Posts Tagged ‘income’

Digital currencies

Digital currency is electronic money. It’s not available as bills or coins.

Cryptocurrencies are a type of digital currency created using computer algorithms. The most popular cryptocurrency is Bitcoin.

No single organization, such as a central bank, creates digital currencies. Digital currencies are based on a decentralized, peer-to-peer (P2P) network. The “peers” in this network are the people that take part in digital currency transactions, and their computers make up the network.

Using digital currencies

You can use digital currencies to buy goods and services on the Internet and in stores that accept digital currencies. You may also buy and sell digital currency on open exchanges, called digital currency or cryptocurrency exchanges. An open exchange is similar to a stock market. 

To use digital currencies, you need to create a digital currency wallet to store and transfer digital currencies. You can store your wallet yourself or have a wallet provider manage your digital currency for you.

You need a “public key” and a “private key” to use your wallet. Keys are made up of a random sequence of numbers and letters.

Public keys are used to identify your wallet.

Private keys are used to unlock your wallet and access your money. Private keys should be kept secret.

All transactions are recorded to a public ledger or “blockchain” that everyone can see.

How tax rules apply to digital currency

Tax rules apply to digital currency transactions, including those made with cryptocurrencies. Using digital currency does not exempt consumers from Canadian tax obligations.

This means digital currencies are subject to the Income Tax Act.

Buying goods or services using digital currency

Goods purchased using digital currency must be included in the seller’s income for tax purposes. GST/HST also applies on the fair market value of any goods or services you buy using digital currency.

Buying and selling digital currency like a commodity

When you file your taxes you must report any gains or losses from selling or buying digital currencies.

Digital currencies are considered a commodity and are subject to the barter rules of the Income Tax Act. Not reporting income from such transactions is illegal.

Tips for using digital currency

Here are a few tips to help you protect yourself when using digital currency.

Protect your wallet

Take steps to protect your wallet:

  • keep your wallet, and any backups, in a safe place
  • encrypt your wallet using encryption software
  • encrypt any copies you make or online backups
  • set a password to help prevent thieves from withdrawing your funds
  • use a strong password that contains letters, numbers and symbols

Know the merchant’s refund, return and dispute policies

Before you make a purchase, find out:

  • what the exchange rate will be
  • if refunds are available
  • if refunds will be processed in digital currency, Canadian dollars or store credit
  • how to contact someone if there’s a problem

Wait for multiple confirmations before completing a transaction

It can take 10 minutes or more for a digital currency transaction to be confirmed. Confirmation happens when users on the network verify the transaction. During that time, a transaction could be reversed and you could lose your funds to a dishonest user.

Understand what the actual costs will be

Find out if there are any mark-ups or other fees. Find out what will happen if the rate changes before the exchange is completed.

Think about the future

Consider what will happen if you fall ill or die and can no longer access your wallet.

If no one knows the locations and passwords of your wallets when you are gone, the funds can’t be recovered.

Consider having a backup plan for your peers and family.

What is the Canada caregiver credit?

If you’re supporting a family member with a disability, the extra financial responsibility of being a caregiver can have a big impact on your budget. To help offset some of the cost, the Canada Revenue Agency has introduced the Canada Caregiver Amount. If you qualify, you could be in line for a tax break. Here’s what you need to know about the Canada Caregiver Amount.

Out with the Old

The Canada Caregiver Amount replaces three credits:

The Caregiver Amount,

The Amount for Infirm Dependants (18 & older), and

The Family Caregiver Amount.

The rules for claiming each of these credits were very different from each other. For example, the Caregiver Amount required that the person you were supporting must live with you while the Amount for an Infirm Dependant did not. The Family Caregiver Amount was the only one of the three available for children until 18.

Now, with the Canada Caregiver Credit, figuring out if you qualify for a tax credit is much simpler. There’s only one set of requirements; either you qualify or you don’t.

What’s Changed?

The Canada Caregiver Amount brings three main changes:

  1. The dependant you’re supporting must be “infirm”.

This means that your family member must be dependant upon you due to a physical or mental condition or “infirmity”. In the past, if you lived with a parent or grandparent over the age of 65, you were eligible for the former Caregiver Amount, even if the senior wasn’t “infirm”. That’s’ no longer the case.

