Archive for the ‘accounting’ Category

How to manage the taxes of someone who has died

Dealing with the death of a loved one is difficult. With this in mind, here are a few things to consider when handling someone’s taxes after they have passed away

What to do first 

Tell CRA the deceased’s date of death as soon as possible. You can call CRA at 1-800-959-8281.

If the deceased was receiving any of the benefit and credit payments listed below, contact the CRA as soon as possible to stop the payments and, if applicable, transfer them to a survivor:

Tell Service Canada the deceased’s date of death by contacting a Service Canada or calling 1-800-622-6232.

Important facts

You must file a final return after a death. On the deceased’s final return, the legal representative of the deceased must report all of the deceased’s income from January 1 of the year of death up to and including the date of death, and claim all credits and deductions that the person is entitled to. Income earned after the date of death may have to be reported on a T3 Trust Income Tax and Information Return.

The legal representative is required to file any tax returns for the years that the person did not file before he or she died.

If an individual who pays tax by instalments dies during the year, instalment payments due on or after the date of death do not have to be paid.

The due date for the final return depends on the deceased’s date of death. Generally, the final return is due on or before the following dates:

If the death occurred between January 1 and October 31 inclusive, the due date for the final return is April 30 of the following year.

If the death occurred between November 1 and December 31 inclusive, the due date for the final return is six months after the date of death.

Renting out a room to students? CRA wants to know

As students fan out across the country for another school year, homeowners are finding opportunity in renting out accommodations.

There’s nothing wrong with making a few bucks renting out a room, but the Canada Revenue Agency wants a piece of the action – and how you claim deductions could be costly in the long run.

The name of the game is to preserve your home’s principal residence status. If the CRA considers your home a principal residence, you don’t pay any tax on the amount it appreciates when it is sold. As an example; if you bought your house for $400,000 and sold it for $800,000, you don’t pay any tax on that $400,000 gain.

If your home does not meet the CRA’s principal residence requirement, you must pay tax on half of that $400,000.      

If you are drawing rental income from your home, there are three ways to ensure it remains your principal residence for tax purposes:

  1. The partial use of the residence for income-producing purposes is ancillary to the main use as a residence. In other words, there’s a fine line between renting out a room and renting out a house the owner happens to live in.
  2. There is no structural change to the property. You can put a coat of paint on the walls and make some modifications but you can’t build an addition, for example.
  3. You cannot claim capital cost allowance (CCA), or depreciation on the property.

Of course, the rental income must be claimed (form T776) and filed with your tax return, but there are several deductions available to lower your tax bill. They can include: a portion of mortgage interest, property taxes, insurance, repairs and maintenance, landscaping, utilities, advertising costs, office expenses, professional fees, management fees, salaries or wages, travel costs, and car expenses.

If you’re not sure if you are crossing the line between principal residence and income property, consult your tax professional.

By Dale Jackson 

Dale is Finance Journalist: writer and producer Business News Network, Globe and Mail, Yahoo! Finance.



Protect Yourself Against Fraud

Examples of fraudulent communications

·         telephone

·         letter

·         emails

·         text messages

·         online refund forms

Know how to recognize a scam

There are many fraud types, including new ones invented daily.

Taxpayers should be vigilant when they receive, either by telephone, mail, text message or email, a fraudulent communication that claims to be from the Canada Revenue Agency (CRA) requesting personal information such as a social insurance number, credit card number, bank account number, or passport number.

These scams may insist that this personal information is needed so that the taxpayer can receive a refund or a benefit payment. Cases of fraudulent communication could also involve threatening or coercive language to scare individuals into paying fictitious debt to the CRA. Other communications urge taxpayers to visit a fake CRA website where the taxpayer is then asked to verify their identity by entering personal information. These are scams and taxpayers should never respond to these fraudulent communications or click on any of the links provided.

To identify communications not from the CRA, be aware of these guidelines.

If you receive a call saying you owe money to the CRA, you can call us or check My Account to be sure.

If you have signed up for online mail (available through My Account, My Business Account, and Represent a Client), the CRA will do the following:

  • send a registration confirmation email to the address you provided for online mail service for an individual or a business; and
  • send an email to the address you provided to notify you when new online mail is available to view in the CRA’s secure online services portal.

