bank accounts, investments, real estate holdings, automobiles, antiques, artwork, jewelry, stamp/coin collections, and other assets of value.

    The executor should pay for mail forwarding and notify the sender of applicable mailings of the death. The mail should be monitored as it will help pinpoint assets and liabilities which you may have missed accounting for.

    Part 1: General Knowledge and Resources

    Date posted: August 2, 2017

    If a person dies in a hospital or care home, you should notify those caring for the deceased. In the event of an unexpected death, you should call emergency services or the coroner’s office.

    It is very important to notify the executor of the deceased if they are somehow not aware. If you are not the executor, you do not have legal authority to act and make decisions on behalf of the deceased. You can offer to help the executor with their duties, but they have ultimate and final authority of all decisions in relation to the deceased and the property of the deceased. To find out more about the executors duties, make sure to read part 2 of this article which outlines some of the many items executors must consider.

    To notify CRA of the death, you can fill out
    their form and send it to the tax centre of the deceased. The government of Ontario has a website which answers many questions and the Canada Revenue Agency has a tax related website.

    It is important to remember that it is normal to grieve and many people decide to seek counselling to help them through this hard time. There are many options out there and it can take seeing more than one counselor before you feel it is the right fit. If you are struggling to deal with a loved ones death, you should ask your doctor if they have any recommendations on who to contact. They have recommended people before and could help you find a good fit.

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    Inclusion Rate on Capital Gains

    Date posted: March 28, 2017

    There were rumours leading up to the 2017 federal budget release that the capital gains inclusion rate could be increased from 50% to 66.7% or 75%. While the government did not increase the rate on this budget, it remains one of the few places left where the Liberals can find the money to fund their growing deficits. Don’t be surprised if this increase comes into effect in the next federal budget.

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    Converting Your House Mortgage Interest to a Tax Deductible Expense

    Date posted: March 8, 2017

    With a white hot real estate market, many individuals have hopped into the rental game in hopes to cash in big. In this article, we will look into how to manage your finances so you can maximize your tax-deductible expenses. The scenario we will use is the purchase of two separate properties (a principal residence and a rental property), but the strategy can be adapted to many situations.

    The first thing we want to do is put as little down on the rental property as possible. You want to maximize the down payment on your principal residence because the expenses related to your principal residence will not be tax deductible. Doing this will create a large mortgage on your rental and a smaller mortgage on your principal residence.

    You then would want to open a line of credit (LOC) in which all of your expenses related to the rental property are paid. The rental income received from the rental property would not pay these expenses, but rather pay down your principal residence mortgage. This is essentially converting your non-tax deductible interest into tax deductible interest. As your principal residence mortgage is getting paid down, your equity is growing which should provide you increased lending amounts on your LOC.

    You would continue paying down your principal residence mortgage with the rental income until your principal residence is paid off in full. At this point you could either slowly pay down the LOC with income from your rental property, refinance, or you could invest the rental property income into other income-producing investments. The LOC interest would continue to be tax-deductible because you are using the money for the purposes of earning income.

    The main question you have to ask yourself to determine if interest is tax deductible is “are you incurring the interest in order to earn income?” This is why interest on your principal residence is not tax deductible – the purpose of your principal residence is not to earn income. This method described above is essentially converting your mortgage interest on your home (non-deductible) to tax deductible interest.

    Please note that this strategy is not for everybody. You must be comfortable with having large debt and be aware of the risk involved. Everybody’s financial situation is different and you should consult with your financial planner.

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    Should I Incorporate a Company? Advantages and Disadvantages

    Date posted: February 15, 2017

    There are many things to consider whether to incorporate a company. One of the biggest considerations is the question of does it make sense financially? We will outline some of the advantages and disadvantages below, addressing the financial and non-financial issues.

    The following table shows the advantages and disadvantages of incorporating a company. The weighting of these items differs from situation to situation and some of these items may not apply to your circumstances. It is always advisable to consult with your accountant to discuss your personal circumstances.

    Advantages Disadvantages
    • Small Business Deduction
    • Capital Gains Exemption
    • Reduced OAS Clawback*
    • Deferral of Taxes
    • Splitting Income (Salary/Dividend Planning)
    • Liability Protection
    • Non-Calendar Year
    • Additional Accounting/Legal Fees
    • Additional Reporting Requirements
    • Alternative Minimum Tax
    • Increased OAS Clawback*
    • Personal Service Business Rules
    • Director’s Liability
    • Trapped Losses
    * We recognize that OAS clawback has been marked as an advantage and disadvantage. Due to different circumstances, there can be decreased or increased OAS clawback which would be an advantage or disadvantage.

    Incorporating Advantages

    There are numerous tax saving measures for corporations. Tax rates for Canadian-controlled private corporations (CCPCs) are lower than for individuals at higher tax brackets, especially those corporations which qualify for the small business deduction (SBD), which applies to the first $500,000 of active business income earned.