  1. The dependant doesn’t have to live with you.

This is good news to all the caregivers whose help allows family members to stay in their own homes. If your disabled sister lives nearby but you assist with day-to-day chores like grocery shopping or paying bills, your help could earn you a tax break.

  1. Partial credit is available if your dependant’s income is too high.

Previously, if your dependant’s income was over $14,000, you may have been excluded from claiming any tax credits. The Canada Caregiver Amount features a more generous income limit ($16,163) for the full credit and partial credit for incomes up to $23,046.

Do I Qualify for the Canada Caregiver Amount?

If you’re caring for a low-income family member with an infirmity, there’s a good chance you qualify. There are two base amounts for the Canada Caregiver Amount – $2,150 and $6,388. How much credit you can claim depends on the dependant’s relationship to you, what other credits you’re claiming for them, and their income level.

If your spouse is infirm, the amount of your Canada Caregiver Amount depends on their income. First, the $2,150 figure is added to the usual spouse amount. If your spouse’s income is zero, you’ll claim the total of the spousal amount and the $2,150. If your spouse’s income is too high to claim the spousal amount, you still may qualify for the Canada Caregiver Amount. A “top-up” calculation is used for higher incomes so if your spouse earns less than $23,046, you will receive partial credit. Similar rules apply if you’re claiming the Eligible Dependant Credit for a child under 18.

If your infirm dependant is a family member other than your spouse or minor child, the full amount of $6,388 may be claimed if your relative’s net income is below $16,163. If your relative’s income is between $16,163 and $23,046, a partial credit can be claimed.

If your minor child is infirm and you are not claiming the Eligible Dependant Credit for them, you’ll claim $2,150 for each qualifying child.

If your parent or grandparent is over 65 but is not infirm, you do not qualify for the Canada Caregiver Amount.

Canada Caregiver Amount FAQs

If I pay support for my infirm dependant, can I claim the Canada Caregiver Amount?

If you are required to pay support for the dependant, you cannot claim the Canada Caregiver Amount.

Can I split the Canada Caregiver Amount with another person?

If more than one person cares for the infirm dependant, the credit can be shared. The maximum amount of $6,883 still applies.

What proof of infirmity is required?

A signed statement from your dependant’s doctor or practitioner may be required by the Canada Revenue Agency. The statement should contain details on the infirmity as well as when the infirmity began and how long it is expected to last. If your dependant already has an approved Form T2201 – Disability Tax Certificate – on file with CRA, no additional paperwork is needed.

By Jennifer Gorman

https://turbotax.intuit.ca/tips/everything-need-know-canada-caregiver-credit-8006

INPUT TAX CREDITS: Checking Up On Suppliers

Do I have to check up on a supplier when paying them GST/HST? Yes!

In a January 29, 2016 Tax Court of Canada case it was noted that CRA had denied over $500,000 of input tax credits (ITCs), and assessed penalties and interest, in respect of GST and QST paid to twelve suppliers.

Unknown to the taxpayer, the suppliers did not remit the tax. The taxpayer, a scrap metal dealer, obtained evidence of prospective suppliers’ GST and QST registration prior to accepting them as suppliers.

Taxpayer wins – mostly

A taxpayer must use reasonable procedures to verify that suppliers are valid registrants, their registration numbers actually exist, and that they are in the name of that person or business.

The Court held that the taxpayer’s procedures (reviewing the suppliers’ registrations, stamped by Revenue Quebec) were generally sufficient. It was not relevant that some suppliers did not have scrapyards and/or vehicles to carry on scrap businesses, nor that payment was often made in cash, making it difficult to verify the suppliers’ revenues. The taxpayer could not be expected to query government officials to ensure that GST registrations were properly issued.

However, in respect of one supplier, the facts showed that the taxpayer had been sloppy to the point of gross negligence in accepting evidence of registration where it was clear that the registered supplier was not acting on their own account.

Those ITCs were denied, and the related gross negligence penalty upheld. As well, one purchase was made on the date the supplier’s registration was cancelled, so the supplier was not a registrant on that date, and the ITC was properly denied. However, the related gross negligence penalty was reversed, based on the due diligence undertaken in respect of the supplier previously.

Action Item: Implement a system for checking GST/HSTnumbers, especially for major purchases, in CRA’s GST/HST registry. You may want to select a purchase dollar level for which extra revision of supplier GST/HST numbers is performed. The registry is located at https://www.businessregistration-inscriptionentreprise.gc.ca/ebci/brom/registry

 

http://yaleandpartners.ca/resources/tax-tips-traps-issue-121-2018/

 

CRA Audit- Will I Be Selected?

