MY BLOG
Tax Information for Students
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Posted on January-20-16 3:19 PM
2016 Tax Tips
for 2015 Filing Year
Did you know
that last tax filing season, the average tax refund was just under $1,800, or
about $150 a month? That’s a lot of money to give to the government on an
interest-free basis. Yet that’s what almost 17 million tax filers did and CRA
paid back approximately $30 Billion dollars. Astute tax filers will want to get
that money back working for their own futures quickly this year. If that
includes you, do file your tax return early and accurately. But make sure you
have all your documentation, first. Make a point of acquiring and reviewing tax software if you are
NETFILING this year. If you hire a pro, make an appointment as soon as possible
to determine what is needed to meet new tax filing rules and discuss what has
changed in your personal affairs. Births, deaths, marriages, divorces, new jobs
and job terminations – all can impact the tax return. |
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Posted on July-22-15 6:24 PM
Two-Parent Families With Kids: $85,000 Is Median After Tax Income The Canadian Income
Survey for 2013 for 2013 was released by Statistics Canada on July
8. While things are virtually unchanged from 2012, some interesting facts
emerge about the income levels earned by Canadian families The survey defines market income as “earnings, private pensions as well
as income from investments and other sources such as support and disability
payments”. After-tax income is defined as the total of market income and
government transfers, less income tax. The survey also defines those who
live in “economic families”, as groups of two or more people who live together
in the same dwelling who are related by blood, marriage or common-law,
adoption, or in a foster relationship. For the purposes of this article,
we’ll call all others, “singles”. It is clear that when it comes to making ends meet, the numbers squarely
favor economic families over singlehood: - Senior families. Where
the highest earner in the family was 65 years or older (senior families) median
after-tax income was $52,500 in 2013. Singles in this age group has
after-tax income of $25,700.
- Non-senior Families. Median
after tax income in this group was $77,100; for singles in this group the
after-tax income was $29,800.
- Parents with Children. . Two-parent
families with children had median after-tax income of $85,000. Lone
parent families had median after tax income of $41,700, with families headed by
a woman earning slightly less: $39,400.According to the survey, the median amount of income tax paid, including
both federal and provincial tax, by non-senior families was $11,700 in 2013; in
contrast, the median paid by senior families was just $3,100.How much do top earners make? The top 10 percent of earners are economic
families and singles with an after-tax income of more than $130,600. And in
that top decile, average after-tax income was $183,600. After taxes,
Canadians in the highest decile had 23.7% of all after-tax income in
Canada in 2013, while the four lower deciles together accounted for 19.8% of
total after-tax income.The bottom line for all taxpayers – regardless of earning level - is
that what you keep is more important than what you make. What can tax and
financial advisors do to help their clients accumulate, grow, preserve and
transition more wealth, as prescribed under a Real Wealth Management™ model?
Here are some suggestions for your next discussion with your clients:For two-parent families: Two-parent families are able to take advantage
of the Family Tax Cut, first introduced for the 2014 year. By averaging out
family income, two-parent families whose incomes are in different tax brackets
are able to retain up to $2,000 in their pocket that would otherwise go to the
government.For example: A two-income family with parents earning $75,000
and $25,000 respectively can take advantage of the FTC and reduce their
combined tax bill by about $1,330. These additional funds might well be best
saved within an RESP, (Registered Education Savings Plan) to take advantage of
government grants and bonds available under the plan as well as the tax
deferred income accumulation opportunities.For single and two parent families: Both types of
economic households – singles and couples - will be able to take advantage of
the enhanced Child Care Expense deductions in tax year 2015, with
increased limits of $7,000 for children under seven and $4,000 for children
from 7 to 15 years of age. In addition, the Enhanced Universal Child Care
Benefit has increased to $160 per month for children under 6 years (from $100),
and $60 per month is now available for each child from 6 through 17 years of
age starting in 2015. Lump sum payments for the enhanced amounts for of $60 a
month for all children under 18 are being paid retroactive to January 2015 this
week. Investing those sums into a child’s education savings or the
parent’s TFSA are both great ways to leverage tax efficient investment
opportunities for future financial freedom.They may also often benefit from an increased monthly refundable Child
Tax Benefit as a reduced family net income has the potential to increase or
create access to the monthly refundable Child Tax Benefit. With CTB claw
back rates at 12.2% for one child up to 33.3% for three or more children, the
effective return on an RRSP investment for these families can be very high.For single non-parents: Utilizing tax brackets strategically remains
the best option for single, non-parent taxpayers. These individuals can
maximize the use of RRSPs to reduce their income to a lower bracket, thus
paying less tax annually. When taxable income has reached the lowest bracket,
maximizing TFSA contributions provides further options for retirement savings
and security.For seniors: In addition to being able to claim the Age Exemption
amount of $7,033, seniors can also be pro-active from a tax point of view by
structuring their income levels advantageously by triggering or deferring OAS
and CPP benefits. Furthermore, maximizing tax benefits through pension
splitting for married or common-law seniors reduces the overall tax burden when
private pension income from RRSPs or RRIFs becomes taxable.
