Archive for the ‘income tax’ Category

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.

Did I miss the 2010 RRSP Contribution deadline?

Only one week left to make your RRSP contribution count towards your 2010 taxes

Did you know…?

Registered Retirement Savings Plans (RRSPs) are one of the most popular investment vehicles for Canadians. According to Statistics Canada, 6 out of 10 Canadian families held RRSPs in 2005.

Important facts

  • March 1, 2011, is the last day you can contribute to a RRSP for the 2010 tax year.
  • The amount you can contribute to your RRSPs each year without tax implications is determined by your RRSP deduction limit, or “contribution room,” which can be found on your 2009 Notice of Assessment.
  • The most recent information about your RRSP deduction limit is available through My Account at www.cra.gc.ca/myaccount.
  • If you are not registered to use My Account, you can get your RRSP deduction limit using the Quick Access service at www.cra.gc.ca/quickaccess.
  • December 31 of the year you turn 71 is the last day that you can contribute to your RRSPs. For more information, see RRSP options when you turn 71.
  • Be very cautious of offers that allow you to make tax-free withdrawals of RRSP funds. Offers that sound too good to be true usually are. Read about RRSP tax-free withdrawal schemes to protect yourself.

Do you have a dual residency tax obligation?

Dual residency: where’s your closer connection? 
By Carey Singer and Brenda Lowey

Most Canadians have been filing tax returns since their late teens or early 20s. It’s as much a part of life in this country as winter tires and spring playoffs. Increasingly however, Canadians who spend several months each year in the U.S. may have U.S. tax return filing requirements even if they earn no income there.

Under the substantial-presence test, you may be deemed to be a U.S. resident for a calendar year if you were physically present in the U.S. on at least: 

  • 31 days during the current year; and,
  • over the last three years (including the current year) you were present there for at least 183 days, calculated using a weighting formula.

An exception is available to a non-U.S. citizen and non green-card holder with a tax home in Canada, provided that no steps have been taken to apply for permanent residency status. The exception is achieved by filing a closer-connection statement (form 8840) by June 15 of each calendar year. Typically, the statement will indicate that there is a permanent residence in Canada, the individual pays Canadian tax, and has other ties to Canada such as driver’s license, church membership, investments, and voter registration.

Even if the individual fails to qualify for the closer connection exception, a Canada-U.S. Tax Treaty exemption may be available.

Canadians who are deciding whether to use the closer connection exception or the provisions applicable to dual residents under the Treaty, should seek specific U.S. tax advice, as there are a range of tax issues and filing requirements that need to be considered. For example, if a Canadian qualifies for the closer connection exception and files form 8840, they will be treated as a non-resident alien for all U.S. income taxation purposes.

Alternatively, Canadians relying on the Treaty to claim Canadian residency, and who meet the substantial presence test or spend over 183 days in the U.S., need to be aware of U.S. information filing requirements related to their Canadian or foreign corporations or Canadian trusts. Although their tax liability will be computed as that of a non-resident alien, this individual will continue to be treated as a U.S. resident for other purposes of the U.S. Internal Revenue Code. For example, if this person owns shares in a Canadian or non-U.S. company, certain complex U.S. filings may be required. In the case of a failure to file this information return, the IRS is empowered to impose a $10,000 penalty with respect to each such failure. If the dual resident is the grantor of a trust with U.S. beneficiaries, there are additional pitfalls and filing requirements, with non-compliance penalties that could be as much as 35% of the value of the assets in the trust.

Being a dual resident may sound glamorous but there is work to do. All Canadians who spend significant time in the U.S. need to invest extra effort each year ensuring they comply with that country’s tax-filing requirements. The penalty for ignorance may be surprisingly expensive.

Carey Singer and Brenda Lowey are tax partners located in Greater Toronto.

May 2010 Tax Insights from Deloitte Tax Publications

Fail to report your income?

Fail to report income? Two strikes and you’re out.
By Vincent Lo

Kay, a resident of British Columbia, filed her 2007 tax return on time, and her assessment notice from the Canada Revenue Agency (CRA) agreed with her tax return as filed. Unfortunately, Kay received a reassessment in early December, adding an unreported T5 to her income, recalculating her tax and including a small interest charge. Though she had taken care to include all of her T5 slips reporting her investment income, she had inadvertently omitted a T5 reporting $46 of interest income.

In 2009, Kay e-filed her 2008 tax return in mid-March. When she received her refund 10 days later, she was excited to spend the money on some new spring fashions. However, when a reassessment notice arrived months later, Kay realized that she had missed reporting some income for the second year in a row. This year it was a T4 for $3,500 relating to a part-time waitressing job. While the taxes withheld from this T4 were sufficient to cover the additional taxes reassessed, the CRA charged her a combined 20% penalty of $700 on the unreported employment income.

Kay’s experience is not unique. Many taxpayers in Canada have received similar assessments.

While measures must exist to deter tax evasion, penalizing taxpayers for an oversight is an inflexible policy that can become highly punitive to the well-intentioned person. If there was a failure in reporting income within the preceding three years, the CRA imposes a federal penalty of 10% of the unreported income from the second strike; a parallel 10% penalty is also assessed under the provincial Income Tax Act. Quebec would assess a 10% penalty by way of its own Notice of Reassessment. However, the overall result of an aggregate 20% penalty remains the same. 

The policy has been challenged, with submissions made to the CRA and the Department of Finance on the appropriateness of applying a penalty where innocent oversight is likely the causal factor. However, before any changes in the tax law and CRA’s assessment policies are made, the following tips may mitigate your exposure to this penalty:

  • Start with an inventory of T slips (e.g., T4, T5, etc.) from the previous year and compare this year’s T slips received against last year’s listing. Pay particular attention to correspondence from financial institutions on delayed or amended T slips.
  • Review all special events for the current year that may impact the issuance and receipt of T slips; e.g. changes in employment, working on multiple jobs, opening/switching/closing investment accounts, withdrawing funds from registered retirement savings, moving to a new residence etc. Take the necessary actions to ensure all the related T slips are received
  • In particular for T slips related to investment income, a quick call to the financial institution can indicate whether any T slips are outstanding.
  • If you have filed your tax return and you receive a late or amended T slip, file an adjustment request (T1-ADJ) immediately reporting this additional income rather than waiting until next year to report it.

In many situations in life you get three strikes before being called out. Unfortunately in dealing with inadvertently unreported T-slip income, you only get two strikes before being penalized.

May 2010 Tax Insights from Deloitte Tax Publications

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