Reasons Specific to Individuals

We see far more desk audits (information requests in regard to certain deductions claimed) than full blown audits for individuals. You can expect an inquiry if you claim any of the following:

  • a significant interest expense,
  • an allowable business investment loss (usually if you held shares in a bankrupt private Canadian company),
  • tuition from a university outside Canada (typically the child and parent are tied together as most children transfer $5,000 of their tuition claim to their parents),
  • a child care claim for a nanny; even if you have filed a T4 for the nanny with CRA. Why CRA cannot crosscheck their records is baffling and befuddling.

In all the above cases you are just providing back-up information, these are not audits.

In past years individuals who purchased any tax shelter other than an oil & gas or mineral flow through have been audited. However, in most cases the CRA is auditing the tax shelter itself and the individual investors just get reassessed personally.

Full blown audits seem to occur with regularity in regard to individuals who earn commission income or self employment income and claim expenses against that income. In those cases, CRA gravitates to auto expense claims, requesting logs books they know one in 100 people actually keep, and advertising and promotion expenses they consider personal in nature.

Reasons Specific to Corporations

Corporations seem to be selected for three distinct reasons.

They carry on a business that is CRA’s flavour of the year; some prior flavours have been pharmacies, contractors and the real estate industry and any other industry CRA feels is a “cash is king” industry.

Corporations file General Indexed Financial Information known as GIFI. This information provides a comparative year to year summary of income and expenses. It is suspected by many accountants that CRA uses this information to review year to year expense and income variances of the filing corporation and to also compare corporations within a similar industry sector to identify those outside the standard ratios, but we don’t know that for certain.

The final reason is that it is just your turn. I have no knowledge of this, but it seems like CRA just runs down a list and if you don’t get caught in regard to #1 or #2, your turn just eventually comes up.

In all cases it is imperative you keep your source documents to provide to the auditor; CRA more then ever wants source documents. It is also vitally important if you and not your accountant are meeting with the auditor that you try and keep your cool. In the end, the auditor is just doing his or her job and if you treat them badly, you are not doing yourself any favours.

Mark Goodfield, CPA

http://www.thebluntbeancounter.com/2011/02/cra-audit-will-i-be-selected.html

ESSENTIAL TAX NUMBERS: UPDATED FOR 2018

http://www.advisor.ca/

WORKING CLIENTS

Maximum RRSP contribution: The maximum contribution for 2017 is $26,010; for 2018, $26,230.

TFSA limit: The annual limit for 2017 is $5,500, for a total of $52,000 in room available in 2017 for someone who has never contributed and has been eligible for the TFSA since its introduction in 2009. In 2018, the annual limit is $5,500, for a total of $57,500 for someone who has been eligible since 2009. The annual TFSA limit will be indexed to inflation in future years.

Maximum pensionable earnings: For 2017, the maximum pensionable earnings is $55,300 ($55,900 in 2018), and the basic exemption amount is $3,500 for 2017 and 2018.

Maximum EI insurable earnings: The maximum annual insurance earnings (federal) for 2017 is $51,300; for 2018, $51,700.

Lifetime capital gains exemption: The lifetime capital gains exemption is $835,716 for 2017 and $848,252 in 2018.

Low-interest loans: The current family loan rate is 1%.

Home buyers’ amount: Did your buy a home? You may be able to claim up to $5,000 of the purchase cost, and get a non-refundable tax credit of up to $750.

Medical expenses threshold: For the 2017 tax year, the maximum is 3% of net income or $2,268, whichever is less. For 2018, the max is 3% or $2,302, whichever is less.

Donation tax credits: After March 20, 2013, the first-time donor super credit is 25% for up to $1,000 in donations, for one tax year between 2013 and 2017.

Basic personal amount: For 2017, it’s $11,635, line 300. For 2018, it’s $11,809.

OLDER CLIENTS

Age amount: You can claim this amount if they were 65 years of age or older on December 31 of the taxation year and have income less than $84,597 in 2017 (the 2018 threshold is not yet available). The maximum amount they can claim in 2017 is $7,225, and in 2018 is $7,333.

Pension income amount: You may be able to claim up to $2,000 if they reported eligible pension, superannuation or annuity payments.