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Posted on July-22-15 6:21 PM
Five
Steps To Calculating 2015 TFSA Contribution Room
A new version
of form RC343 has been released by the CRA to calculate TFSA contribution room
for 2015, taking into account the new 2015 contribution limit of $10,000.
1. Start
with your TFSA contribution room as of January 1, 2014 2.
Subtract any TFSA contributions made in 2014 3. Add
any TFSA withdrawals made in 2014 4. Add
$10,000 (your new TFSA contribution limit for 2015) 5. If
you’ve already made TFSA contributions for 2015, subtract those Here’s an example: Joni
had TFSA contribution room of $12,000 as of January 1, 2014, including
the $5,500 of new contribution room for 2014. She made a $10,000 TFSA
contribution in 2014 and withdrew $15,000 that same year. She has not made any
contributions in 2015 yet. Following the steps outlined above, her 2015
TFSA contribution room is: 1.
$12,000 2. -
$10,000 3. +
$15,000 4. +
$10,000 5. - $0 Total:
$27,000
Beware of TFSA Traps: The biggest trap, other than holding non-registered investments outside a
TFSA when there is contribution room available, is recontributing to the TFSA
in the same year as the withdrawal is made. Withdrawals do increase TFSA
contribution room, but not until the beginning of the following year. In the
example above, after her $10,000 contribution, Joni’s TFSA contribution room
for 2014 was reduced to $2,000. Her $15,000 withdrawal did not open up
contribution room until January 1, 2015. If Joni had re-deposited the $15,000
in 2014, she would have had a $13,000 excess contribution. All excess
contributions are subject to a 1% penalty tax for each month they remain in the
TFSA. For
these reasons, it’s important for wealth advisors to encourage their clients to
seek their assistance or consult with A Tax Services Specialist before
withdrawing money or recontributing it to a TFSA. |
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Posted on July-22-15 6:16 PM
 Adjusted
Family Tax Cut: Was Spouse A Student?
Last week, CRA reminded families to apply
for the generous new Universal Child Care Benefit (UCCB) being delivered to
families this week. But there may also be more good news: enhanced Family
Tax Cut dollars available for the 2014 tax filing year for families in which
one spouse was a full- or part-time student... $2 to $750 more in fact. The
calculations for the Family Tax Cut have recently been adjusted to take into
account the unused portion of tuition, textbook and education credits
transferred from a spouse or common-law partner. The result is an additional
refund of somewhere between $2 and $750, according to the CRA, which will do
the calculation automatically if it looks like the family might qualify for the
adjustment. To be
sure, however, qualified Tax Services Specialist should be
consulted to review the calculations for their clients who have made a
tuition, textbook and education credit transfer to their spouse on line 326 of
the 2014 T1 return and determine if any other adjustments should be made to the
tax return. Then, find out what your estimated Family Tax Cut will be in
2015 to maximize your investment planning opportunities. |
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Posted on July-10-15 4:32 PM
The Rule of
72
Written by Sarah Milton “Compound Interest is the
eighth wonder of the world.” – Albert Einstein Einstein described compound
interest as the eighth wonder of the world because he felt that those who
understood it, earned it and those who didn’t, paid it. Compounding is what
makes saving early and saving regularly such a powerful part of building wealth
and it’s also what makes it so hard to get out from under the mountain of
consumer debt that so many of us accumulate. In an nutshell, compound interest
is earning (or paying) interest on interest. When you earn interest at a
compounded rate, your money grows faster because you are earning interest on
your total balance (principal + interest) rather than on the principal alone.
