I recently worked with a client who wants to sell a rental property (house). The client lived in the house until a few years ago. If they choose that house as a ‘Principle Residence’ and use the ‘Principle Residence Exemption’ for the years they lived in the house, the years they occupied the house has no capital gains payable when sold. Now, the years when they used the house as a rental leads to rental income and also capital gains (if the house increased in value over the rental years). They thought it would be straightforward capital gains on the […]
The CRA started a new AutoFill Return (AFR) service. Basically, the data the CRA has is downloaded into tax software. If one hires a tax preparer, make sure they have level 2 of the online access as it is required ( T1013 form). Is it faster? yes. However, there is no guarantee as to the quality of the information. For example, when I first used AFR for a client’s file I downloaded all the CRA information. All the data that had income (i.e. T4s, T5s) was downloaded. Good! However, a few deductions were missing. I guess the CRA missed those […]
Tax-Free Savings Accounts (TFSAs) allows adult Canadian residents to earn investment income (interest, dividends, and capital gains) on a tax-free basis. Contributions may be made throughout the year. Starting in 2009, contribution room for taxpayers was $5,000 or above. TFSA contribution room builds up over time. You or your tax preparer may check your contribution room online. Be warned, however, that if you contribute to a TFSA, and then withdraw from the TFSA, the contribution room is lost until January 1 of the next year. So, if I took $100 out of my TFSA in September, I would have to […]
Registered Retirement Savings Programs (RRSPs) are an excellent way to save for retirement and save on taxes. The benefits are that one can save for retirement in a tax-efficient way, and get an immediate tax deduction. A drawback is that RRSP money becomes taxed as income when it is withdrawn. First, RRSPs offer a tax deduction. Looking at the 2015 federal tax rates, there are four marginal tax rates. Someone making between about $43,000 and $87,000 is most common. At the federal level, every extra dollar that person makes is taxed at 22% (more provincially). RRSPs, as a deduction, reduce […]
Year-End Tax Planning There are a few things to optimize taxes for 2015. RRSPs, charitable donations, and tax-loss selling will be discussed here. Registered Retirement Savings Programs (RRSPs) can be contributed to in 2015, and in the first sixty days of 2016 for the 2015 tax year. RRSPs are used to save for retirement. Contributions to your RRSP are tax-deductible (meaning it lowers your taxable income). It is limited to 18% of income, net of pension. More on RRSPs in a later blog. Charitable donations are also good for year-end tax planning. There is a 15% tax […]
The New Family Tax Credit is just as it is written: a credit for families. There are a few limitations on it, including a cap in the dollar amount. It works best when the couple make different amounts. It also requires that the couple have a child under 18 years of age. It gets a little more complicated in some situations, so contact your tax professional for more information. Update: This credit was removed by the new government, so is only good for some previous years.
If a landlord gives a discount on rent for services provided by the tenant, the full amounts must be reported. The normal rent must be reported, the discount may be claimed as an expense by the landlord and business income by the tenant. For example, say rent is $900 and the landlord offers $100 to shovel the walk to a tenant. The full $900 must be claimed as rent revenue, $100 as an expense by the landlord, and $100 business income by the tenant.
A Marginal Tax Rate (MTR) is the tax rate (%) paid on each additional dollar earned. It is called ‘Marginal’ as it refers to the next incremental dollar earned. The tax rates change with higher income. The more income, the likely the tax rate is higher. Federally, there are currently (2014 tax year) four tax brackets: Pay 15% on the first $43,953. Pay 22% on every extra dollar between $43,953 and $87,907, and so on for two higher brackets. Provincially, there are many more tax brackets. This means a smaller increase in income is more likely to lead to an increase in […]
RESPs are an excellent low-tax means of saving for a child’s education. Parents and grandparents may put money into an RESP. The money in an RESP grows tax-free. In addition, the government often puts funds into the RESP. Be careful from whom you purchase an RESP. This is an important business decision. What happens if your child decides not to pursue postsecondary education? Do you get the money back? What happens to the government’s contribution? These and other questions must be asked of the provider.
If you look at a T5, one sees that taxable dividend amounts are greater than the actual dividend amounts. So, the government considers the actual dividends paid out to you less than what should be taxed. Why is that? The reason is that there should be only one level of taxes. In other words, you shouldn’t tax the same loonie multiple times. When a company makes money, it pays taxes on that income. Then, when it pays out a dividend with this after-tax income the shareholder has to pay taxes on it. That means two levels of taxation on the […]