The CRA will not do the following:

  • send email with a link and ask you to divulge personal or financial information;


If you call the CRA to request a form or a link for specific information, a CRA agent will forward the information you are requesting to your email during the telephone call. This is the only circumstance in which the CRA will send an email containing links.  They will never:

  • ask for personal information of any kind by email or text message.
  • request payments by prepaid credit cards.
  • give taxpayer information to another person, unless formal authorization is provided by the taxpayer.
  • leave personal information on an answering machine.

When in doubt, ask yourself the following:

  • Did I sign up to receive online mail through My Account, My Business Account, or Represent a Client?
  • Did I provide my email address on my income tax and benefit return to receive mail online?
  • Am I expecting more money from the CRA?
  • Does this sound too good to be true?
  • Is the requester asking for information I would not provide in my tax return?
  • Is the requester asking for information I know the CRA already has on file for me?

If you do have a debt with the CRA and can’t pay in full, take action right away. For more information, go to When you owe money – collections at the CRA.



Do you qualify for the SR & ED program?

Despite Proposed Changes, Scientific Research and Experimental Development (SR&ED) Still Provides Big Benefits for Small Businesses

Subject: SR&ED
Number: 12-37
Date: 11/23/2012

it is a good idea to review upcoming SR&ED expenditures and accelerate the spending

On August 14, 2012, the Department of Finance released draft proposals to reduce some of the benefits available under the SR&ED program however significant benefits still remain for small businesses.  In particular, the 35% refundable credit has not been changed.

What is SR&ED?

The SR&ED program provides tax credits to businesses conducting research and development in Canada that will lead to new, improved or technologically advanced products or processes. The definition of SR&ED for tax purposes is the subject of much uncertainty and beyond the scope of this tax tip.  In general, however, eligible SR&ED is a subset of what is commonly referred to as research and development.


Canadian Controlled Private Corporation’s (CCPC’s) generally receive a cash refund of 35% of the first $3,000,000 eligible SR&ED expenditures, annually. This benefit is ground down if the prior year’s taxable income exceeds $500,000, or taxable capital exceeds $10 million. The draft proposals do not reduce this refundable credit.

Non-CCPC’s receive a 20% investment tax credit (ITC) which can be applied to reduce current year taxes payable, carried back 3 years or carried forward 20 years. The Non-CCPC tax credit rate will be decreasing to 15% effective January 1, 2014.

Proxy method instead of actual overhead

The proxy method can be used to determine the amount of overhead costs that can be claimed for tax credit purposes.  This amount is usually easier to determine (and audit) as it is calculated as 65% of direct R&D wages. The proxy factor will be reduced to 60% effective January 1, 2013 and to 55% effective January 1, 2014. The decreasing proxy factor may cause organizations to consider whether using the traditional method of accounting for overhead will now result in a greater claim. The traditional method requires detailed calculations to track overhead so consideration should be given to the time it will take to produce (and support on audit) the detailed overhead calculations required by the traditional method.

Summary of changes



January 1, 2013

January 1, 2014

Non-CCPC rate




CCPC rate




Prescribed proxy amount (PPA)




With the modifications to the SR&ED rules coming into force over the next two years, it is a good idea to review upcoming SR&ED expenditures and accelerate the spending, where practical, before certain rates are curtailed.

TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.


Should I pay off my mortgage or invest in an RRSP?

Pay off the mortgage or invest in an RRSP?

Low interest rates and single-digit market returns are prompting one of the longest running debates in personal finance: Should I pay off my mortgage? Or invest in my RRSP?


Current issue:


Ask three experts whether you should pay down your mortgage or invest in your retirement and you’ll end up with at least four different answers. That’s because over the years experts have consistently disagreed on what the best strategy is for your financial well being. And these days it’s a particularly hard question to answer.

With the average discounted mortgage rate hovering around 2.7%, you’d think prioritizing your RRSPs over your mortgage was a no brainer, right?

Not necessarily. If the historical rate of return of 10% applied to today’s market then the dilemma would be solved. But five years ago everything changed. Now, planners are suggesting that the best possible return for a well diversified, balanced portfolio (typically 60% equities and 40% fixed income) is 6% before inflation. That’s 4% after inflation. What’s more, planners believe that this return won’t change much for the next 10 or so years.

Despite all this ambiguity you can still figure out what’s best when it comes to the mortgage vs. RRSP debate by answering three simple questions:

1) How disciplined are you?

I’m not talking about whether you can resist the last cookie in the package, or stop yourself from going for seconds at the buffet. The real question is whether you are disciplined saver.