Similarly, when you pay interest at a compounded rate (as you do with credit
cards) your interest charges grow much faster and your debt load gets larger. We can see the power of compounding in
the table below, which shows how $1000 earning 5% annual interest grows
over time. The first column shows how the $1000 would grow earning 5% simple
interest (earned on just the $1000 principal) and the second column shows
how it would grow earning 5% interest compounded annually (earned on the
principal + interest). YEAR 5% SIMPLE INTEREST 5% COMPOUND INTEREST 5 $1,250 $1,276 10 $1,500 $1,629 15 $1,750 $2,079 20 $2,000 $2,653 25 $2,250 $3,386 30 $2,500 $4,322 35 $2,750 $5,516 40 $3,000 $7,040 45 $3,250 $8,985 50 $3,500 $11,467 The Rule of 72 The rule of 72 is a simple
way to estimate how long it will take your money to double in value at a given
interest rate. If you divide 72 by the annual interest rate, the answer is the number
of years it will take to double. For example, 72 divided by 5 is 14.4. This
means that, as you can see in the table above, it takes just under 15 years for
$1,000 to become $2,000. 15 years later (in year 30) the money has doubled
again to be just over $4,000 and, 15 years after that (in year 45) it has
doubled again to become more than $8,000. In year 60, it will have doubled yet
again and become $16,000. Using this rule, it’s clear to see that both time and
interest rate are two key factors in building wealth. At 8% interest, your
money will double in 9 years (72 divided by 8 = 9) but it will take 36 years to
double earning 2% interest. For a 20 year old, $100 invested at 7% is worth
$2,100 at age 65. For a 30 year old, that same $100 invested at the same rate
is only worth $1,068 at age 65 and for a 40 year old, $100 invested at 7% is
worth just $543 at age 65. This means that, at 40 years old, even though I’m
only twice the age of the 20 year old, I have to save four times as much each
year in order to achieve the same level of wealth at age 65. It’s a concept
that I wish I had understood as a teenager because I’m pretty sure it would
have motivated me to manage my money differently! At the end of the day,
saving is always a very personal decision: the choices we make about whether to
save, where to save and how much to save, vary enormously from person to
person. However, all too often, I hear people in their twenties saying that
they’ll wait to save until they’re older because then they’ll be earning more.
When you consider how powerful a factor time is in the wealth building
equation, it just doesn’t make sense (especially when you consider that just
because you’re earning more doesn’t mean you have more discretionary income).
If you can do as much with $25 at 20 as you can do with $50 at 30 or with $100
at 40, it makes sense to start the saving habit early. Even if you feel like you’ve “missed the boat”
because you should have started saving years ago, remember that whatever you
save today has a greater power to grow than money you save next month, next
year or 3 years from now. We can’t change our past choices but we always have
the power to choose to change our financial future by making different choices
today. |
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Posted on May-15-15 6:42 PM
Everything You Need to Know
About RRIFs Written by Jim Yih
Most Canadians choose a
Registered Retirement Income Fund (RRIF) as their retirement income option. A RRIF is a
comfortable transition because of its similarity to an RRSP. A RRIF provides a
high level of control over the investments in your retirement plan, the
advantage of tax-free growth of assets within the plan, as well as maximum
flexibility in establishing an income stream. RRIFs come in a number of shapes and sizes. The first decision is
income The first thing you will
need to determine is how much income you need or want. This
decision will have the greatest impact on the longevity of your money. If you
spend too much too fast, you will run out of money. Even if you don’t need or
want the extra income, you have the minimum income rules to contend with. You can tailor your income
to your needs, subject to minimums imposed by the federal government. If you
need steady monthly, quarterly, or annual income, it’s available. If you
require a large lump sum for a major purchase, travel, or some other purpose,
that’s available too. RRIF withdrawal rules This table outlines the minimum withdrawals on
RRIFs established after 1992, as set by the government. Before age 71, the
minimum percentage payout is worked out in the following way: 1÷(90 – your
current age). RRIF minimums were once again changed in 2015 So if you’re 65, your minimum withdrawal would be
1÷(90-65)=4%. With a $100,000 RRIF, that amounts to $4,000. Once you reach age
69, the following schedule applies: Age 2015 and later 1992 to 2015 Pre 1992 65 4.00% 4.00% 4.00% 66 4.17% 4.17% 4.17% 67 4.35% 4.35% 4.35% 68 4.55% 4.55% 4.55% 69 4.76% 4.76% 4.76% 70 5.00% 5.00% 5.00% 71 5.28% 7.38% 5.26% 72 5.40% 7.48% 5.56% 73 5.53% 7.59% 5.88% 74 5.67% 7.71% 6.25% 75 5.82% 7.85% 6.67% 76 5.98% 7.99% 7.14% 77 6.17% 8.15% 7.69% 78 6.36% 8.33% 8.33% 79 6.58% 8.53% 8.53% 80 6.82% 8.75% 8.75% 81 7.08% 8.99% 8.99% 82 7.38% 9.27% 9.27% 83 7.71% 9.58% 9.58% 84 8.08% 9.93% 9.93% 85 8.51% 10.33% 10.33% 86 8.99% 10.79% 10.79% 87 9.55% 11.33% 11.33% 88 10.21% 11.96% 11.96% 89 10.99% 12.71% 12.71% 90 11.92% 13.62% 13.62% 91 13.06% 14.73% 14.73% 92 14.49% 16.12% 16.12% 93 16.34% 17.92% 17.92% 94 18.79% 20.00% 20.00% 95+ 20.00% 20.00% 20.00% The second decision is what