    There are also possibilities to completely eliminate taxes through the capital gains exemption, income splitting, allowable business investment losses (ABILs) and the annual optimization of the salary/dividend ratio.

    Finally, the ability of corporations to have non-calendar year ends allows effective deferral of taxes.

    On top of the tax saving measures, there are also non-tax advantages to incorporation. The most widely known is the liability protection for shareholders of corporations. Since corporations are treated as their own entities, shareholders are generally not held liable for the obligations of the corporation. A shareholder can typically only lose what they have put into their business.

    Corporations also have a possible infinite life. This allows the transfer of ownership from one generation to the next much easier than the transfer of ownership of a partnership or sole proprietorship.

    Incorporating Disadvantages

    If it appears to CRA that your business could be classified as an employee of another corporation, they may classify your corporation as a personal service business (PSB). If classified as a PSB you would lose the small business deduction and the general rate reduction, and possibly be subject to gross negligence penalties.

    Incorporation and reorganization costs can also be quite large, but 75% of these costs can only be amortized at 7% per year meaning you will not recognize these costs on your tax return in full until more than 10 years later. Also, in order to benefit from the lifetime capital gains exemption, regular dividend payments may be necessary which can effectively negate the salary/dividend optimization advantage mentioned earlier.

    Although many people realize the liability protection for shareholders, many people are not aware of the possible liability burden for directors. Directors may be liable for unremitted amounts for source deductions on salaries and withholding taxes, unremitted GST/HST amounts, and all penalties and interest imposed on these unremitted amounts.

    There are also many costs relating to incorporation. Setting up and periodic reporting requirements can create accounting and legal costs. Separate bank accounts are also required which mean additional banking fees. Reporting requirements (corporate tax, GST/HST, payroll, etc) also mean increased costs.

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    RRSPs, RESPs, TFSAs, RRIFs and More

    Date posted: January 26, 2017

    When investing in RRSPs, RESPs, and TFSAs, consider holding only high yield Real Estate Investment Trusts (REITs) as opposed to equities or other investments. The rational is that tax credits are lost when the investment is held in registered funds. Two of the most common tax credits that are lost in registered funds are the dividend tax credit and the foreign tax credit. Equities and other investments should be invested in non-registered funds after you have maxed out your registered investment options. You should attempt to take advantage of the above mentioned tax credits when investing in your non-registered funds.

    When taking money out of your investments, you should attempt to spend non-registered funds before dipping into your RRSPs and TFSAs. This is because registered funds provide some sort of tax shelter and any money that is taken out of these funds ceases to receive the tax shelter treatment.

    In connection with the above notes, you should manage your RRSPs/RRIFs to ensure you are using up the low rate personal tax bracket annually (currently $45,282, federal 2016). The second bracket is currently $90,563 (federal 2016) which you should be aware of as well. If you can plan to have a more consistent income level year after year, you can reduce your lifetime tax bill by maintaining a lower tax bracket. If you do not manage your RRSPs/RRIFs, you may be paying lower-rate tax one year and high-rate tax the next year which will increase your lifetime tax bill.

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    GST/HST and Small Businesses

    Date posted: January 5, 2017

    Did you know that if you make more than $30,000 (non-employment income) in any consecutive four quarter period, you are required to register for GST/HST? If you make less than $30,000 in any four consecutive quarters, you have the option to register voluntarily if you want. Although there is some additional work when registering for a GST/HST account, the advantages greatly outweigh the disadvantages.

    Before we dive into the reasoning too far, it is important to note one key thing that people inexperienced with GST/HST may not know: The GST/HST you charge and collect on your income is technically not your money. You are collecting this money for the government and are required to remit it to the government at regular intervals.

    The main benefit you get when registering for a GST/HST account is any GST/HST you pay on your business expenses can now be applied against the GST/HST you collected. The GST/HST paid on business expenses are called Investment Tax Credits (ITCs) and are reported on line 106 of your GST/HST return. Typically it is most beneficial to register for a GST/HST account as early as possible because when starting out, businesses typically are spending a lot to get the business set up, so you will be able to claim a large amount of ITCs.

    Let’s take an example, as this will highlight the benefits. You are starting a landscaping company and aren’t sure if you will hit the $30,000 income mark in your first year. You buy tools costing $5,000 + $650HST, totaling $5,650 to start out. Business is slow and in your first year you earn $20,000. The total other costs to run the business (materials, computer, etc) was $10,000 + $1,300HST, totaling $11,300.

    Option 1: You didn’t register for GST/HST
    In this case, you would report $20,000 income and $16,900 expenses (you get to include the HST you paid on your expenses). Net income would be $3,100 and you would pay taxes on this income. Assuming a tax rate of 30%, you would pay $930 in taxes. At the end of the year you would have $2,170 left in your bank account.