If, for instance, you paid off your student loans and then used that surplus of cash to invest in your retirement, or to save for a down payment on a home, then you, my friend, are a disciplined saver. You would benefit from paying off your mortgage first.

If, however, you bought a car and went on a vacation once you had a bit of extra cash then paying off your mortgage—a non-deductible debt—would not be prudent.

2) Are you a nervous Nellie?

Ask yourself: what keeps me up at night? And be honest. If it’s the idea of debt, then pay down your mortgage first. If you lose sleep at the thought of poverty in your golden years, then contribute to your RRSP first.

3) Have you done your math?

Just before his book, “Financial Freedom Without Sacrifice,” was released, I spoke to financial author and educator Talbot Stevens. According to Stevens the math behind this age-old question is quite simple:

If your interest rate on your mortgage debt is 3% higher than the average annual return from your retirement portfolio then ignore your RRSP and pay down your debts.

Keep in mind, though, that the average annual rate of return for a balanced portfolio is 4% after inflation—that’s only a percentage point and a bit more than most mortgage rates these days.

Still, Stevens suggests that every investor should prioritize their debts. Pay off high-interest rate credit cards first, then move to loans and lines of credit, then your lower-interest rate mortgage.

By answering these three questions you can quickly determine whether paying off your mortgage is the right move for you, or if you should be investing in your retirement fund. If you’re still in doubt try a mortgage vs. RRSP calculator such as this one by Empire Life or the province-specific calculator, or the Growth Works calculator that lets you add extra inputs.

This article was published in:

Why should you withdraw from your RRSP?

Are RRSPs the Holy Grail of Retirement Savings or the Holey Grail?


In March 2011, I wrote a blog post disputing Jamie Golombek’s assertion that RRSPs are not the Holy Grail of retirement to Canadians. In May 2011, I followed up the above noted blog with another post in which I attempted to reflect that RRSPs are only accessed under financial duress.


Based on the above two blog posts, clearly my opinion has been that RRSPs are the Holy Grail of retirement planning for Canadians. However, I am beginning to wonder if my personal experience in dealing with higher net worth people who tend not to “touch” their RRSPs, has distorted my view of the situation and RRSPs are really a “Holey Grail”.

The catalyst that has led me to second guess myself as to whether RRSPs are really sacrosanct is a recent poll (of 2,013 people) undertaken by the Scotiabank on
Canadians’ mindset regarding RRSPs.

The poll states that “one-third of RRSP holders (36 per cent) reporting taking money out of their RRSP this year, up from 23 per cent back in 2005”. The poll also reported “the average amount Canadians withdrew from their RRSP was $24,531. In 2005, the average amount Canadians withdrew from their RRSP was $10,716″. 

What I personally found shocking about the poll was that “Canadians aged 55+ (41 per cent) are more likely than 18-34 year olds (32 per cent) and 45-54 year olds (30 per cent) to have taken money out of their RRSPs”. Although one must take into account people greater than 55 years old will have larger RRSPs from which to withdraw, one would think that of anyone, those closest to retirement would consider their RRSPs as Holy Grails. However, as noted by the
Canadian Investor in the comments area, some +55 year olds may be accessing their RRSPs as part of their retirement plan, in essence lowering and/or smoothing their income tax liability and funding retirement expenses.

I summarize the poll numbers below (Note: I have used the numbers in the Scotiabank press release and from an article in the Financial Post by Garry Marr on “
What not to buy with your RRSP”, to pull these numbers together, as I could not directly access the survey).

Reasons People Withdraw from Their RRSPs

Buy a first home – 40%

Pay down debt – 16%

Convert to a RRIF – 15%

Cover day-to-day expenses – 14%

Home renovations – 8%

Vacations – 6%

Education – 4%

Medical – 3%

Holy Cow – Did you really use your RRSP for a Suntan?

So, let’s step back for a moment to review the reasons provided by Canadians for withdrawing money from their RRSPs and examine whether my postulation that RRSPs are the retirement Holy Grail is flawed.

In total, 14% of RRSP withdrawals are used for home renovations and vacations; two fairly self-indulgent and discretionary expenses, that most would suggest should not be funded by a RRSP. What is scary is that number would be much higher if we added the percentage of day-to-day expense withdrawals that were for discretionary expenses such as tablets and TV’s. Ouch, not much of a holy grail.