to invest in Financial institutions
offer plans that can hold Guaranteed Investment Certificates (GICs), mutual
funds, cash, or other financial instruments. Alternatively, you can establish a
self-directed RRIF to include a combination of individual securities in your
plan, such as stocks, bonds or Treasury bills (in addition to the investments
mentioned above). RRIFs offer investment
flexibility. You can hold the same investments that are eligible for an
RRSP. Shares of Canadian corporations, corporate and government bonds, Canada
Savings Bonds, Treasury bills, mortgages, GICs, term deposits, covered call
options, warrants, rights, and mutual funds that invest in eligible securities
are all qualifying investments. You can also hold a limited percentage of your
RRIF in foreign investments. Just like an RRSP, a RRIF lets you retain control
over your investments, rather than handing over your money to a third party. The longevity of your RRIF
is simply based on how much money you make in investment return and how much
you take out for income. It does not take a lot of mathematical know how to
figure out that if you earn more money than you withdraw in income, the RRIF
will grow. For example, if you invest
in a GIC RRIF at 6% and you take out the minimum (4.76%) at age 69, your RRIF
should grow by 1.24%. At age 72 given the same investment return, the minimum
is now 7.48%. This means your RRIF will deplete in value by 1.48%
(7.48%-6.00%). What will happen to your
RRIF when you die? You can leave your
remaining RRIF assets to your heirs upon your death by designating the proper beneficiary.
Not all other retirement income options provide for this. Naturally, your
desire to provide an estate for your spouse, beneficiaries or charities may
have an impact on how you set up your RRIF. While this may or may not be an
issue, income and investments should remain the priorities. RRIFs are flexible One of the benefits of the
RRIF is the flexibility you have in dictating income. These are some common
types of RRIFs. - Minimum income RRIF – This RRIF provides the
minimum level of income. Typically, people who choose the minimum income RRIF
are those who do not need the money and want to defer taxable income for as
long as possible. Remember, if this is the case, you can base the RRIF on the
age of your younger spouse.Furthermore, remember the RRIF minimum income is
based on the value of the RRIF on December 31 of the previous year. Sometimes
this can make income planning difficult because you really don’t know what your
income will be until the last minute.
- Capital preservation RRIF – Preserving capital and
paying out a fixed level of income are the goals of this RRIF type. In this
case, you will withdraw your investment returns each year (subject to
minimums). If you are using mutual funds, you might elect a reasonable target
return like 8%, for example, with the hopes and intentions of earning 8% to
maintain the capital.
- Level income RRIF – If you want to provide
income for a specific period of time such as to age 90, this RRIF would be the
right choice. In this instance, you would determine the amount of income you
could derive so that the entire asset would be depleted by the time you reach
90 years of age. You can use age or time frame.Have as many RRIFs as you
wantYou can have as many RRIFs
as you want. You can have one that pays a level income for the next 5 years to
bridge income until government benefits. You can have another that is a capital
preservation RRIF for a more stable long term level of income.Generally, many people
consider consolidating into one RRIF. With a single RRIF, you can easily manage
your investments and you’ll only have to worry about one minimum withdrawal.
Several RRIFs require more time and energy, and you’ll have to arrange to
withdraw at least the minimum from each one.Withholding tax detailsRRIF income is subject to
government withholding tax rates. Just like your employer withholds
taxes and remits them directly to the government, your RRIF administrator is
required to do the same. Minimum income RRIFs are not subject to withholding
tax, but you can request any level of withholding tax desired. In all other
circumstances, there is a 10% withholding rate on withdrawals less than $5000,
20% on withdrawals between $5000 and $15,000 and 30% tax on withdrawals over
$15,000.As you can see, there are a
lot of issues to deal with when it comes to planning your RRIF income. Take the
time to plan wisely.
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Posted on May-15-15 6:39 PM
Enjoy the benefits of filing on time and online Did you know?
Filing your income tax and benefit return and
paying what you owe on time helps you avoid possible interest and penalty
charges, and ensures that your benefits won't be delayed. Important facts - You
have until midnight on or before April 30, 2015, to file your 2014 income
tax and benefit return.
- If you
or your spouse or common-law partner is self-employed, you have until
midnight on June 15, 2015, to file your return.