    Summary:
    You received $20,000 20,000
    You spent $16,900 - 16,900
    You were taxed $930 - 930

      2,170

    Option 2: You did register for GST/HST
    In this case you would report $20,000 income and would have charged and collected $2,600 HST. Your expenses would be $15,000 and your ITCs would be $1,950. Your HST return would show $650 (2,600 – 1,950) that you have to remit to the government. Your net income would be $5,000 (20,000 – 15,000) and you would pay taxes on this income. Assuming the same 30% tax rate, you would pay $1,500 in taxes. At the end of the year you would have $3,550 left in your bank account

    Summary:
    You received $22,600 22,600
    You spent $16,900 - 16,900
    You had to remit $650 HST - 650
    You were taxed $1,500 - 1,500

      3,550

    In option 2 where you did register for GST/HST, you end up with $1,380 more in your bank account at the end of the year. This is because GST/HST collected is applied dollar for dollar against GST/HST spent. Also, in periods of heavy spending, you may have more ITCs than GST/HST collected. In these cases, after filing your return you would be refunded the amount of excess ITCs.

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    Investment Options

    Date posted: December 8, 2016

    There are many investment options out there and often it is hard to figure out what type of investment suits you the best. Outlined below are two lesser used investment options which may suit you.
    • Index Exchange-Traded Funds (ETFs): Index ETFs are similar to mutual funds with the key distinction that they do not hire specialists to decide what to buy, sell, and hold. This distinction means you will pay significantly reduced management fees (up to 2.5% less in some cases). Index ETF’s only hold a minor image of the relative index as determined by various “stock exchanges”. You can diversify your index ETF’s by investing in either a broadband index or a number of specified sector index ETFs
    • Real Estate Investment Trusts (REITs): REITS are publicly traded companies that invest in income-producing real estate. REITs can have various focuses including office buildings, apartments, senior resident homes, hospitals, shopping malls, and hotels. They offer investors who want to invest in real estate an extremely liquid way to do so. They are currently performing well, typically paying between 4.5% and 8%
    You should always fully understand your investments. Please contact us or your investment advisor to learn more about specific investment options.

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    Tax Changes to Take Advantage of Before the New Year

    Date posted: November 16, 2016

    As with nearly every year, at the end of 2016 there are changes happening to the Canadian personal tax system. We will go through three of these items and outline how you can benefit from them on your 2016 tax return.

    Home Accessibility Tax Credit (HATC)

    This tax credit was introduced for the 2016 year. The HATC provides a non-refundable 15% tax credit on up to $10,000 of certain home renovations/alterations for qualifying individuals or the spouse, common-law partner, or supporting relative of a qualifying individual. A qualifying individual is either an individual who is eligible to claim the disability tax credit or is 65 years of age or older. The renovations that qualify have to be permanent, and allow qualifying individuals to gain access to, be mobile within, or reduce the risk of harm to the qualifying individual in or around the dwelling.

    A few things can be done in order to maximize your credits.
    1. If you are looking to do a renovation that qualifies and it will cost more than $10,000, you can arrange to pay your contractor up to $10,000 in the 2016 year and the remaining in 2017. This will allow you to get the tax credit for two years on up to $20,000 in qualifying renovations.
    2. If these expenses are eligible for both the HATC and the medical expense tax credit (METC), you can claim the expenses for BOTH (being able to claim one expense twice is very rare in the tax act).
    3. Eligible owners of condominiums or co-operative housing corporations are able to claim their share of the cost of eligible expenses for common areas. It would be important to contact the condo board if you believe there may be some eligible expenses.

    Children’s Fitness and Arts Credits

    The government introduced the Canada Child Benefit (CCB) this year. Part of the goal of this benefit was to amalgamate the various child related benefits and credits into one benefit to make it simpler for taxpayers with children. The Children’s Fitness Credit and the Children’s Arts Credit are being cut in half for 2016 and eliminated for 2017. Since 2016 will be the last year to claim these, you will want to maximize your claims.

    How do you maximize these credits? If you have spent the 2016 maximum of $500 per child for the Children’s Fitness Credit and $250 per child for the Children’s Arts Credit, then all you have to do is claim them on your tax return. If you are below the maximums, you still have time to increase your claim. Since these credits are based on payment dates, you can pay for 2017 programs during 2016 to claim it on your 2016 return. There is obviously the time value of money to consider, but if you are going to be making the payment in early 2017 anyways, you will want to move that payment to 2016 to benefit from these.