Holy or Holey?

The Scotiabank poll still reflects that 64% of the population do not access their RRSPs and that percentage would move closer to 70% if we exclude the legislated conversion of RRSPs to RRIFs, which are not true withdrawals.

If you believe that first time home purchases are technically just loans from your RRSP and not true withdrawals, the percentage increases to almost 85%. Finally, if you believe paying back debt is just a result of financial duress and not because RRSPs are holey, it could be argued the percentage of people accessing their RRSPs is a relatively small narcissistic percentage.

So let’s look at the top two reasons for RRSP withdrawals in greater detail.

Buying a First Home

As noted above, the largest single reason for withdrawing money from a RRSP is the purchase of a first home. This is an extremely complex issue to analyze, because the CRA has condoned the use of RRSP funds for first-time home buyers. Many people make RRSP contributions they would never have made in the first place, knowing they will get an immediate income tax deduction and tax refund, while keenly aware that they will utilize these RRSP funds to assist in purchasing a home in the short-term.
In the Scotiabank press release, Bev Moir, a ScotiaMcLeod Wealth Advisor, said the following: “Investing in a home and investing in retirement are both important parts of life and finding a way to balance both is key. If Canadians are going to take money out of their RRSP for a major purchase like a house, they need to have a plan in place to return that money as soon as they can so they don’t limit their options in the future. “  

The problem I have with Ms. Moir’s statement is that it ignores the reality of the situation. People buying their first home typically struggle to just repay the yearly minimum
Home Buyers Plan (HBP), which is re-payable over 15 years. In my CA practice, it is my experience that many people do not make the required yearly HBP repayment. The consequence of non-payment is that the required payment amount becomes taxable income in that year; which results in additional income tax and a further deterioration of potential retirement funds. Even where people have a plan and make the yearly repayments, years of tax-free compounding are forgone and their future retirement options may be limited to some extent.

Here is what Rob Carrick of the Globe and Mail has to say on this topic. In his book
How Not To Move Back In With Your Parents Rob says that when people ask him should they contribute to their RRSP so they can withdraw money under the HBP his answer is “Uh no. You contribute to an RRSP to save for retirement. If you need some of your RRSP to afford a house, fine. But there’s too much of a tendency for people to see RRSPs as a savings account from which money can, if necessary, be withdrawn.”

Personally, I don’t think using a RRSP to purchase your first home negates my Holy Grail argument. The intention of the HBP program is in essence to provide a 15 year or shorter term “self” mortgage, while keeping your RRSP whole; however, like any legislation that has more than one objective, both objectives cannot be fully satisfied.

Repayment of Debt

I discussed the issue of excessive Canadian debt in my blog, Debt – An Ugly Four Letter Word. Accessing RRSP funds to pay down debt is a blog on its own, so for now, I will only say, often RRSP withdrawals related to debt repayment are accessed under financial duress. Now whether this duress is self-inflicted due to excessive discretionary spending is another question entirely.

Rob Carrick in his book states that “there are better ways to accomplish this very worthwhile objective” than using your RRSP to repay debt. I discuss some of these ways in my above noted Debt blog post. Rob also makes a great point in noting that the statutory withholding tax rate attributable to RRSP withdrawals is often less than the person’s marginal income tax rate, which can result in an income tax shortfall, which creates yet another new debt. In that regard, if a RRSP is accessed by a taxpayer in the 31% marginal tax bracket (
the tax bracket the average Canadian would be in) to pay down debt, they will only be applying approximately $69 of each withdrawal to pay down their debt after the CRA takes its tax bite.

My Final Comment

At this point, I can only suggest that RRSPs are the Holy Grail for at least 70% of Canadians. However, for a disturbingly large segment of the population, RRSPs are the Holey Grail. For this percentage of the population, instant self-gratification, whether in the form of a nicer house, vacation or the latest electronic gadget, is of greater importance, than a distant concept called retirement. As for the high percentage of 55+ year olds making RRSP withdrawals, I am very concerned for their retirement if the withdrawals are not being made as part of their retirement plan.

This article was written by The Blunt Bean Counter and posted on Dec 3, 2012 at


Can I transfer a property during my separation and divorce?