- Any
balance owing must be paid on or before April 30, 2015—even if your return
is due on June 15, 2015.
What happens if I don't file on time? When you file your yearly tax return, you are
letting the Canada Revenue Agency (CRA) know your current tax situation.
Without that information, the CRA can't be sure that you are still eligible to
receive certain benefit payments. If you don't file on time, your benefit and
credit payments (for example, the Canada child tax benefit and the goods and
services tax/harmonized sales tax credit) may be interrupted. Also, if you have a balance owing and you don't
file your return on time, we'll charge you a late-filing penalty. The penalty
is 5% of your 2014 balance owing, plus 1% of your balance owing
for each full month that your return is late, to a maximum of 12 months.
If we charged a late-filing penalty on your return for 2011, 2012, or 2013,
your late-filing penalty for 2014 may be 10% of your 2014 balance owing,
plus 2% of your 2014 balance owing for each full month that your return
is late, to a maximum of 20 months. In addition to the late-filing penalty, if you
have a balance owing for 2014 you'll be charged compound daily interest
beginning May 1, 2015, on any unpaid amounts owing for 2014. Even if you can't pay all of your balance owing
right away, you should still file your return on time. You can set-up a
pre-authorized debit agreement using the My Account service, or call us at
1-888-863-8657 to make a payment arrangement. By filing on time, you'll avoid
the late-filing penalty. CRA online services make filing easier and
getting your refund faster The CRA's online services are fast, easy, and
secure. You can use them to file your income tax and benefit return, make a
payment, track your refund, receive your notice of assessment, and more. Did
you know that the Government of Canada is switching to direct deposit for
payments that it issues? This includes your tax refund and benefits payments?
Sign up for direct deposit today! For more information, go to www.cra.gc.ca/getready |
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Posted on April-16-15 5:52 PM
Tax
time 2015: 10 myths about taxes that mislead Canadians
A certain amount
of folklore has developed over the years around the income tax system and the
filing of tax returns, but many of those age-old perceptions are no
longer accurate. Filing deadline File by April
30 or face potential penalties. Here are some
common myths — and the corresponding facts that could mean extra money in
your pocket or at least prevent you from running afoul of the Canada Revenue
Agency's rules. Myth 1: The person
whose name or social insurance number is on the tax slip is the person who must
report the interest in a joint account. Not necessarily.
"Income earned in joint accounts must be reported by the person who earned
the capital in the account," says tax expert Evelyn Jacks in Jacks on Tax.
"Where more than one person contributed capital in their own right, then
the income in the account must be allocated based on the capital provided by
each contributor." Myth 2: The CRA
completely agrees with the information you submitted in your return if it sends
you back a Notice of Assessment that doesn't dispute what you submitted. A Notice of
Assessment is just the result of a quick assessment that will have fixed
mathematical mistakes you may have made, but it doesn’t mean that the CRA has
examined and OK'd everything you’ve submitted. "The fact that a particular
claim is allowed at this point does not mean that the CRA … is
'letting' you claim it," notes KPMG in its annual tax planning guide.
"It merely means that the CRA has not addressed the issue in any
detail." The tax agency generally has three years after the Notice of
Assessment is sent to review your file.
Myth 3: Gifts from your employer are never taxable. Modest gifts from
the boss do escape the tax collector's attention but only within strict
limits. Non-cash gifts worth a total of less than $500 a year aren't
taxable if they're given to mark birthdays, holidays or similar special
occasions. Your boss can also give an employee up to $500 in a non-cash gift
once every five years to mark long service or an employment anniversary with no
tax consequences to the employee. The boss can also provide a tax-free party or
social event worth up to $100 per employee. Cash gifts are always taxable.
Myth 4: I should
have refused that pay raise because it will bump me into a higher tax
bracket. Federal tax
brackets - 2014 tax year: - Up
to $43,953 — 15%
- $43,954-$87,907
— Tax Rate 22%
- $87,908-$136,270
—Tax Rate 26%
- $136,270
— 29%
Source: CRA Canadians face
four federal tax brackets and up to six brackets provincially. But
"bumping into the next bracket" means just that one's income in the
higher bracket will be taxed at the higher rate – not that the higher rate will
apply to all of the person's income. "All of the
money you earned below the new tax bracket remains taxed at the lower
rates," points out Edmonton-based financial educator Jim Yih in
his Retire Happy blog. "The bottom line is you should never, ever, ever
turn down money. Enjoy every pay increase you receive without tax worries, and
remember that those higher paycheques mean more money in your pocket." Myth 5: The U.S.
