Archive for the ‘income tax’ 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.

Gov’t of Canada targeting retail workers with employee discount tax

A spokesperson for Revenue Minister Diane Lebouthillier confirmed that her office is reviewing the proposal, which appears in the latest version of the tax folio from the Canada Revenue Agency.

The proposal is to tax employee discounts as income based on the amount of money saved. Under the proposed change, employee discounts would be counted as income, and the value of that discount would need to be taxed at “equal to the fair market value of the merchandise purchased, less the amount paid by the employee.” Exceptions would only be made on discounts that are afforded to some members of the public at some point during the year.

The latest version of the Canada Revenue Agency’s tax folio advises employers that “when an employee receives a discount on merchandise because of their employment, the value of the discount is generally included in the employee’s income,” with the value of the discount assessed at “equal to the fair market value of the merchandise purchased, less the amount paid by the employee,” unless the discount is “available to the public or a segment of the public, at some point during the year.”

Conservative finance critic Pierre Poilievre issued a statement Monday saying the change means the government plans to tax things like a 10 per cent shoe discount offered to shoe salesmen, a meal discount offered to a waitress or a free gym membership given to a fitness trainer.

Before the change, which some expect to come into effect Jan. 1, employers were advised to tax employee discounts only if the employee was purchasing the merchandise below the employer’s cost.

Not only would the change “target those who can least afford to pay more,” according to Poilievre, but it means local business owners will have the headache of needing to “track all of these discounts.”

Minister of National Revenue Diane Lebouthillier said in a written statement that the CRA’s goal is “to ensure that the agency does not impose additional administrative burdens on businesses.”

With a report from CTV’s Kevin Gallagher

ctvnews.ca/politics

CRA Project – Third-Party Information Request to disclose Canadian Square sellers

CRA requested Square (service that allows you to accept  payments, using a reader that plugs into your iPod touch, iPhone, or iPad) to disclose information about Canadian Square sellers who processed greater than CAD$20,000 on Square during any of the calendar years 2012, 2013, 2014 or 2015; or during the period of January 1, 2016 to April 30, 2016.

Square will share with the CRA the following information associated with the Square account:

 The name(s) and address(es) associated with the seller’s Square account
The associated financial institution(s) name, transit number and account number
The number of Square Readers and Stands linked to the account
The total monthly aggregate of transactional information between the seller and their customers
The number of employee permissions granted through employee / location management functionality
Square encourages affected sellers to verify their tax statements with the amounts indicated on their Square Dashboard to ensure they have accurately reported their commerce activities.

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;

Exception:

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.

 

 

Tax Information Newsletter for Businesses

Businesses – Tax information newsletter, Issue: 2016-03

1- Compliance letter campaign – Message to GST/HST registrants

In December 2016, the Canada Revenue Agency (CRA) will conduct a GST/HST compliance letter campaign pilot project. The CRA will send 250 letters in December followed by 250 in February, 2,500 in May, and 2,500 in August to GST/HST registrants. Those receiving a letter will be asked to review a previously-submitted GST/HST return with suspected errors and confirm whether the amounts they reported are correct or need to be changed.

The campaign supports the CRA’s increased emphasis on helping individuals and small businesses to better understand their tax obligations and encourages them to correct any errors in their past GST/HST returns. This increased understanding of tax obligations will also serve in promoting compliance going forward.

2- 2017 Indexation adjustment for personal income tax and benefit amounts are now available

Each year, certain personal income tax and benefit amounts are indexed to inflation using the Consumer Price Index data as reported by Statistics Canada. The chart provides the indexed amounts for four tax years.

3- Does your business have tax debt? Don’t panic. You have options.

Does your business owe taxes to the CRA? Ignoring your tax debt isn’t the best strategy. Avoiding payment could result in financial and legal consequences for you and your business. Instead of avoiding a payment, check out the video “Keeping Your Business on Track” to find a better option.

4- Businesses take notice: Your tax information just got clearer!

The CRA is redesigning the correspondence it sends to Canadians, including the Corporation, and Goods and services tax/ harmonized sales tax (GST/HST) notices of assessment (NOA) and notices of reassessment (NOR). The CRA has made changes to how the notices are structured, designed, formatted, and written, making the information easier to read and understand.

Should You Sell Your Dog Stocks?

The topic on Tax Loss Selling is very timely and every year around this time, people get busy with holiday shopping and forget to sell the “dogs” in their portfolio and as a consequence, they pay unnecessary income tax on their capital gains in April.

Most investment advisors are pretty good at contacting their clients to discuss possible tax loss selling. Ensure you are in contact to discuss your realized capital gain/loss situation and other planning options.

You may wish to set aside some time this weekend or next, to review your 2016 capital gain/loss situation. You can then execute your trades on a timely basis knowing you have considered all the variables associated with your tax gain/loss selling. As the markets have been strong this year, you hopefully will have only a few stocks with unrealized capital losses you can sell to use the losses against capital gains reported the last 3 years. Alternatively, you may want to trigger a capital loss to utilize against capital gains you have already realized in 2016.

You should be very careful if you plan to repurchase the stocks you sell. Always be cognizant of the superficial loss rules. Essentially, if you or your spouse (either directly or through an RRSP) purchase an identical share 30 calendar days before or 30 days after a sale of shares, the capital loss is denied and added to the cost base of the new shares acquired. 