    School Supply Tax Credit

    If you are an eligible educator, you can receive a 15% refundable tax credit on up to $1,000 of supply purchases per year. Eligible supplies are (from CRA’s website):
    • Purchased in the tax year by an eligible educator;
    • Used in a school or in a regulated child care facility for teaching or helping students learn;
    • Not reimbursable and not subject to an allowance or other form of assistance (unless the reimbursement, allowance or assistance is included in the income of the teacher or educator and not deductible); and
    • Not deducted or used in calculating a deduction from any person’s income for any tax year
    How to maximize this credit? The simple answer is keep track of the cost of all of your eligible teaching supplies, keep the receipts, and get your employer to sign off on them. Have a system in place to keep track of all of this and request your employer to sign off on a regular basis (asking them to sign off on a January expense in October would not be the best course of action)

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    End of Year Investments Evaluation – Realize Your Gains or Losses

    Date posted: October 27, 2016

    With just over two months left in the year, it is time to get ahead of the game by evaluating your investments. Your portfolio may have some large unrealized gains or losses and you should get a sense of your tax situation before deciding what part of your portfolio you will be selling. Depending on your position, you may want to sell to realize gains or you may want to sell to realize losses. Everybody’s circumstances are different and there is no on-size-fits-all strategy.

    Selling to Realize Gains:

    As far as tax planning strategies, there are few reasons why you want to realize gains. That being said, you may want to sell and realize gains if you are in a lower tax bracket this year, but will have increased income in future years. You also may want to sell to realize gains if you have already realized losses earlier in the year.

    Selling to Realize Losses:

    Selling to realize losses is talked about often near the end of the year, so it is important to make your move before others do. If you are looking to sell to realize a loss, it is likely others are doing the same thing – you want to sell first so the other sellers don’t drive the price down further. If you act first, you will be realizing smaller losses than if you act last.

    Once everybody has done their sell offs at the end of the year, December can be a great time to pick up those securities which have been oversold.

    You should be aware that if you sell and realize a loss, you will have to wait 30 days to buy the security back. If you want to stay in the position (or a similar position), there are a few ways:
    • You can sell an in the money put option
    • You can buy an in the money call option
    • You can buy ETFs where the security you want is strongly weighed
    • You can buy a similar security
    • You can wait the 30 days
    Summary:

    Evaluate your options and make your decisions before others do. Sell now before others and then buy in December late after others have made their sell offs

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    Effective Dividend Return

    Date posted: October 5, 2016

    Due to the tax treatment of eligible dividends, the effective return of dividends is approximately 30% higher than that reported. This effective return is true throughout all tax brackets, but is amplified even further in the lower tax brackets.

    This effective return is calculated by taking the earned dividend income and netting it out against the additional tax which would be paid on the income. This number is then compared to the earned interest income netted out against additional tax paid on the interest income. The result is you have to earn an additional 30% in interest income to net the same after tax position as compared to dividend income.

    The disadvantage to this is there is inherently more capital risk involved with the dividend route.

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    CRA Scams Continuously Evolving – How to Avoid Being a Victim

    Date posted: September 14, 2016

    You probably have been a target or know somebody who has been a target of somebody impersonating CRA. These scammers are constantly creating new ways to steal your money, credit card info, or even your identity. As long as the scammers continue to benefit from the scam, they will continue to use it. We will try to help you identify a scammer and how to deal with the situation in order to minimize any risks. CRA also has a number of resources at on their
    Fraud Protection page

    Identifying a Scammer:

    There are a few items which you should know about CRA’s communications which will help you identify scammers from the start:
    • CRA will NEVER threaten you with police action
      • A common method that scammers use today is barrage the target with threats and if immediate action isn’t taken, the police will be involved. This tactic throws a lot of people off and get them to pay money to avoid the potential consequences
    • CRA will NEVER ask for personal information through email or text
    • CRA will NEVER ask for your credit card number
    • CRA issues refunds in only two ways: cheque or direct deposit (if set up)
    • CRA accepts the following forms of payment:
      • Pre-authorized debit
      • Online Banking
      • Debit Card
      • Cheque payable to the “Receiver General of Canada”
    • CRA will NEVER give taxpayer information to another person, unless formal authorization is provided by the taxpayer
    Here is the tricky part. Although CRA for the most part will not ask for your personal information, they are also not allowed to speak to you about your file unless they verify your identity (by asking you for personal information). We have found the best way to get around this is if you receive a call from somebody claiming to be from CRA, ask to call them back after you can verify if they are in fact CRA.

    Contacting the CRA:

    If you receive any call from somebody claiming to be with the CRA, you can always ask them for their name, identification number, what department they are calling from, and their phone number. Not all CRA employees have identification numbers or will give out their phone number, but chances are if they are contacting you, they should give out all of this info. Once you get this information, you can then contact the CRA by a different secure method to verify the CRA is actually trying to contact you. The best two ways to get information from the CRA are:
    • Call their general enquires number (press * to get through to an agent. They WILL ask you personal information to verify your identity):
      • Personal: 1-800-959-8281
      • Corporate: 1-800-959-5525
    • Log into CRA’s My Account(set up is required)
    Identity theft and scams to steal from you are ongoing threats. Don’t become a victim. Please make sure to stay informed on the latest scams. Perform the following security measures:
    • Protect yourself online
    • Protect your ID’s, passwords, PINs, SIN, etc.
      • Change your passwords/PINs once a year
    • Keep your address up to date with government organizations
    • Get a credit report (Transunion or Equifax in Canada) annually


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    Did you Move for School or Work?