does not impose withholding taxes on U.S. investments if they're held in
registered Canadian accounts. The U.S. does not
recognize the registered status of TFSAs so any dividends paid by U.S. stocks
will face a withholding tax of up to 30 per cent. Retirement accounts like RRSPs
and RRIFs are exempt from U.S. withholding taxes. Myth 6: Employment
insurance income received during maternity leave is not taxable. Not true. All EI
benefits, including maternity benefits, are taxable. "In most cases,
Service Canada withholds less than the lowest tax rate so you may have tax
obligations at the end of the year," says Cleo Hamel, a senior tax analyst
with H&R Block. Myth 7: If you
file your taxes online, your odds of being audited increase. Since it's not
possible to file paper receipts or tax slips online, the Canada Revenue Agency
does sometimes ask people who file online to send in supporting documents. But
the CRA says this is just "routine verification" and not an audit.
"When the CRA flags a file for audit, the criteria are broad,
complex and not based on filing method," the agency says. Myth 8: The Canada
Revenue Agency doesn't pay snitches. The tax department
has always encouraged reliable tips about Canadians who might not be paying
what they should. But it has never rewarded tipsters whose information led
to recovered taxes — until now. In 2014, the CRA announced it would
start to pay people whose tips pan out cash rewards of five to 15 per cent of
the extra tax collected. For now, the new snitch line (1-855-345-9042) is just
aimed at those whose funnelling of money offshore results in unpaid tax
revenue of at least $100,000. Myth 9: You can't
take advantage of the RRSP Home Buyers' Plan unless you have never owned a home
before. Ottawa requires
users of the Home Buyers' Plan to be "first-time buyers." But it
defines this as people (and their spouses) who have not owned a principal
residence in the five calendar years up to and including the current year. For
those who owned a home more than five years ago, they can still withdraw up to
$25,000 tax-free from their RRSPs ($50,000 for a couple) to help them buy a
home. Myth 10: Everyone
hates doing their taxes. Not true, if the
pollsters are correct. A 2013 survey commissioned by Thomson Reuters
and the maker of a tax software program asked 1,009 Canadians if they
liked filing their taxes. A significant minority — 41 per cent — said yes.
It's worth noting that the survey did not ask if people liked paying
their taxes. |
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Posted on April-16-15 5:49 PM
Brush Up on Claiming Medical Expenses Claiming medical
expenses can itself be painful: There are so many receipts and tiny numbers
involved with making the claim!
Nonetheless it’s
definitely worthwhile for taxpayers and their advisors to be aware of how they
can save money in this area. Medical expenses themselves are common, yet most
of us don’t know exactly what’s deductible, so there are lots of misses when
claiming these common costs. Get ready for some “aha moments” as we look
closely at claiming medical expenses.
Most people know, for example, that they can claim medical expenses for their
nuclear family: mom, dad and their minor children; but you can also claim for
others who are dependent on you: children over 18, grandchildren, parents,
grandparents, siblings, even uncles, aunts, nephews and nieces if they are
resident in Canada.
There are also a host of interesting costs that are deductible, provided they
are unreimbursed by a medical plan. So, for example, if you are on a medical
plan at work, and it covers 80% of all these costs, you can claim the 20% that
is not covered by the plan. Furthermore, the
premiums for private medical plans are claimable too, including those provided
by an employer. Check pay stubs and Box 40 of the T4 slip for the premiums in
this case. Generally, the
costs of visiting the following medical practitioners are eligible:
• dentist or dental hygienist • medical doctor or practitioner • optometrist • pharmacist • psychologist
or psychoanalyst • chiropractor • naturopath • therapeutist
or therapist • physiotherapist
• chiropodist (or podiatrist) • acupuncturist •
dietician • nurse,
including a practical nurse whose full-time occupation is nursing • audiologist
Eligible medical treatments include: • medical and
dental services, eyeglasses, hearing aids and their batteries • attendant or
nursing home care • ambulance fees
• guide dogs or dogs to manage severe diabetes, including care and travel for
training • prescribed
alterations to the home to accommodate disabled persons • cost of training a
person to provide care for an infirm dependant • lip reading or
sign language training • tutoring services for a patient with a learning
disability or mental impairment • drugs and lab
tests prescribed by a medical practitioner and recorded by a pharmacist • private
health plan premiums, including group insurance premiums, Blue Cross premiums,
and travel insurance costs |
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Posted on April-16-15 5:33 PM
 Tax error? What to do when you have to refile
Make the most of tax
time and get the biggest return possible with these often missed credits and
deductions. Taxes aren’t fun to deal with at the best of times, but you may find
yourself even more irked if you get a T4 amendment in the mail. The good news is that it’s not uncommon to receive such a notice. “Amended T4s are generally sent out to correct errors,” says James Bell,
director of Tax Solutions Canada, who worked at the Canada Revenue Agency