OAS recovery threshold: If your net world income exceeds $74,788 for 2017 and $75,910 for 2018, you may have to repay part of or the entire OAS pension.

CLIENTS WITH CHILDREN

Family caregiver amount: If you have a dependant who’s physically or mentally impaired, you may be able to claim up to an additional $2,121 in calculating certain non-refundable tax credits.

Disability amount: The amount for 2017 is $8,113 (non-refundable credit; $8,235 in 2018), with a supplement up to $4,733 for those under 18 (the amount is reduced if child care expenses are claimed; $4,804 in 2018). Canadians claiming the disability tax credit (DTC) can file their T1 return online regardless of whether or not their Form T2201, Disability Tax Credit Certificate has been submitted to CRA for that tax year.

Child disability benefit: The child disability benefit is a tax-free benefit of up to $2,730 (for the period of July 2016 to June 2018) for families who care for a child under age 18 with a severe and prolonged impairment in physical or mental functions.

Canada Child Benefit: This non-taxable benefit is effective as of July 1, 2016. The maximum CCB benefit is $6,400 per child under age six and up to $5,400 per child aged six through 17. In the 2017 Fall Economic Update, the government pledged to index the benefit beginning in 2018.

Universal child care benefit (UCCB): This benefit was replaced with the Canada Child Benefit as of July 1, 2016. However, Canadian residents can still apply for previous years if they meet certain conditions, including living with the child and being primarily responsible for the child’s care and upbringing.

Child care expense deduction limits: As of 2017, the maximum amounts that can be claimed are $8,000 for children under age seven, $5,000 for children aged seven through 16, and $11,000 for children who are eligible for the disability tax credit.

Children’s fitness tax credit: This credit has been phased out, and is gone as of 2017.

Children’s arts tax credit: This credit has been phased out, and is gone as of 2017.

Originally published on Advisor.ca

1/26/2018 Essential tax numbers: updated for 2018 | Advisor.ca

 

FEDS CLARIFY INCOME SPRINKLING PROPOSAL

Advisor.ca http://www.advisor.ca/tax/tax-news/feds-clarify-income-sprinkling-proposal

The federal government provided revised income sprinkling measures, offering clarity about how its controversial changes to the Income Tax Act will be implemented.

Specifically, the feds provided bright-line tests for determining whether family members are significantly involved in a family business, and thus are excluded from potentially being taxed at the highest marginal tax rate (known as the tax on split income, or TOSI).

A key requirement is “regular, continuous and substantial” contribution to the business, says Walsh. Family members who fall into these categories won’t be subject to TOSI:

Family members who fall into these categories won’t be subject to TOSI:

  • The business owner’s spouse, provided the owner meaningfully contributed to the business and is aged 65 or over. This aligns with current pension income splitting rules.
  • Adults aged 18 or over who have made a regular, substantial labour contribution – generally an average of at least 20 hours per week – to the business during the year, or during any five previous years. The measure recognizes that post-secondary students may step back from the business during the school year. Hours will be prorated for seasonal businesses.
  • Adults aged 25 or over who own 10% or more of a corporation that earns less than 90% of its income from services, and isn’t a professional corporation. This is consistent with current tax rules concerning capital, and recognizes that some service-based or professional-based businesses often don’t require significant capital to do business. (Service- or professional-based businesses must pass the labour test, above). Business owners have until Dec. 31, 2018, to adjust to this exclusion.
  • People who receive capital gains from qualified small business corporation shares and qualified farm or fishing property,if they wouldn’t be subject to the highest marginal tax rate on the gains under existing rules. This is consistent with the feds’ withdrawal in October of the lifetime capital gains exemption measures.

Family members aged 25 or older who don’t meet any of these exclusions would be subject to a reasonableness test to determine how much income, if any, would be subject to the highest marginal tax rate.

In certain cases, adults aged 18 to 24 who have contributed to a family business with their own capital will be able to use the reasonableness test on the related income.

In a conference call, a spokesperson for Finance Minister Bill Morneau said CRA audits will require proof when it comes to claiming an exemption for a family member.

Wills and the Executor

A will specifies your instructions as to how your assets will be distributed on your death. In the will, you name an executor to act as your personal representative and to deal with all the tax, investment, administrative, and other duties involved in distributing and overseeing your assets as per your instructions.