    Date posted: August 24, 2016

    Often taxpayers overlook the fact that they can make deductions against their income by using moving expenses. These moving expenses can be claimed against income earned as a result of the move for employees or self-employed individuals. They can also be claimed against scholarships, fellowships, bursaries, certain prizes, and research grants for students in full-time attendance at a post-secondary program. The only distance requirement is that your new home must be at least 40 kilometres closer to the new place of employment or post-secondary institution.

    There are two methods to claim these expenses: the detailed and simplified methods and they are as their names suggest. In the detailed method, you would have complete receipts for everything you are claiming. The simplified method may only be used for vehicle and meal expenses in which you receive a flat rate per meal and per kilometre. In 2015, the meal rate is $17/meal/person, while the vehicle rate varies by province/territory. If travelling across province/territory boundaries, you would claim the rate in which the travel began.

    Obviously the largest benefits would be for those who are moving long distances and who have substantial expenses to claim such as paying a moving company, temporary accommodations, and travel costs. Small moves should also be claimed to offset the earned income. Take a university student who has a school scholarship and moves home for the summer for employment. If the university is more than 40 kilometres away from the students summer residence, two separate moves can be claimed. This is because the scholarship must be claimed as income, so one set of moving expenses can be claimed against that income, while one set of moving expenses can be claimed against the summer employment income. Note that if the moving expenses exceed the income earned during that year after the move, you can carry forward these expenses to a future year.

    There is a wide variety of expenses that can and cannot be claimed, and you should view CRA’s website at
    http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/219/menu-eng.html to learn more if you think you may benefit from this deduction.

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    Estate Planning – Rights and Things Return

    Date posted: August 3, 2016

    All deceased taxpayers are required to file a terminal tax return as of the date of death. You also have the option to file several other optional tax returns. One of these returns which can be very beneficial to anyone using a corporate vehicle to hold their investments is called the “Rights and Things” tax return. The Rights and Things return reports amounts that were due or payable to the deceased at the time of their death, but had not been received by the deceased.

    Some examples of rights and things income include:
    • Old age security (OAS) benefits that were due and payable before the date of death
    • Dividends which were declared, but not paid before the date of death
    • Bond interest earned to a payment date before death, but not yet paid
    • Employment income, commissions, or vacation pay for a pay period that ended before the date of death, but not yet paid


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    Cancel or Waive Penalties or Interest Charged by CRA

    Date posted: July 13, 2016

    Although CRA does charge interest and penalties at every chance they get, they do have a program which allows taxpayers to reduce or eliminate these charges if there is a valid reason for not meeting their tax obligations. The reasons listed on CRA’s website include:
    • Extraordinary circumstances
      • Natural or human-made disasters
      • Civil disturbances or disruptions in services
      • Serious illness or accident
      • Serious emotional or mental distress, such as death in the immediate family
    • Actions of the Canada Revenue Agency (CRA)
      • Processing delays that result in taxpayers not being informed, within a reasonable time,that an amount was owing
      • Errors in CRA material which led a taxpayer to file a return or make a payment based on incorrect information
      • Incorrect information provided to a taxpayer by the CRA
      • Errors in processing
      • Delays in providing information, resulting in taxpayers not being able to meet their tax obligations in a timely manner
      • Undue delays in resolving an objection or an appeal, or in completing an audit
    • Inability to pay or financial hardship
      • A collection has been suspended because of an inability to pay caused by the loss of employment and the taxpayer is experiencing financial hardship
      • A taxpayer is unable to conclude a payment arrangement because the interest charges represent a significant portion of the payments
      • Payment of the accumulated interest would cause a prolonged inability to provide basic necessities (financial hardship) such as food, medical help, transportation, or shelter
    • Other circumstances
      • Reasonable situations not described above
    All applications are dealt on a case-by- case basis, which means that you should apply if you feel circumstances out of your control led to you not meeting your tax obligations. It could be as comical as the school excuse of “On April 30 th , my dog ate my tax return”, but you never know what will be accepted. If you have a veterinarian bill showing that you took your dog in on May 1 st and the invoice indicates the reason, it may be accepted. It’s not recommended to leaving filing your taxes until the last possible day, but anything can happen.

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    OAS Clawback

    Date posted: June 22, 2016

    Your Old Age Security (OAS) may be subject to partial or full repayment based on your income levels for the year. In 2015, if your total income is greater than $72,809 (2015 OAS clawback threshold), you must repay part of the OAS you receive. The calculation is done by taking the difference between your total income and the clawback threshold and multiplying the result by 15%.

    If your retirement income other than from investments is under $100,000, you should consider using an incorporated company to hold your investments. This can help reduce the amount of repayment of your OAS benefits. The savings would be somewhat reduced by additional costs associated with corporate reporting.