for 22 years before starting his company in 2013. Those errors are on behalf of
the employer, which means there’s nothing you can do to prevent getting one. “T4s get amended because of an oversight on the part of the employer,”
Bell says. “It’s a routine occurrence,” he adds. “It happens all the time.” Reasons a “Statement of Remuneration Paid” could be amended are
wide-ranging; examples include improper classification of an amount (such as
the under- or over-reporting of income), improper calculation of benefits to
employees who participate in a stock-purchase plan, or the lack of inclusion of
other taxable benefits or an incorrect tally of those benefits. While amendments are common, they can still make people nervous. “Amendments are straightforward, and it’s very routine for people to
receive these things, but it can cause a lot of confusion and upset and
misunderstanding,” Bell says. “Most people are puzzled about why they would get
an amended T4.” Caroline Battista, a senior tax analyst at H&R Block, says that it helps to understand
what your taxable benefits are should you ever be faced with an amendment. “I would hazard a guess that at least 50 per cent of the time if you ask
people what their taxable benefits are, they don’t know,” Battista says. “Know
what your taxable benefits are, especially when you’re getting a new job.” Here are some examples: let’s say you win a $10,000 trip or NHL playoff
tickets through work. “You’re still paying tax on the value of that trip or
those tickets,” Battista says. The parking spot that’s you get as a perk? You have to pay tax on the
value of that, too. Battista notes that if you’ve already filed your taxes but then receive
an amended T4, you need to submit an adjustment with that new slip. She says
it’s easy to do electronically via the CRA’s My Account. Those forms can be
mailed in too. If you don’t understand or disagree with the amendment, Bell suggests talking
to your office’s payroll or HR department first. If you still don’t agree with the amendment, then you can file a notice
of objection to dispute it. “The CRA has a formal dispute mechanism in place for you,” Bell says.
“It’s important to make sure that, if there is a dispute and you don’t
understand it or disagree with what employer has done, you protect yourself by
filing that notice of objection. It’s the only formal way to protect your
rights, and that’s what you should do. You do have a formal legislative process
to go through to make your case with the CRA.” Whatever you do, if you receive an amendment, make sure you get it
sorted out. "There’s no need to panic at all,” Bell says. “However, it’s
something that shouldn’t be ignored; they really do have to deal with it.” The sooner the better: “Deal with it right away,” Battista says. “An
amendment doesn’t mean it’s been done or that the CRA has refiled for you.
Don’t just think the CRA will process it; deal with it because you will be
charged interest from the time you get that slip. Once you get an amended slip
it’s considered your responsibility.” |
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Posted on February-06-15 12:13 PM
The Power of the TFSA As the calendar year changed on January 1, so did the Tax Free Savings Account (TFSA) contribution room available to all adult residents of Canada. Although indexing did not increase the earned contribution room, everyone can now contribute at least $5,500 more to their TFSAs. Those who made withdrawals in 2013 can now put back the money withdrawn in addition to the extra $5,500. For those who have never made a TFSA contribution, the accumulated TFSA room is now $36,500 (less if they are between 19 and 24). Through the power of tax-free compounding the TFSA can yield spectacular results, especially for those who are young enough for compounding to do its magic. If you’ve put the maximum into your TFSA at the beginning of each year and it earned 5% income in each year, your current balance (after your last deposit) will be over $40,800. See the table below. YearContributionInterest EarnedEnding Balance2009$5,000$250.00$5,250.002010$5,000$262.50$10,512.502011$5,000$525.63$16,038.132012$5,000$801.91$21,840.032013$5,500$1,092.00$28,432.032014$5,500$1421.60$35,353.632015$5,500$1767.68$42,621.32 For the younger generation, consider the potential for a tax-free retirement. Making the maximum contribution each year starting at age 19 would yield a nest egg of about $900,000 at age 60 (assuming 5% annual return, 2% inflation, no change in maximum contribution levels and no withdrawals). Even in today’s dollars, that’s $400,000 in spending power. For a couple that’s $1.8 million dollars. Even assuming an extended 40-year retirement, that’s an indexed tax-free pension of over $74,000 a year ($33,000 in current dollars). |
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Posted on February-06-15 11:59 AM