This information was taken from an article posted by Mark Goodfield on his blog The Blunt Bean Counter. Visit    http://www.thebluntbeancounter.com/2016/11/tax-loss-selling-or-for-2016-tax-gain.html  for the complete article on this topic. 

Principle Residence Changes 2016

On October 3, 2016, the Minister of Finance, Bill Morneau, announced a major change to the reporting requirements for the sale of a principal residence (“PR”) and the designation of the principal residence exemption (“PRE”), which provides for the tax-free sale of your home. 

A few key points:

  • Starting with the 2016 tax year, you will be required to report basic information (date of acquisition, proceeds of dispositions and description of the property) on your income tax and benefit return when you sell your principal residence (PR) to claim the full principal residence exemption.
  • Previously, the administrative position of the Canada Revenue Agency (“CRA”) was that you were not required to report the sale of your PR if the property was your PR for every year you owned it.
  • The new rules apply for deemed dispositions. A deemed disposition occurs when you are considered to have disposed of property, even though you did not actually sell it. For example, a deemed disposition will occur if there is a change in use of the property:
  1.        You change all or part of your principal residence to a rental or business operation.
  2.        You change your rental or business operation to a principal residence.

When you change the use of a property, you are generally considered to have sold the property at its fair market value and to have immediately reacquired the property for the same amount. You have to report the disposition (and designation) of your principal residence and/or the resulting capital gain or loss (in certain situations) in the year the change of use occurs.

  • If only a part of your home qualifies as your PR and you used the other part to earn or produce income, you may have to split the selling price and the adjusted cost base between the part you used for your principal residence and the part you used for other purposes (for example, rental or business). You can do this by using square meters or the number of rooms, as long as the split is reasonable.
  • If you do not designate the property as your PR for all the years you owned the property (such as where you had sold your cottage in a prior year and claimed the PRE for certain years), you are required to also file Form T2091. 
  • An individual who was not resident in Canada in the year the individual acquired a residence will not—on a disposition of the property after October 2, 2016—be able to claim the exemption for that year. 
  • For the sale of a PR in 2016 or later years, the CRA will only allow the PRE if you report the sale and designation on your tax return. If you fail to report the sale, you will have to ask the CRA to amend your return. Under the proposed changes, the CRA will be able to accept a late designation but a penalty may apply, equal to the lesser of $8,000 and $100 for each month you are late from the original required filing. This is a potentially fairly large penalty for non-compliance. The period of re-assessment will also be extended where a disposition has not been reported. 

 

Information on the changes from Finance: http://www.fin.gc.ca/n16/data/16-117_2-eng.asp

Information on administration changes from CRA: http://www.cra-arc.gc.ca/gncy/bdgt/2016/qa11-eng.html

 

Does it pay you be organized?

Tax Tips:

 

Being an organized tax filer starts now

The biggest challenge to preparing your tax return is not your math skills. It’s the gathering and organizing of the various forms and receipts that feed into your return. In fact, it usually takes longer to sort receipts than it does to enter the data into the tax return.

So, get organized — and the best time to do this is now, while the horrors of the 2012 tax filing season are fresh in your mind. Set up your files now and file charitable donations, document medical expenses, keep track of employment or business expenses on an ongoing basis. Time new asset purchases and tweak your investments to your best advantage. You’ll be ready to file as soon as the last slip arrives in the mail!

Remember: the better you are at bringing order to your documentation, the wealthier you will be at tax filing time. It will also reduce the amount you’ll pay a tax professional to do your taxes. Do yourself a favor and beat the taxman with an organized approach to your income taxes.

Should I deduct from my RRSP?

The timing of the RRSP deduction can result in significant tax savings

 

With the 2011 RRSP contribution deadline fast approaching, we thought it would be timely to remind people that an RRSP deduction is discretionary.  In other words, a taxpayer can deduct from 0% to 100% of an RRSP contribution in any given taxation year.  Any undeducted RRSP contribution can be carried forward to be deducted in a future year.

The timing of the RRSP deduction can result in significant tax savings (or loss if the timing is not optimal).  For example, if a taxpayer is currently in a lower tax bracket then they expect to be in a future year, they could make their RRSP contribution (to begin the tax-free compounding) but defer the deduction until a later year when they are in a higher tax bracket.

For example, a university student may be in a low tax bracket and/or have tuition credits to eliminate tax in the current year.  If the student has sufficient earned income or RRSP room, she could make an RRSP contribution but defer the deduction to a post university year when she may be in a higher tax bracket.  If she can utilize the deduction at the highest marginal tax rate, she can save 46%, compared to, say, 20% if she used the deduction at the lowest marginal tax rate.   This 26% after-tax savings is  significant.

If finances do not allow the taxpayer to fund the RRSP contribution, they may consider a loan from a family member or a bank.  The pros and cons of borrowing to make an RRSP contribution are beyond the scope of this tax tip.

Readers are reminded  that it is better to make an RRSP contribution early in the year instead  of waiting  for the deadline.  The earlier the contribution is made, the earlier the benefits of tax free compounding begin.  Many people may be focused on meeting the February 29, 2012 deadline for a contribution to be deducted in 2011.  By that date they will already be 60 days late for making their 2012 contribution.

If finances permit, it may be worthwhile to make both the 2011 and 2012 RRSP contributions at the same time.

This material provided in “Tax Tip of the Week by the Tax Specialist Group” is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.