    Please schedule a
    consultation with us if you think you may benefit from this strategy.

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    Understanding Your Notice of Assessment

    Date posted: June 1, 2016

    When you receive your Notice of Assessment, the first thing you should do is compare it to what you filed for that tax year. Ideally, these two documents should match. There may be marginal differences in early calculations due to rounding, but the final payable/receivable number should be down to the penny.



    Unfortunately for many individuals, these documents do not match and finding out why is not always straight forward. If your numbers don’t match CRA’s, it is important to find out where the discrepancy came to be. Your first spot to look is in the wording of the notice. If they changed something, it is most likely explained in some detail. Some of the most often seen reasons include:
    • Non-reporting or mis-reporting of a tax information slip (T3, T4, T5, etc);
    • Discrepancies in carry forward amounts used (tuition, capital losses, etc);
    • Adjustments based on penalties, previous account balances, and interest.

    If you can easily identify what the discrepancy is, you should then look back at your documentation to ensure your documentation matches CRA’s. If you still can’t figure out why the differences arose, you can call their general inquiries line, where they will be able to either give a verbal explanation or mail out documentation which will show where their numbers came from.

    Once you figure out where the differences arose, you can then determine if your numbers are correct or if CRA’s numbers are correct (yes, CRA makes mistakes too). If you disagree with the changes which they have made, you can file a Notice of Objection in which you would outline and provide backup to your claim. Note that there is a time limit for filing this form which is the later of: one year after the date of the return’s filing deadline and 90 days after the date on the notice of assessment. If the issue is not resolved after the completion of the objection and you still think you are correct, there are further measures a taxpayer can take.

    It is always important to make sure you read, understand, and agree with your Notice of Assessment. Too often people take CRA’s word without truly understanding why.

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    Federal Budget

    Date posted: April 4, 2016

    Before we get into the current budget, I wish to reflect on a comment made by one of my clients

    “Don’t worry if the Liberals get elected. They break every promise they make.”

    In review:

      Election Promises Results
    Pierre Trudeau I’ll give you the just society Martial law
      No wages price controls under any circumstance He gave them to you anyway
      Elect me and I’ll quit He didn’t
    Jean Chretien
    (Redbook)
    I’ll get rid of GST At last look it was still here


    So what did you expect from Justin? He said the Conservatives had wrecked the economy but now with his elephant deficit he says that the balance sheet he was left with can absorb his massive spending programmes. So much for mismanagement.

    The programmes will make the Liberal corporate backers millions on your back and then reduce their taxes with capital gains exemption.

    We deal with entrepreneurs and overall they are risk averters, not risk takers. They always ask how they can avoid risks. Tax policies in place reward winners and relatively ignore the losers. To our thinking the losers need to be encouraged somehow to retry their luck but after a failure their capital is depleted.

    We have not applied ourselves to design a system to rejuvenate capital but it needs to be addressed because they will create jobs. Otherwise it is just a slow consolidation of corporate power.

    Now for the Budget. Its significant issues: First Nation support, social housing, and transportation.

    The funds for First Nations probably will find its way into the hands of the native administrators as it has been in the past wherein the funds seem to disappear and the projects are abandoned just to be re-instated by the next government.

    Personal Taxation:

    Child Benefits:

    The budget scraps all related issues of Child benefits including “Income Splitting” and replacing it with a “Canada Child Benefit” of $6,400 per child under 6 and $5,400 for children aged 6 to 17. This benefit will be eroded based on family incomes after it reaches a threshold of $30,000.

    Teachers:

    Teachers will receive a tax credit for supplies provided in the purpose of teaching. The credit is 15% of the cost of supplies to maximum of $150 on $1,000 of supplies. Our comment would be it would be more practical and economically more equitable if the teachers could deduct $1,000 of supplies from their income.

    Children’s Fitness and Art Credit:

    This will be reduced by half for 2016 and eliminated in 2017 as part of their Child Benefit restructuring.

    Miscellaneous Issues:

    Income received from alternate energy generation will be exempt for taxes.

    There is an extension of benefits of flow-through shares in respect of mineral exploration leaving oil exploration out of the enhancement. As an aside, isn’t the problem with Canadian economy in oil prices, not minerals?

    While student’s post-secondary tuition cost will continue to be deductible, but the monthly allowance for textbook and other educational costs will be eliminated for 2017 and ensuing years.

    Tax Rates and Tax Credits:

    The new tax rate on taxable income exceeding $200,000 will be increased to 33%.

    To coordinate donations for high tax rates, trusts and personal service corporations will be allowed an enhanced tax credit on their donations.

    Investment Issues:

    Certain mutual fund corporations have several classes of shares whose values are credited to different types of investment pools. Previously, under the share for share exchanges rules, there would be a tax deferral on changes from one fund to another. For example you would switch from a class of shares valued in a gold fund to one based in oil and avoid current taxes. These will now be a deemed disposition and the resulting capital gain would be taxed from one class to another which effectively had changed the composition of your investment.