Pay Yourself First Although submission of a TD1 form is not required each year, it’s always a good idea to ensure that your employer is not withholding more taxes than absolutely necessary – after all, it’s your money. The TD1 form – 2015 Personal Tax Credits Return – along with its provincial counterpart, determines how much tax your employer (or other payer) will withhold from your payments. To ensure that you get the money all year long rather than a year from now when you file your tax return, update your TD1 whenever your family situation changes and check it at least once a year. January is a good time to make that check. On the TD1 you can claim your own personal amount ($11,327 for 2015), the amount for your spouse or common-law partner, amounts for eligible dependants, the caregiver amount, amount for infirm dependants, amount for pension income, tuition, education and textbook amounts, as well as amounts you are eligible to transfer from your spouse. Parents should note that the exemption for children under 18 is eliminated for 2015 unless the child is infirm. Even for infirm children, the claim is reduced to $2,093 for 2015 (down from $4,313 for 2014). A sister form to TD1: Form T1213 Request to Reduce Tax Deductions at Source for Year(s) ______ can also be used to reduce tax withholding for taxpayers who have RRSP contributions, Child Care Expenses, deductible support payments, employment expenses, carrying charges, charitable donations, rental losses or other significant tax deductions. For all expenses except deductible support payments which may be authorized for two years, you’ll need to file Form T1213 each year. The form must first be sent to CRA for their approval before your employer is authorized to reduce your withholding tax. Approval may take four to six weeks so the earlier you submit the form the better. |
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Posted on December-09-14 6:10 PM
TFSA Withdrawals
Here is the basic information
regarding withdrawals from a tax-free savings account:
Withdrawals
will create additional contribution room equal to the amount of the
withdrawal, for deposits in future years
(not in the year of the withdrawal).
Income
earned in and withdrawals from a TFSA will not affect eligibility for
federal income-tested benefits and credits such as
guaranteed
income supplement (GIS)
old age
security (OAS)
age
exemption tax credit
Any fees
paid related to the TFSA will not be tax-deductible.
In kind withdrawals
can be made, with the investments being transferred to a non-registered
account, or as a contribution to an RRSP, subject to available RRSP
contribution room. When in kind withdrawals are made, the value of
the transaction will be the current market value of the investment.
This will be the contribution amount if the investment is transferred to an
RRSP. If the investment is transferred to a non-registered account,
the current market value at time of withdrawal will be the cost basis for
the non-registered investment. Any subsequent capital gain or loss
when the investment is sold will use this value as the cost basis. If the maximum has been
contributed to a TFSA, and then a withdrawal is made, no further amount can be
contributed (without penalty) until the following year. On January 1st of
the following year, the withdrawal amount from the previous year will be used
to increase your regular annual contribution room.
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Posted on November-20-14 6:12 PM
Family Tax Cuts Could Fatten December Coffers It’s always a good idea to re-evaluate the requirement to make the December 15 quarterly tax instalment payment (December 31 in the case of farmers) but this year end it’s even more important because the introduction of the Family Tax Credit for 2014, which has the potential to reduce family taxes by up to $2000. Who has to pay taxes by instalment? Those taxpayers whose net taxes owing is more than $3000 in 2014 and in either 2013 or 2012. Net taxes owing include personal income taxes plus CPP and EI premiums owing on self employment. What’s different this year is that couples with children at home (under age 18) where one spouse is in a higher tax bracket than the other are likely to benefit from the Family Tax Cut of up to $2,000. The credit will be calculated on new form Schedule 1-A. |
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Posted on November-19-14 6:51 PM
The New $2000 Family Tax Cut This new federal non-refundable credit will provide up to a maximum of $2,000 in tax relief to benefit one-earner or two-earner couples where one spouse’s income is taxed at a higher rate. The higher income spouse can transfer up to $50,000 to the lower- income spouse. To qualify for the Family Tax Cut the taxpayer must • be a resident of Canada at the end of the taxation year; • have a spouse or common-law partner; • have a child who is under the age of 18 at the end of the year and who resided with the taxpayer or their spouse or common-law partner; and • not be confined to prison or similar institution for 90 days or more during the taxation year. To claim the Family Tax Cut credit, couples must file income tax returns. Either parent can claim the credit but not both. However, if the parents of a child are divorced or separated, and have remarried or have a new common-law partnership, one parent in each of the new family may claim the credit of up to $2,000. The child must reside with each couple during the year in that case. If the parents have joint or shared custody, there may be cases where it is the same child who resides with each parent. The Family Tax credit cannot be claimed for a year in which the couple does not file an income tax return; elects to split pension income; or in cases where one of the spouses becomes bankrupt. The Family Tax Credit will be calculated as the difference between · the combined taxes payable (after all credits are claimed) by the couple, and · the combined taxes that would be payable by the couple, if the higher income spouse could have notionally transferred taxable income to the lower income spouse. If the difference exceeds $2,000, then the credit would be limited to $2,000.
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