Some people feel honored to be named as the executor, in that it suggests respect and trust in their abilities. However, most people fail to realize how much responsibility is required, the amount of time and effort that the appointment often.

Here are some of the responsibilities of an executor:

Locate the will of the deceased. Determine that the will is the last will of the deceased.

  • Locate the will of the deceased. Determine that the will is the last will of the deceased.
  • Make the funeral arrangements if necessary. Obtain the death certificate.exe
  • Take control of the assets. Arrange security and insurance if required. Have the assets valued for the date of death.
  • Manage the assets for the estate as the trustee.
  • Dispose of perishable assets.
  • Contact financial institutions to change the name on the accounts to “the estate of”,
  • Open a bank account for the estate.
  • Arrange the probate of the will if applicable.
  • Assess the income tax situation and file any required returns.
  • Pay the bills of the deceased and the estate.
  • Make provision for the immediate needs of the spouse and any dependents.
  • Set aside reserve funds for the payment of estimated debts, taxes, probate fees, and compensation for the executor.
  • Prepare an interim distribution to the beneficiaries if available.

Conflicts often arise between the executors and the heirs. The beneficiaries may be suspicious of the executor because he or she does not have enough knowledge or skills, is insensitive, is too hasty, shows favoritism, etc. Anyone who is appointed as an executor should be aware that these are common situations during emotional times.

An executor requires many skills. One of the most important is the ability to know when outside expertise is required. An executor frequently hires a lawyer, accountant or trust company for assistance. Sometimes, appointing an independent outside party, such as a trust company as the executor may be the best choice, especially when a family conflict can be expected, although it can be costly

Per Diem Meal Allowance

In a recent Technical Interpretation, CRA noted that an employer-provided meal allowance will not be taxable where the following conditions are met:

→ It must be a reasonable amount;

→ The allowance is received to cover expenses while travelling away from the metropolitan area or the municipality where the employer’s establishment is located, at which the employee normally worked or to which the employee normally reported;

→ The travelling is done to perform the duties of an office or employment.

As a general rule, CRA allows an employer to use $17 (including the GST/HST, and PST) per meal as a reasonable over-time meal allowance. The rate is stated in the CRA Guide T4130.

CRA usually considers an allowance to be reasonable if it covers the out-of-pocket expenses incurred by an employee who is travelling for employment purposes.

What to do if the Canada Revenue Agency reviews your tax return

If the Canada Revenue Agency (CRA) tells you it’s reviewing one or more of your tax returns, don’t panic! In most cases, it’s simply a routine check.

The first thing you should know is a review is not an audit.  If the CRA tells you that your tax return is being reviewed, it is simply to ensure that the amounts you have claimed are reported accurately. It might also be because some documents are required to support your claim. It’s important to respond promptly to the information request or to call the number shown on the letter as soon as possible since there is a time limit involved.

Why is the CRA reviewing your tax return?

The Canadian tax system is based on self-assessment. You don’t usually need to include your documents when you file your tax return. However, from time to time, the CRA will contact individuals under one of its review programs. This is part of the CRA’s efforts to ensure the integrity of the tax system. Make sure you give the CRA the requested documents as soon as possible so it can do its review quickly and easily.

How long do you have to keep your records?

Keep all your tax documents for at least six years from the date you file your tax return. If you claimed expenses, deductions, or tax credits, make sure you keep all your receipts and related documents in case the CRA asks to see them.

What will happen after your review?

The CRA will let you know the result of your review in writing, either in a letter or on a notice of assessment or reassessment.

 

 

Newcomer to Canada? What you need to know to do your taxes

If you are a newcomer to Canada for all or part of a tax year (January 1 to December 31), you need to do your taxes (file an income tax and benefit return) if you receive or want to receive certain benefits and credits, want to claim a refund, or have to pay tax.

Important facts

You become a resident of Canada for income tax purposes when you establish significant residential and social ties in Canada. Examples include having a home, or a spouse or common-law partner in Canada. You usually establish these ties the date you arrive in Canada.

You should still do your taxes even if you have little or no income to report. By filing an income tax and benefit return, you might be able to get benefits and credits such as the goods and services tax credit and the Canada child benefit. Your spouse or common-law partner also has to do their taxes each year for you to receive benefit and credit payments that you may be eligible to receive.

Remember you need to file on time to make sure there are no interruptions to your Canada child benefit, GST/HST credit, and child disability benefit payment!

 

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