    Business Issues:

    Business Income:

    The most dramatic change would appear to be an expansion on the tax provisions concerning Personal Service Corporation (PSC). A PSC is a corporation who provides management services to businesses in the event that the level of service indicates a close association (i.e. major portion of income is from one source or sources and related to each other).

    PSC’s tax rate will be 33% and not be eligible for the Small Business Credits and also the allowable expenses would only be related to payroll and payroll related costs.

    Small Business Tax Credit:

    There were new and complicated rules regarding the use of the $500,000 small business limit. The issues govern corporate structures of partnerships and other structured corporate ownership also see comments above (RE use of “PSC’s”). In addition there is a current provision which defines a Small Business based on level of Taxable Capital. This definition has been expanded to include other closely related corporations to a group to determine its eligibility.

    Eligible Capital Property (ECP):

    There are changes to the rules related to ECP’s to closely parallel the taxation attributes of depreciable assets.

    Life Insurance:

    Life insurance proceeds received by a corporation will be added to its Capital Dividend Account subject to a reduction by its “ACB” (or premiums paid). As before this will still be the case except now where the Corporation did not pay the premium and therefore did not have an Adjusted Cost Base (ACB). This ACB held by a 3rd party will be a reduction of the otherwise Capital Dividend additions of the recipient corporation.

    Non-arms length transfers of Life Insurance policies will now be taxed based on the Fair Market Value of the policy as opposed to the current transfer at the Cash Surrender Value.

    Employment Issues and Venture Capital Creation:

    The massive infrastructure programme should generate current employment.

    The labour sponsored venture capital corporations have had their tax credit of 15% to available investors will be extended. This should generate more venture capital and thereby employment opportunities from the investment generated in the corporations.

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    2016 Ontario Budget Highlights

    Date posted: March 15, 2016

    The 2016 Ontario Budget was released two weeks ago and there are many plans for the province. The Ontario government plans to grow the economy by balancing the budget by 2017-18. A deficit of $5.7B is planned for 2015-16, while a $4.3B deficit is planned for 2016-17.

    Economy:

    They have identified that growing the economy is the number one priority and to achieve this, there is much government spending planned to try to jump start our economy. Ontario plans to invest $160 billion over 12 years in Ontario’s public infrastructure and $2.7 billion over 10 years in the Jobs and Prosperity Fund.

    Education:

    To further spur the economy, the Ontario government has introduced measures to make College and University more affordable and accessible. The hope is to have more highly skilled individuals to fill the needs of the futures workforce.

    Average tuition will be free for students who come from families with incomes of $50,000 or less, while further grants will be given to students who come from families with incomes of $83,000 or less. Interest-free and low-cost loans will be available for middle and upper-income families, while mature and married students will also be given financial support.

    This provision will call into question the effectiveness of Registered Educational Savings Plans (RESPs).

    Savings for Individuals:

    The Ontario government is planning to reduce or eliminate the cost on many amenities. Reduced costs are planned for hospital parking, electricity, and auto insurance. Eliminated costs are planned for the Drive Clean program and the shingles vaccine (for eligible Ontario seniors), while increasing taxation on cigarettes, pipe tobacco, and alcohol.

    Summary:

    These running deficits and increased government spending may come at a cost to all taxpayers. Be prepared for possible future increased taxes in order to pay down today’s borrowing on current spending.

    If you are interested in knowing more about the 2016 Ontario Budget, you can find it at http://www.fin.gov.on.ca/en/budget/ontariobudgets/2016/

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    Foreign Specified Property

    Date posted: February 23, 2016

    Did you know that if you hold foreign assets totaling a cost above $100,000, you may be required to do additional reporting on your tax return? CRA calls these assets “Specified Foreign Property” which can be anything from a foreign rental property, to shares of non-resident corporations, funds held in a foreign bank or brokerage, and even non-income producing vacant land in another country. Specified foreign property does not include personal use property such as a summer home in Florida.

    You are required to report this specified foreign property even if you held it at a cost greater than $100,000 for less than one day. If at any point the cumulative cost of your specified foreign property was greater than $100,000 you are required to report the following (based on 2014 tax year):
    • Origin country
    • Maximum cost amount during the year (or market value depending on the category of foreign property)
    • Cost amount (or market value depending on the category of foreign property) at the year end
    • Income (loss) generated from the foreign property
    • Gain (loss) on disposition of the foreign property
    NEW RULES have been implemented for the 2015 year, introducing a two-tier reporting structure. Taxpayers holding foreign specified foreign property with a cumulative cost between $100,000 and $250,000 now have a simplified reporting method. Taxpayers holding specified foreign property with a cumulative cost above $250,000 would continue to have to report in more detail.

    Please note that the reporting requirements are based on the cumulative cost of all of your specified foreign property. Many investment brokers will provide a summary of specified foreign property you held with them upon request.