Transfer of Properties on Separation & Divorce

Subject: Separation and Divorce

“It is also important to consider the various attribution rules that could apply”

Number: 12-17

Date: June 29, 2012

Generally, the Income Tax Act provides for the transfer of properties between related persons to occur at fair market value.  Where the transfer is between Canadian-resident spouses, section 73 of the Act requires the transfers to take place at cost unless an election is filed for the transfer to take place at other than cost. Section 73 will apply to transfers between Canadian resident spouses, common-law partners, former spouses or common-law partners in the settlement of rights arising out of marriage or common-law partnership and a spouse and a qualifying spouse trust.  It should be noted that section 73  only applies to the transfer of a capital property while the parties are still married or living as common-law partners.

Depending on the circumstances, the two separating parties may prefer to elect not to have section 73 apply in respect of a given property and instead have the transfer take place at fair market value.  For instance, It may be beneficial to transfer shares of a qualified small business corporation at fair market value to take advantage of the transferor’s $750,000 capital gains exemption.  Intentionally realizing capital gains on the transfer of property from one spouse to another may also allow the transferor to take advantage of unused capital losses.  The section 73 election is made on a property-by-property basis and therefore it is important for any settlement agreements to specify the properties to which the election will apply.  For instance, this election could apply on a share by share basis.  Transactions where such elections are filed will also increase the adjusted cost base of the particular property to the recipient.

Where properties are being transferred between divorcing parties it is also important to consider the various attribution rules that could apply with respect to future income, losses, capital gains and capital losses that may be realized from the properties.  As a general rule, the attribution rules cease to apply after divorce but could be found to apply where the parties are living separate and apart by reason of marriage breakdown unless certain joint elections are made.  Such attribution rules could inadvertently cause gains inherent in transferred properties to attribute back to the transferring spouse. 

If you have any questions regarding transfers of properties on separation and divorce, please contact your TSG representative.

What expenses are subject to recapture of input tax credits?

Recapture of input tax credits – meals and entertainment

One of the four expense categories subject to the RITC rules, which restrict the recovery of a portion of the tax paid on certain expenses, is meals and entertainment expenses. Meals and entertainment expenses that are subject to the 50% restriction for income tax and GST/HST purposes are subject to the RITC rules.

What is to be restricted?

A business must first establish whether an expense is restricted for income tax and GST/HST purposes. Typical examples of expenses that are restricted are business dinners and tickets to a sporting event or theatre.

If the expense is not restricted, then the particular expense will not be subject to the RITC rules. The following expenditures are not subject to the RITC rules:

  • Long-haul truckers are not affected
  • Food, beverages, and entertainment provided for compensation (e.g., acquired for resupply) are excluded
  • Other exclusions under the Income Tax Act where the 50% restriction does not apply (e.g., annual holiday party)

What is to be claimed and/or restricted?

The RITC is applicable to only those meal and entertainment expenses that are incurred in B.C. and Ontario. If the expense is incurred in a non-HST province, the RITC rules are not applicable.

The RITC is a recapture of the provincial component of the B.C. and/or Ontario HST amount. The business must claim the full ITC on their HST return but, at the same time, “recapture” the provincial component of the HST. This is due to the CRA’s obligation to pay the B.C. and Ontario governments the amount of recaptured ITC. By showing the amounts separately on the return, the CRA is able to determine its obligation to the B.C. and Ontario governments.


XYZ Company holds a business meeting in Vancouver, B.C. The 12% HST paid is $120 ($50 is GST and $70 is the provincial component of the HST). The normal restriction is to allow only 50% of the GST/HST component. The RITC rule for B.C. and Ontario HST is to recapture the rest of the provincial component of the HST. The total net ITC to be claimed in this example is $25, or 21% of the total HST paid (i.e., $50 x 50% = $25).

Large businesses have the option of recapturing ITCs for meals and entertainment expenses each time that the amount is paid (i.e., by tracking the RITC and net ITC on each transaction and reporting these on that period’s GST/HST return) or at year-end (i.e., by recapturing the ITCs for that year’s meals and entertainment expenses on the final GST/HST return for the year).

Penalties for not correctly complying with the RITC rules will range from 5% to 10% in addition to the amount of the GST/HST error. We will most likely see some audit attention in this area over the coming months and years as the CRA establishes routine procedures to monitor compliance with these complex rules.

This publication is produced by Deloitte & Touche LLP as an information service to clients and friends of the firm, and is not intended to substitute for competent professional advice. No action should be initiated without consulting your professional advisors. Your use of this document is at your own risk.