    Ensure to consult your accountant when reporting this as there are large penalties for not filing or incorrect filing.

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    CRA’s My Account and Online Mail

    Date posted: January 15, 2016

    If you’ve been reading your Notice’s of Assessment when they come in, you will at least have heard of CRA’s My Account and their Online Mail service. These are two different services offered by CRA which help taxpayers get information quicker and more conveniently.

    What is My Account?

    My Account allows taxpayers to view and manage their tax affairs online. You can set up direct deposit, view RRSP and TFSA information, view previous tax returns, update you address, and much more. A more complete listing of services provided can be found at http://www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/myccnt/bt-eng.html. Without My Account, to change your address with CRA, you would have to either fill out forms and mail them to CRA or call CRA. The first takes approximately 6 weeks to be completed, while the latter typically involves a queue, followed by security questions in which you would need your previously filed tax return on hand. If you have My Account set up, changing your address can be done nearly instantaneously. We encourage all taxpayers to sign up for CRA’s My Account.

    What is Online Mail?

    Online Mail enables taxpayers to receive their Notice of (Re)Assessment via email rather than through regular mail. The email will not actually contain the Notice of (Re)Assessment, but rather indicate that you should log onto your My Account to view the Notice. Please note that you MUST be signed up for My Account to use the Online Mail service. Some of the benefits of this service include:
    • Getting the Notice the day it becomes available (we’ve found it is occasionally released before the assessment date)
    • Helps cut government costs of printing and mailing
    • Helps the environment by reducing paper consumption
    The drawbacks we found to this service include:
    • The email may go to spam and since you only get one or two of these per year, you may not catch it in your spam filter
    • You have to ensure to remember to tell CRA if you change your email to continue to receive Notices of (re)Assessments

    CRA has indicated that in the years to come, more and more CRA correspondence will be available through Online Mail, but currently it only applies to Notices of Assessment and Reassessment.

    In our experience, we strongly encourage taxpayers to sign up with My Account. We wouldn’t encourage taxpayers to sign up for Online Mail until they familiarize themselves with the My Account features. If they like the My Account features, they should then look into the Online Mail option. If you want to learn more about these services, visit CRA’s website info pages at:

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    Are You Missing Out on the Pension Income Tax Credit?

    Date posted: December 7, 2015

    If you are between 65 and 71, you can easily qualify to receive the Pension Income Tax Credit. Although individuals age 55 and older qualify for the credit, most taxpayers may not generate the necessary eligible pension income to benefit from it until age 65. To be eligible at age 55, taxpayers must have either (1) or (4) from the list below apply.

    The credit is non-refundable, which means it cannot be carried forward to another tax year. The tax credit can be applied to up to $2,000 eligible pension income. For taxpayers over the age of 64, eligible pension income can be in any of the following forms:
    1. Income from a superannuation or pension fund
    2. Annuity income out of a Registered Retirement Savings Plan (RRSP) or a Deferred Profit Sharing Plan (DPSP)
    3. Income from a Registered Retirement Income Fund (RRIF)
    4. Income from a RRIF as a result of the death of a spouse or common-law partner
    5. Income from certain foreign pensions
    6. Interest from a non-registered GIC offered by a life insurance company

    If you are approaching 65, you should consider creating a RRIF of $12,000 in order to benefit from this tax credit. The RRIF would pay you $2,000 each year from the ages 65-71. This would help you recover your RRSP contributions with reduced tax consequences.

    Since this tax credit is transferrable, it may be advisable to transfer it to your spouse. If one partner’s pension income is in excess of $2,000 and one partner’s pension income is less than $2,000, the family tax bill would be reduced by transferring the tax credit. As such, the RRIF eligible spouse may want to double up to $4,000 of annual income in order to facilitate the pension split to obtain the tax credit.

    We’d love to help if you think you could benefit from this. Please give us a call at 416-840-5410.

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    Tax Installments for Individuals with a RRIF

    Date posted: December 1, 2015

    If you are subject to a requirement to pay installments and you are receiving RRIF payments without sufficient tax withholdings, you should consider having extra taxes withheld from such payments to eliminate installment requirements. This is particularly effective if you, like many others, receive a lump sum payment early in December from your RRIF.

    By speaking with your investment advisor, you may be able to eliminate the need to remit installments and instead have the RRIF withhold the taxes. This will enable you to keep your money invested and earning income throughout the year instead of having to pay the March, June, September, and December remittances.

    If you are required to pay $2,000 quarterly installments and assuming a 7% return on your investments, you would earn $326.67 during the year from your investments. If you use the RRIF withholding method described above and assuming the same 7% return on your investments, you would earn $536.67 during the year from your investments. That is an increase on the return of investment of 64% using the RRIF withholding method.

    Please consult with your financial planner and/or tax advisor to ensure you are meeting all of your tax obligations.

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